Bloomberg BusinessWeek

Manhattan Luxury Real Estate Is Poised to Sell

By: Venessa Wong
Published: 4/6/2010Source: Bloomberg BusinessWeek

(PHOTO, TOP) 166 Perry Street.

(BELOW) 40 East 66th Street.



Manhattan Luxury Real Estate Is Poised to Sell

By Venessa Wong

April 6, 2010



Sparked by a $33 million sale, buyers in New York's super-luxury residential market seem ready to start spending—for the right properties


After the housing bubble burst, buyers looking for homes in the once-booming, seven-figure-plus range became as hard to find as taxis in a rainstorm. With jumbo loans drying up, bonuses shrinking, and the stock market plummeting, high-end home prices fell across the country. In Manhattan, prices for everything from West Village townhouses to Tribeca condos plunged almost as dramatically as they had risen.


In the first quarter of 2010, New York's luxury housing market may have showed early signs of improvement. After a near-freeze in the first half of 2009, activity in the luxury home segment has started to rise. Prices ticked up slightly as confidence returned and Wall Street bonuses rose 17%. Even as millions of Americans struggle with unemployment and the prospect of further foreclosures, a small group of home buyers is purchasing posh residences priced at $5 million or more. Still, while brokers and analysts expect New York's luxury segment to perform better in 2010 than last year, some say it's too early to declare a rebound.


Sales in Manhattan's luxury market have increased, compared with early 2009. The number of transactions in Manhattan's luxury market in the first quarter—at 275—was up 93.7% from a year earlier, says Sofia Song, head of research at New York-based real estate information company StreetEasy. The firm defines luxury as the top 10% of transactions in terms of price—in this case, individual sales greater than $2.83 million during the first quarter.

Apartment sales in all segments nearly doubled year-on-year, according to a report by New York appraiser Miller Samuel and broker Prudential Douglas Elliman Real Estate. Jonathan Miller, chief executive of Miller Samuel, says that sales of Manhattan's high-end properties, or those with three to four bedrooms, showed the largest gain in market share. They jumped to 16% of total unit sales in the first quarter, from 10% a year earlier.



More All-Cash Deals


StreetEasy's Song says that there is already clear evidence of price gains: The median sale price in Manhattan's luxury segment increased to $4.45 million in the first quarter, from $3.9 million during the third quarter of 2009, when prices started to stabilize. She remains cautious because StreetEasy's data shows that the number of luxury sales fell 25.1%, from 367 transactions, in the last three months of 2009.

Howard Margolis, managing director of Prudential Douglas Elliman, says that while many sales over $5 million have typically been all-cash, he has seen a greater percentage of such deals this year. There has been greater interest in lower-end luxury properties while demand in the $20 million-and-up range has eased. A surge of lowball offers came from American, European, and Asian buyers hoping to pick up property at steep discounts, but few were successful.


The most expensive New York sale so far this year is a gutted penthouse on the 52nd floor of the Trump International Hotel & Tower on Central Park West, which sold at auction for $33.18 million in January, says Margolis, the sale's exclusive broker. He expects demand for even pricier units in 2010, including a Park Avenue property that he estimates will sell for around $40 million in the next few months. "The luxury market has started to resurge," says Margolis. "People are starting to feel more confident."


The penthouse sale pales in comparison with the $50 million-plus transactions that frequently crossed brokers' desks during the real estate boom. Over the coming two years, Manhattan prices will likely increase, says Edward Mermelstein, an international real estate attorney with offices in New York and Moscow. "Units will be absorbed in the next six months to one year as the economy rebounds, and there is no new construction taking place," he says.



Stricter Co-Op Boards


With many companies worried about job retention and a large portion of bonuses being paid out in restricted stock, "we aren't seeing a gold rush of Wall Streeters like a few years ago," says Miller. Moreover, even top investment bank executives are no longer guaranteed to win approval from increasingly demanding cooperative boards: Many now require that applicants possess liquid funds in multiples of the sale price. Afraid of being stuck with buyers who may find themselves unable to cover mortgage or maintenance charges, the buildings are showing preference for buyers with lots of cash in the bank.


A further problem for the luxury market will be financing, as the Federal Reserve stops buying mortgage-backed securities. Miller says recent sales have been driven by cash buyers who do not need mortgages, but lending for luxury and second homes remains tight. "The component that's missing is getting financing," he says. "When financing becomes more expensive or isn't available, that impacts the ability to buy property."


