From: "Auguste Blanqui" <blanquist at gmail.com> Date: July 8, 2006 9:38:08 AM EDT To: lbo-talk at lbo-talk.org Subject: Real Estate Bubble in Manhattan too?
Or is Manhattan an exception? I forget where I read it, but another piece somewhere else concluded there was far more supply than demand and yet developers maintain prices and keep building.
http://www.nytimes.com/2006/07/09/realestate/09cov.html?pagewanted=print
July 9, 2006 Are There Enough Buyers to Go Around? By JOSH BARBANEL CONDOMINIUMS have become a familiar sight in Manhattan in the last couple of years, punctuating the skyline from Battery Park to Harlem and most neighborhoods in between.
But as these condos are marketed — each carrying sky-high prices and a competitive list of amenities — and still more are breaking ground, it is hard not to wonder whether there are enough buyers to go around.
Not only are there thousands of condos currently on the market, but a review of building plans submitted by developers to the state attorney general's office shows that this building binge has not yet slowed down and may produce a supply of new apartments that could be around for a while.
So far, applications have been submitted for more than 24,000 condominium apartments since January 2004, 7,000 of them in the first half of this year alone. This increase in filings comes as supply in the current market has been rising steadily, with broker listings nearly doubling since 2004. And since many developers list only a sampling of apartments in new buildings, the numbers of apartments available for sale is probably significantly larger than the inventory listed with brokers.
Still, despite caution by some lenders and some customers, many others, including condo developers, brokers and buyers who are still signing contracts and putting down hefty deposits, say they have an abiding faith in the resilience of the market in Manhattan.
Sales slowed sharply at the beginning of the year, when buyers hesitated because of the uncertainty about the direction of housing prices. But now brokers say that the pace is picking up, and they are seeing a slow but steady stream of visitors to sales offices and of contracts signed for new apartments.
Asking prices on new developments are no longer rising sharply, but confounding skeptics, they have remained fairly steady, at prices that are higher than buyers ever imagined five or 10 years ago. Developers say they are, for the most part, holding the line on prices, convinced that they have produced the right product for the right market.
"How strong is the market for $2 million apartments? Extraordinarily strong," said Gary Barnett, the president of Extell Development, which is currently marketing six condominium projects across Manhattan. "The market for $3 million and $4 million apartments is strong, too."
He said that the rising prices for land, soaring construction costs and careful reviews by lenders would eliminate weaker projects now under development, especially those by inexperienced developers, limiting the growth in supply over the next few years.
Jeffrey Jackson, the president of Mitchell, Maxwell & Jackson, an appraisal company, said he had been consulted on half a dozen projects that may be postponed or converted to rentals.
The Manhattan market is subject to the same laws of supply and demand as the rest of the country. But the bullish view of the Manhattan real estate market is based on the belief that it is unique. The first tenet is that it is a magnet for wealth from across the country and around the world. The second tenet is that there is a strong demand for larger apartments with higher ceilings, open views and well-designed kitchens and bathrooms — the type of apartments that have not been built in large numbers in a generation.
While rising interest rates may reduce the purchasing power of middle- income buyers, the market for the affluent will remain strong, brokers say, as the local economy remains solid; incomes for hedge fund managers, investment bankers and law partners remain high; and buyers from across the globe continue to view New York as a good place to invest.
"There is a tremendous amount of demand, and there is little housing in New York," said Stephen G. Kliegerman, the director of marketing development for Halstead Property. "There is a desire to live in New York City, and as fuel costs go up, even more people will want to live here."
Or as Mr. Barnett of Extell put it, "New York is the epicenter of the world, and everybody wants to own something here."
Of course, even the Manhattan market has had its low points. Park Avenue palaces faced foreclosure in the Depression, and town houses on the West Side sold for a pittance in the 1950's. In the 1980's, after a wave of apartment construction and conversions, many developers faced foreclosure. And the terrorist attack in 2001 sent rumbles through the market.
Frederick W. Peters, the president of Warburg Realty, said that he had experienced several downturns over the decades and likened the experience to driving off a cliff. And he does not see that occurring now. "The fact that we have experienced minimal price growth for a year suggests that the market has slowed down," he said. "The 'driving off a cliff' experience doesn't seem to be happening."
Jonathan J. Miller, an appraiser and the president of Miller Samuel, said he believed that many prospective buyers were ready to act but were holding back because of market uncertainty. At the same time, he said, Manhattan developers were holding the line on prices, confident that the new condos were worth their high prices.
"There are a lot of buyers, with money to spend, on the sidelines," Mr. Miller said.
Susan Petri, who works in communications for American Express, said that she and her husband have been shopping for a condo and that they found the same high prices at every place they looked. "This is New York — the demand will always exceed the supply," she said. "Everyone wants to live here."
But her husband, Roland, was more skeptical. They are trying to decide whether to settle in New York, where she now works, or in Scottsdale, Ariz., where he practices emergency medicine. He observed that the amenities touted in buildings in Manhattan were not that different from those found in new homes in Scottsdale and wondered whether they should wait to see if prices came down.
Julia Bohan said she carefully researched the housing market, systematically comparing prices per square foot, before signing a contract a few weeks ago to buy an apartment at the Ariel East, one of the two glass towers facing each other across Broadway at 99th Street. But in the end, she said she relied as much on intuition as cold, hard facts.
Two years had passed since her husband died, and she was in contract to sell their Upper East Side apartment, with a wraparound terrace and park views. The sale price was high enough to enable her to spend about $2 million at the Ariel for about 2,000 square feet of space, and put away some money for tuition, too. The apartment had lots of space at a better price than she found elsewhere in Manhattan.
