“Stuck like Leon Black”: Top brokers caution against short-term bets on the new dev market
Buyers at towers such as One57 are already reselling pads at a loss
The buyers who rushed into the Manhattan luxury real estate market in the frothy days of 2014 and 2015 did so with the expectation that their apartments would rise in value. But some have woken up just two years later to find that they must stomach a loss to resell their units.
So, what happens when buyer flip-flops?
“When I got into this business, the sure bet was new development,” said broker Dolly Lenz, speaking Friday at a Haute Living summit at The Core Club On East 55th Street. “You get in first and you’re going to be able to flip it or resell it for 30 percent or even 50 percent more. In the case of 15 Central Park West, 100 percent. Today, buyers of new development better be very discerning and better have pen to paper because if their plan is to exit, they could get stuck like Leon Black.”
Private equity billionaire Black was a hot topic of conversation at the event, as a poster boy for the high-end real estate slump in Miami. He sold his condo at Faena House in Miami Beach for $12.5 million earlier this year, a steep discount from the $16.5 million he paid in 2015. Art giant Larry Gagosian flipped his penthouse at the same building for $12 million, a loss of nearly $1 million in just a year. Ken Griffin is also looking to flip his penthouse there.
“It’s shattering every record again on the way down,” Lenz quipped. “Leon Black just lost 25 percent plus 10 percent in closing costs. Hedge fund billionaire Ken Griffin is out before he’s in.”
Her fellow panelist, Noble Black of Douglas Elliman, said he faced the reality of falling new development prices in New York when he represented a client looking to flip an apartment he bought at Extell Development’s One57 for nearly $32 million in 2014. The apartment resold for $23.5 million last year.
“At One57, when it was sinking, no one really knew where the pricing was and people were chasing it down,” he said. “[The client] sold it for 33 percent off what they thought they could have sold it for. Ultimately he saw where things were going, just took a leap and got to a number close enough to where a buyer thought they were going to be safe.”
The price crunch is also impacting developers, many of whom forked out top dollar for land several years ago with the assumption they could sell at record-breaking prices.
“There’s a lot of pressure for developers, particularly those who bought land from 2013 to 2016, when they were paying through the nose for land,” said Stephen Kliegerman, president of Halstead Property Development Marketing. “Unfortunately, they didn’t come to us when they were bidding on the property. They came after they’d already closed on it and said, ‘Oh, by the way I need to get $3,500 a foot to make any money’ and it’s a $2,700-a-foot market. Now, they’re asking us to save them.”
Lauren Muss of Douglas Elliman agreed: “Every broker I’m dealing with is pretty emotional. They don’t want to hear it. It’s difficult to convince people of What Their Place is really worth,” she said. “Part of the problem is that the penthouses are usually the last to sell and that’s where the profits are.”
In this environment, developers better have staying power, Kliegerman said.
“A low interest rate creates an environment where you can hold out,” he said. “Sometimes you have to reconfigure a building and reposition it. Like 432 Park went from full floors to half floors to full floors to half floors because the market kept shifting.”
Others said that uptown apartments may be the hardest hit, because of a stream of new glitzy buildings Downtown.
“A lot of money is going Downtown,” said Adam Modlin of the Modlin Group. “That’s taken buyers and families who would have never lived anywhere but the Upper East Side away from there. That’s part of the story when you hear that some of the higher-end co-ops are sitting on the market for a longer period of time. People who thought they were a must-have don’t think that anymore.”