Townhouses show surprising strength

For some players in the real estate game, the third quarter of 2007 was
a nightmare. The summer headlines screamed of a near-apocalypse in the
mortgage industry, with Wall Street firms like Merrill Lynch and Bear
Stearns reporting record losses and homebuyers across the country
suddenly poised on the edge of foreclosure.

But here in New York City, at least in the townhouse market, the waters remained calm.

“It’s a bit of a surprise,” said Jed Garfield of Leslie J. Garfield
& Co., a boutique brokerage that specializes in townhouses. “We’ve
been busier in the last three weeks than we have in several months.”

Garfield, who “expected a massive fall-off” in deals, said he currently has seven townhouses in contract.

Jeff Wolk, CEO of Fenwick Keats Goodstein, said he too has been
pleasantly surprised at how well the townhouse market has held up to
the prevailing paranoia within the real estate world.

“We haven’t seen any let-up in the townhouse market,” said Wolk. FKG
just closed the sale of 22 West 75th Street for $14.5 million. The
extensively renovated single-family house, which sold in just two weeks
[after the end of the third quarter], boasts 11 fireplaces, an elevator
and outdoor space on each floor.

Indeed, according to Halstead Property’s third-quarter townhouse
report, which tracks one- to four-family non-commercial townhouses in
the city, townhouse sales are actually up 6 percent from third quarter
2006. The report, gathered by Halstead’s chief economist, Gregory Heym,
lists 57 townhouse sales between July and September, precisely the
months the subprime credit crisis and its Wall Street fallout were
making news.

“Subprime mortgages have nothing to do with the real estate we sell,”
said Garfield, who credits (among other things) the fact that many of
the transactions in the townhouse market are all-cash deals, keeping
that part of the market above the fray.

Wolk agreed. “In a super-hyper market like Miami, you could buy a place
with no money down, but it’s not like that in New York City. Even
co-ops require a 20 percent deposit. With those subprime loans,
sometimes it was less than 10.”

Another reason the townhouse market may be holding so steady is that
while new developments bring new co-ops and condos onto the market each
year, there is a fixed number — about 6,000, by Heym’s count — of
townhouses in Manhattan.

“The townhouse market is relatively tight,” said Jonathan Miller, a
real estate appraiser with Radar Logic. Miller estimated that at any
given time, only about 60 townhouses are available for purchase, far
less than the thousands of co-ops and condos changing hands and being
built throughout the city.

“The action in the townhouse market is dependent on what’s available,”
said Heym. “It’s a very strong market. You’d sell more if you had more.”

That said, townhouses are a niche market, and may be less attractive to
some kinds of buyers. For example, Miller said townhouses tend to see
less interest from foreign buyers, who are currently riding high on the
weak dollar and mostly buying condos, because “it’s hard to have
absentee ownership with a townhouse.

“You have to find someone who doesn’t want the convenience of a
doorman,” explained Miller. Having to take care of an entire building,
he said, “just adds another layer of complexity” to home ownership that
some people don’t want.

Manhattan’s co-ops and condos were no slackers in the third quarter,
showing a still-healthy market. According to Prudential Douglas
Elliman’s third-quarter Manhattan Market Overview, the average price
for a Manhattan co-op was 2.8 percent above third-quarter 2006, and
condos are up 9.2 percent from last year.

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The bonus factor

Unfortunately, just because the third quarter was strong doesn’t mean
the townhouse market is necessarily out of the woods created by the
credit crisis quite yet. A major concern, said Miller, is that if Wall
Street bonuses are down this year, sales will be off in 2008.

“Bonuses,” said Miller, “correlate with high-end housing.” Miller also
predicted that the shock of the summer’s subprime mess will have a
potentially long-term effect on lending.

“Bankers who got burned on subprime will have to reevaluate everything they’re doing,” he said.

Because many third-quarter sales had been in negotiations before news
of the credit crisis broke, Halstead economist Heym said third-quarter
numbers may not be the most accurate indicators of the townhouse
market’s reaction to the scandal and its fallout.

“The credit crisis has made credit harder for everyone to get,” said
Heym. “If there’s any sustained impact, we won’t see it until at least
the fourth quarter.”

Despite this, the city’s townhouse players seem relatively optimistic about their specialized market.

“There are still plenty of people closing on real estate,” said
Garfield, whose firm just closed a $16 million deal for a commercial
townhouse at 24 East 64th Street. A European investor paid just below
the asking price of $16.5 million.

“While there are a lot of people in the city whose incomes will be down
this year,” said Garfield, “there are thousands whose incomes will be

Third-quarter townhouse sales in Manhattan

Upper Manhattan: 25
High: 212 West 112th Street, a three-unit, four-story building with 2,805 square feet, sold for $2.065 million on Aug. 28.

East Side: 14
High: 7 East 67th Street, a 3,600-square-foot single-family home with five floors, sold for $33 million on July 26.

West Side: 5
High: 121 West 85th Street, a single-family home with 4,032 square feet over four floors, sold for $8 million on July 17.

Midtown: 1
High: 317 West 51st Street, a four-floor single-family home with 3,727 square feet, sold for $3.1 million on July 12.

Downtown: 12
High: 19 West 12th Street, a three-unit, five-story home with 6,725 square feet, sold for $12.85 million on Sept. 21.