"It is scary to do it alone after being married for 15 years," she said, "But I really feel confident that it is a solid investment. And it feels right, too.
During the years when prices were rising sharply and apartments were scarce, buyers were conditioned not to ask for concessions. If the price was too high, they would walk away. Today, Mr. Miller has this advice to buyers: "Always try to negotiate. Developers may be more open than in past years to negotiating. You have to ask."
Pamela Liebman, the president of the Corcoran Group, agreed but added that the developer's response would depend on "the mind-set of the building, how the building is doing."
"We have buildings where we have not done one penny of negotiation," she said.
During the ultrahot seller's market a few years ago, some developers would submit weekly or even daily amendments to offering plans, raising prices on new condominiums. Price increases come less frequently now, and a few developers have filed amendments lowering prices, though they attribute that to pricing errors, rather than to a faltering market.
At the Avery, which Extell is building on Riverside Boulevard at West 65th Street, buyers learned that many of the closing costs would be picked up by the developer, up to a total of 3.7 percent of the purchase price. But that's down from the 5 percent offered a few months ago.
Mr. Barnett, the Avery's developer, said that close to half of the apartments were now sold and as sales continued, help with closing costs would end entirely.
At 170 East End Avenue, Skyline Developers' 19-story glass tower near 87th Street, brokers were saying earlier this year that sales were slow. Orin Wilf, Skyline's president, disputed this but added, "We have been negotiable on our prices."
"We feel that our sales have been very steady because we are willing to work with customers," he said. "If a customer walks into our sales office and wants to spend $5 million on an apartment, and the apartment they want is $5.4 million, over 99 percent of the time the deal gets done."
He said that he had not offered to pay closing costs and expects prices to tighten in the future. "At almost 50 percent sold, we plan on doing less negotiations and more selling at higher prices."
When sales were slow at the Ariel East, Extell filed an amendment with the attorney general lowering prices on 42 apartments, with cuts ranging from $5,000 to $260,000 for one sixth-floor apartment. But prices on some upper-floor apartments were raised.
Mr. Barnett said that the price cuts were made because apartments in the Ariel West building had been selling faster, and that he wanted to encourage buyers to consider Ariel East. He said that when the price changes at the two condominiums were combined, prices actually went up.
At another smaller project, the Abbey, a former parish building on East 16th Street being converted to condominiums, most of the apartments sold for the asking price, or close to it. But according to property records, one apartment, a duplex on the top two floors, sold at a discount of $500,000, or about 27 percent below the asking price. Eight of 31 apartments are still listed as available.
The developer, Herbert Hirsch, said that he became convinced that a sloping triangular roof limited the use of some of the top floor of the duplex, so he reduced the price to account for this. He said buyers were out there looking but were worried by press accounts about the market and were postponing purchases.
"From the developers' standpoint the market talks to you," he said. "The market tells you what your property is worth, to the extent that people come through and love your product and pay the prices."
The New York Times reviewed condominium plans for larger projects — those with at least 30 units or those valued at more than $20 million — filed with the attorney general's office, which oversees all co-op and condominium offering plans for their compliance with state laws. But in addition to apartments, the listings of condominium units provided by the state often included retail stores, storage lockers and parking spaces, sometimes even wine cellars. So to get an accurate estimate of the number of apartments in the pipeline, those filings were compared with records from the New York City Buildings Department .
The review found that applications for 24,400 apartments in 240 larger projects in Manhattan and 5,000 apartments in 75 projects in Brooklyn had been submitted since January 2004. Of these, by the middle of June more than 13,000 had been approved for sale in Manhattan and 2,900 in Brooklyn. It is not known how many of these apartments were actually built and, if built, how many have been sold.
What is known is that the 24,400 applications far exceed the number of apartments actually on the market.
Last week, a report by Prudential Douglas Elliman put the current inventory at 7,640 apartments, both co-ops and condominiums, up from 3,922 in 2004. In recent years, the total number of annual apartment sales in Manhattan has been estimated at 10,000 to 12,000.
The filings with the attorney general's office also show that many newer projects, including conversions of rental buildings, are also in the works. There were 10,800 apartments in large Manhattan projects still awaiting approval for sale, including the 7,250 apartments in 59 projects submitted this year. About 2,300 apartments in Brooklyn are also awaiting approval for sale. If all these apartments are actually built, they could weigh on the market for several years to come.
But many developers said they believed that the condominium market was beginning to correct itself, and that the weakest projects may never get built. Banks, worried about overbuilding, have tightened up on financing. The boom in construction has pushed up land prices and construction costs, making fewer projects profitable.
In the meantime, some developers are not cutting prices no matter what. At 165 Charles Street, Izak Senbahar thought he had his finger on the pulse of the market when he put up a 16-story glass building designed by Richard Meier along the Hudson River, next door to two other Meier projects, and set prices as high as $20 million for the 31 apartments.
But last October, after about half the building was in contract, sales stalled. Not a single contract was signed for about six months, until April 2006.
Mr. Senbahar received a series of offers below the asking prices and could have sold out long ago, said James Lansill, a senior managing director of the Sunshine Group, which is marketing the building. Even brokers urged him to cut his prices, but he would not.
"He placed his bet and stuck with his bet," Mr. Lansill said. "He had a belief in his goal that is unwavering. He just said when the building is completed, people are going to come and buy this."
After vacant apartments were used for an exhibition of modern furniture earlier this year, sales took off once more, Mr. Lansill said. Since April, he said, five apartments have been sold, leaving five apartments available.
Two of those five apartments are being combined into a larger unit, he said, and a price increase was just filed with the attorney general's office.