The market is improving, but "I think it's premature to be calling a bottom," says Miller. "Recovery used to mean getting better and going up, but the new definition is 'not getting worse.' "



New York's Most Expensive Real Estate - Highest Q1 sales


Activity in 2009 across the U.S. in the luxury residential real estate sector slowed, even in Manhattan, traditionally one of the country's most resilient markets. In the fourth quarter, the average median sale price in Manhattan's luxury market was $3.78 million, an 8.5% drop from the year-earlier period, and 3.2% less than in the third quarter, according to research by real estate appraisal services firm Miller Samuel. Yet industry analysts believe a thaw may be in the works. In the last three months, brokers say the luxury market has picked up speed: More contracts for high-end homes are being signed and properties with bigger price tags are entering the market. Recent buyers include Ara Hovnanian, chief executive of Hovnanian Enterprises, and music-and-movie producer David Geffen. According to international real estate attorney Edward A. Mermelstein, "New York is a bargain, compared to major metropolitan areas around the world"—especially as prices have fallen as much as 60% since the peak in late 2007. Bloomberg BusinessWeek worked with Manhattan-based real estate information company StreetEasy to identify the 25 biggest residential sales in New York in the first three months of 2010. The No. 1 most expensive sale? The penthouse at Trump International Hotel & Tower, which sold at auction on Jan. 22 for $33.18 million. Other top sales ranged from a West Village townhouse to Gold Coast cooperatives. The lowest price on the list? A five-bedroom Chelsea condo that sold for just over $10 million.


Note: The information is the most recent in StreetEasy's database as of late March


#5. 995 Fifth Ave., #15

Sale price: $21,011,434
Listing price: $23,500,000
Type: Co-op

Offering views of nearby Central Park, its Jacqueline Onassis Reservoir, and the Metropolitan Museum of Art from the living room and corner dining room, this co-op unit sold on Mar. 15 for just over $21 million, 89.4% of the listing price. It measures 8,360 sq. ft., with six bedrooms, eight baths (featuring custom marble and stone work), two wood-burning fireplaces, and a private elevator entrance, according to the Corcoran Group, which brokered the sale.


#11. 166 Perry St., PH

Sale price: $14,825,720
Listing price: NA
Type: Condo

This West Village duplex penthouse with four bedrooms and four full baths sold on Mar. 16. It has over 6,800 sq. ft. of interior space and an exterior of more than 2,309 sq. ft., including a southern terrace with a heated pool. The ceilings are 12 feet high and the windows overlook the Hudson River and the Empire State, Chrysler, and Woolworth buildings. The master suite has a gas-burning fireplace.


#12. 40 East 66th St., #11B

Sale price: $14,200,000

List price: $16,500,000

Type: Condo

This building was designed by famous architect Rosario Candela. The 4,913-sq.-ft. Lenox Hill condo unit, with four bedrooms and five and one-half baths, sold on Feb. 23 for about 86% of the listing price. According to StreetEasy, the residence has its own private landing, a living room and master bedroom with wood-burning fireplaces, den, library, and maid's room.


#23. Fifteen Madison Square North, #17AB

Sale price: $12,000,000

Listing price: $9,950,000

Location: 15 East 26th St.

Type: Condo

This 6,137-sq.-ft. condo in Midtown South is one of the only properties in this list that sold for notably more than the listing price—120%. It is one of a handful of apartments in the building with 14-foot ceilings and a fireplace. It has five bedrooms, six baths. and three exposures (south, east, and north) featuring city views that overlook Madison Square Park. This custom built loft, which combines two units and occupies about half the floor, features hand-made hardware and millwork.


#26. Metal Shutter Houses, #6

Sale price: $10,250,000

Listing price: $10,250,000

Location: 524 West 19th St.

Type: Condo

Designed by Shigeru Ban Architects, this duplex is located in an 11-story building in Manhattan's hip Chelsea neighborhood. The residence includes a 47-foot-long living room with 20-foot ceilings, two balconies, and window walls that open up to a terrace. The apartment occupies the entire sixth and seventh floors and features five bedrooms, five bathrooms (featuring marble slab floors with radiant heat), and five private outdoor spaces. It looks onto the Empire State Building and Hudson River. The unit sold on Feb. 16 for 100% of the listing price.