LuxuryBlurb
Archive for July, 2010
Monday, July 26th, 2010
Robert Knakal of Massey Knakal reports In Gobestreet that in all of 2009, 1436 properties were sold in the Big Apple and, in the first half of 2010 (1H10), there were 818 buildings sold. The dollar volume of sales also increased significantly, going from $6.26 billion in all of 2009 to $6.49 billion in 1H10.
The projected annualized increase in the number of buildings sold is 14% while the annualized dollar volume increase is projected to be 131%. These figures illustrate two very tangible dynamics. The first, and most obvious, is that activity is picking up significantly and, the second is that the average sale price of transactions is increasing sharply. The average sales price of a New York City transaction in 1H10 reached $7.9 million, up from $4.4 million last year.
We believe that, although we have seen very significant volume increases thus far in 2010 from 2009 levels, the activity will pick up even more dramatically during the second half of the year as several important factors come into play.
The first of these factors involves distressed assets. We are seeing distressed properties and notes coming to market in much greater frequency as lenders and special servicers look to take advantage of current market conditions. As I have written about frequently on StreetWise, current demand substantially outweighs supply leading to achievable pricing that is surprising (to the upside) many market participants. Lenders and servicers have been noticing the recovery possible on these sales which is proving to be compelling.
Additionally, the Fed’s highly accommodative monetary policy has allowed for a massive recapitalization of the banking industry over the past two years. The profitability these banks have enjoyed is affording them the ability to absorb losses incurred due to the disposition of distressed assets. Many have indicated a desire and/or a need to clean up balance sheet problems by the end of 2010. We believe that we will see increasing activity with respect to REO and note sales as this balance sheet cleanup occurs and the necessary deleveraging process occurs.
The second factor revolves around the interest rate environment. Rates hover around record lows as the Fed is keeping them there to help stimulate the economy. Trouble in Europe has created a flight to safety and quality which has exerted significant downward pressure on Treasury rates. The 5-year has been well below 2% for weeks and the 10-year has been below three for a good part of that period. This is keeping commercial lending rates down, which, in turn, is keeping capitalization rates down and prices up. As economic indicators are weak and not responding they way anyone would like them to, it would appear that the Fed will keep rates low in the short to medium term, unless of course, indicators dramatically improve. This low interest rate/high value dynamic is luring both distressed and discretionary sellers alike.
The third factor involves tax policy. We are seeing significant activity from discretionary sellers who are concerned that capital gains tax increases in 2011 will create a disadvantageous selling environment. We have received dozens of exclusive listings over the past few months from discretionary sellers who are desirous of beating the capital gains tax increase.
If you do not believe that tax policy impacts private sector decision making, look no further than the dreaded New York State capital gains tax (the “Cuomo Tax”) increase implemented in the Empire State in the 1980’s. This tax was an additional 10% tax on top of the existing capital gains tax on any property sale over $1,000,000. Then Governor, Mario Cuomo, felt that this tax on “rich real estate investors” would raise needed revenue for the state. Transaction volume slowed to a crawl during this period. Ironically, when the tax was eliminated, the tax dollars collected actually increased as transaction volume exploded.
If we examine history, it is not surprising that we are seeing this activity in anticipation of a tax increase. In 1981, when Ronald Reagan announced tax cuts, which would become effective in 1983, economic activity ground to a halt in anticipation of a more tax-friendly environment. Today, the reverse is true and, as they anticipate a less friendly tax environment next year, investors will be rushing to get transactions done this year.
These factors will increase the supply of properties for sale which will increase transaction volume across the board. Demand exceeds supply to such an extent that this additional supply should not impact value in a negative way…..at least for the rest of 2010. We, therefore, believe that we will see significant sales volume increases in the third, and particularly the fourth quarters of 2010.
The balance of this year should be very strong for the investment sales business. How things proceed from there will be dependent upon many things.
Monday, July 26th, 2010
Reported in the Wall Street Journal, a trend seems to be emerging whereby some intrepid homeowners are intentionally taking a loss on their current house—and writing a big check to retire their old mortgage—in order to buy twice the home for not much more money. Others, eschewing conventional personal-finance advice, are even opting for “cash-in” refinancings, paying thousands of dollars out of pocket to settle old loans—and then taking out new mortgages with lower payments, shorter durations or both. This trend may not be as accutely noticeable in the Manhattan luxury market, but in a market where pricing is down, there really is not better time for upgrading. Selling a $ 1million apartment for a 15% loss will net roughly $ 850,000.00, or a $ 150,000.00 loss. If you are cashing out, thats a simple loss. If you are buying an apartment that would have sold for $ 3 million when you bought your $ 1 million apartment, if the $ 3million apartment is down 15% in value too, that would mean you could buy it for about $ 2,55million, or a savings of $ 450,000.00……making your net gain about $ 300,000.00. Now throw in lower mortgage rates and the upside becomes even more appealing.
LUXURYlesson: In real estate, focus on ’balance-sheet-thinking’ rather than ‘single-transaction-thinking’.
Monday, July 26th, 2010
 The financial regulatory reforms signed into law by President Obama last week are intended to accomplish a number of things. But one potential effect that probably wasn’t designed into the legislation is a leveling-off of the economic rollercoaster ride the city’s economy has taken as the financial services sector’s fortunes have risen and fallen in recent years. Financial services in recent years has generated more payroll taxes in the city than any other in recent years, so it stands to reason that the sector accounted for more than two-thirds of the $2.9-billion decline in payroll taxes here in 2009. The newly enacted Dodd-Frank bill could lessen that volatility, which should rein in profits for Wall Street firms in the short term but should stabilize revenues in the long run.
