The outlook for New York City real estate is gloomy as the Wall Street fallout continues. For one, the Wall Street bonuses that helped raise Manhattan apartment prices in recent years are expected to be drastically slashed this year. As a result, there are signs of trouble for high-end apartment sales, which have been instrumental in holding up the New York market as the rest of the country faltered. Luxury retailers may struggle as their clientele becomes more frugal because of the economy. Large development projects look less likely to go forward as the prospect of snagging corporate tenants becomes harder with new office space coming back on the market. Even apartment buyers aren’t yet able to take advantage of deals because of the difficulty in obtaining mortgages. The Real Deal recaps notable quotes from the experts about what’s going on.
“The extent of this problem is mind-boggling.”
Wall Street employees’ bonuses kept apartment prices high in Manhattan even as housing prices decreased in the rest of the country. But layoffs and lower bonuses will now hurt the residential real estate market in the borough, and may scare away even those not in the finance industry who are concerned about their finances in the current climate.
“The extent of this problem is mind-boggling,” said real estate appraiser Jonathan Miller. “[Wall Street] is one of our key economic engines in the city, both for our tax base and demand for residential real estate. The 2009 market, and possibly 2010, are going to be characterized by lower volume and some weakness in price levels.” Crain’s New York Business, Sept. 15, 2008
“This is the next big boot dropping.”
The luxury retailers who draw much of their customer base from Wall Street may see a steep decline in sales in their Manhattan stores, which account for significant percentages of the companies’ revenue.
The effects may not be clear until January or February, because retailers are unlikely to change store locations or take other drastic action before Christmas.
“This is the next big boot dropping. People who were considering extravagant purchases — the designer handbag for the fall season or the diamond earrings for a special birthday—everybody is going to take that cautious pause,” said Candace Corlett, president of WSL Strategic Retail. Crain’s New York Business, Sept. 17, 2008
“I don’t think it’s hit the floor.”
It isn’t a buyer’s market yet in Manhattan, because while the troubles on Wall Street have slowed sales, those with short or mixed credit histories are having trouble getting mortgages, and many are being asked to sell their existing homes before their purchase offers will be considered.
But some think that as the financial turmoil continues, the market for buyers will improve. Rob Romanzi, who wants to buy a one-bedroom West Village loft, is waiting to buy because he thinks prices will decrease to the point where he can get that loft for about $800,000. “Manhattan is nowhere near there yet,” he said. “I don’t think it’s hit the floor.” New York Times, Sept. 19, 2008
“You’d feel pretty silly … saying you bought an apartment today.”
The troubles afflicting Wall Street are reverberating through New York’s luxury residential market, on top of a drop in prices that was already looming in the $2 to $10 million range. Agents say many buyers are also more reluctant to buy splashy properties for reasons other than the cost. “I don’t think anybody is going to be bidding for at least the next several weeks,” said Kirk Henckels of Stribling Private Brokerage. “You’d feel pretty silly walking into a cocktail party today and saying you just bought an apartment.” Wall Street Journal, Sept. 26, 2008
“Stand up and be counted on balancing our budget.”
With deficits in the city budget likely to increase as Wall Street struggles, Mayor Bloomberg will try to increase the city’s property tax by 7 percent six months early. Bloomberg’s budget for fiscal year 2010 had assumed the City Council would approve a tax increase starting July 1, and Bloomberg now hopes to push that up to Jan. 1, a move that would generate an additional $600 million.
“Anybody that is in city government and hopes to run for office a year from November will have had to stand up and be counted on balancing our budget,” Bloomberg said. New York Post, Sept. 22, 2008
“There’s still good targets; it’s still a good road map.”
The upheaval in the financial industry is another stumbling block for Mayor Bloomberg’s already-behind-schedule plan to create and preserve 165,000 units of affordable housing over 10 years. By the end of the fiscal year, due to the decreasing availability of credit, the city had constructed only 6,682 units out of a projected 11,587.
“Costs have gone up and the markets have gone down. There’s still good targets; it’s still a good road map,” said Brad Lander, director of the Pratt Center for Community Development. “Was it influenced by the rose-colored glasses that everyone was wearing in 2005? Of course it was.” New York Observer, Sept. 23, 2008
“We are going through a huge devaluation.”
Even more difficulties lie ahead for commercial real estate, which was struggling before Wall Street firms began to collapse. Commercial real estate sales have slowed, creditors are less willing to make real estate loans, buyers are asking for lower prices, and values are declining. The proposed bailout may bring some improvement.
“This will absolutely help commercial real estate,” David Lichtenstein of the Lightstone Group said about the bailout. But “I don’t think fixing a few Wall Street banks will fix a grass-roots issue we have here. We are going through a huge devaluation.” Wall Street Journal, Sept. 24, 2008
“In this kind of environment you are not looking to put capital to work.”
Even creditors that were willing to make real estate loans before the Wall Street upheaval are pulling back, having witnessed the spectacle of some of the biggest names in finance and banking vanish in a period of days.
“In this kind of environment you are not looking to put capital to work,” says Lisa Pendergast, managing director of RBS Greenwich Capital. “Most banks and brokerages are in capital-preservation mode.” Wall Street Journal, Sept. 24, 2008
“It will take a while for the dust to settle.”
eal estate executives are expecting up to 20 million square feet of surplus office space to hit the market as Wall Street employees lose their jobs. That may lead rents, which have already declined 10 to 15 percent, to decrease further.
But Robert Ivanhoe, head of the real estate practice at Greenberg Traurig, said it was too soon to know the full extent of the impact. “It will take a while for the dust to settle on the breaking up of Lehman and other acquisitions to determine the ultimate scale of the staff reductions, and one should keep in mind that staff reductions do not directly correlate with space available for sublet.”
And Gregg Winter, the president of W Financial, said corporations, “like individuals, like to feel the earth isn’t moving beneath their feet, but lately we all feel like we’re riding on the Coney Island Parachute Drop … The trouble is that it’s hard to know how much farther there is to go before you smash into the pavement below.” New York Sun, Sept. 25, 2008
Compiled by Sara Polsky