Now that the legislation is signed, there is less uncertainty, which is good for the economy. Markets generally adjust well when they know exactly what they are dealing with. And a more stable environment fuels the confidence necessary for a solid real estate environment. It probably will ease the extremes on the very high end, although we should not forget that some great fortunes are made in any market conditions and there is always a shortage of the very best in Manhattan luxury real estate.
Friday, July 23rd, 2010
 According to a recent post in FORBES, America’s richest are spending less cash, and they are being more choosy about the products they actually buy. The Survey of Affluence and Wealth in America 2010 — a creation of American Express Publishing and the Harrison Group — polled about 2,400 people from the richest 10% of U.S. households.
Below the top 10 consumer trends of the ultra-wealthy:
1. The wealthy are spending less and shopping smarter: The rich are still willing to buy high-end products, but relish sales and quality, not namesake or status.
2. They may not be optimistic, but they’re happy. About 91% of those surveyed thought the U.S. was still in the middle of a recession, and 60% felt it would take one year or more for a full recovery. But 71% were happy in their personal relationships. Contrast that to the 43% of the general population who reported being happy.
3. Family is important. About 83% of those surveyed said they eat dinner with their family at least four times a week, up from 16% five years ago when they survey began.
4. Cutting costs is stylish now. You might see an increase of millionaires shopping at Wal-Mart (NYSE: WMT – News). More than 77% of respondents defined themselves as resourceful and more self-reliant. Online deals and coupons are big, and the rich were more likely to wait for items to go on sale than in the past. Purchasing generic brands and buying in bulk were also popular.
5. They are less worried about their jobs. Confidence in job security increased 20% from last year.
6. More online shopping, less real people. Good news for Amazon (NASDAQ: AMZN – News), EBay (NASDAQ: EBAY – News) and Google (NASDAQ: GOOG – News): the affluent prefer to research and purchase products online, and far fewer relied on salespeople.
7. They are better communicators. About 64% said that they now talk to their kids and spouse about money. Divorce is also down nationwide.
8. They feel less guilty about being rich. In 2009, many of the wealthy surveyed felt guilty about buying luxury goods or discussing their worth. Now, they’re trending toward less guilt and a greater desire for people to know they are affluent.
9. They’re increasing brand loyalty. There was a 6 % increase in consumers who said “I have a few brands that I like,” and a 7 % increase in those who said “The brands I wear say a lot about me.”
10. Print might make a comeback, maybe. About 69% answered that they pay more attention to print ads than those online. Only 8% said they use Facebook to make a purchasing decision, though more than 40 % had Facebook accounts.
Friday, July 23rd, 2010
It is very early in the year to be talking about bonuses…..but because bonus season fuels Manhattan luxury real estate so much, we thought now would be a good time to remind buyers that buying before those bonuses are paid out is ALWAYS smart. We know some will disagree with this philosophy, so we will re-visit the subject in February 2011 and see who was right…..On Wall Street profits and pay have already rebounded. Goldman Sachs is on pace to hand out an average of $544,000 per worker in salary and bonuses, though many could earn several times that amount. JPMorgan Chase’s investment bank is on track to pay its workers, on average, about $425,000, while the average Morgan Stanley employee could collect about $260,000.
Wednesday, July 21st, 2010
In to-day’s New York Post, a story talks about the mounting evidence that there are two US economies operating side by side. They are correct.
While Main Street consumers struggle with high unemployment and mainstream retailers are forced to mark down merchandise to spark even mid-single digit sales gains, the luxury market is enjoying flush times — posting solid double-digit sales increases despite the high ticket prices.
For example, Hermes — whose luxury handbags frequently command price tags of $10,000 and up — said yesterday its sales surged a stronger-than-expected 27 percent during the first half of the year, with growing demand from super-rich shoppers in the US helping drive the results.
n June, Jaguar sales soared 53 percent and luxury hotel room rates rose 6 percent while Ford recorded sales gains of just 13 percent and economy hotel room rates slipped nearly 3 percent.
And while nationally the job picture remains bleak, the New York State Labor Department reported that the financial services sector added 2,600 Wall Street jobs in June.
At upscale Saks, sales are up 6 percent year-to-date — in line with upbeat reports this month from other luxury labels like Burberry and Armani – while more middle market JCPenney reported year-to-date sales gained just 1.6 percent.
And yesterday, Apple said quarterly sales at its upscale retail stores surged 73 percent to $2.58 billion, versus a first-quarter sales gain of 6.9 percent reported a month earlier by Best Buy.
Upscale shoppers also appear to be in the party mood.
“In the past week, we’ve sold more than five cases of Bordeaux priced at $12,000 each,” says Peter Morell, owner of Morell & Co., an upscale wine shop in Midtown. “For July, that’s pretty good.”
Sales at high-end retailer chains have soared 13 percent year-to-date, according to Customer Growth Partners. At the same time, sales at lower- and mid-price stores have risen by more modest single-digit percentages as most shoppers focus on basics.
That’s evidence that a gulf between the rich and the poor continues to widen, with the former mostly insulated from the economic headwinds that hamper the latter, says Craig Johnson, founder of the Customer Growth Partners, a Connecticut-based retail consultant.
“The high-end consumer is back this year, and it’s mainly a question of psychology,” Johnson says. “If they’re not spending, it’s because they’re simply not in the mood.”
While most shoppers weigh needs for clothing, electronics and groceries against weekly paychecks and health-care costs, luxury consumers’ spending habits can be affected most by emotions like guilt and shame.
The reality is we are seeing rather strong earnings this week….about 75% of companies are reporting good gains, and while they may not all be the double-digit-blowout gains a-la-Apple, they indicate a reasonably strong economy. Morgan Stanley, Goldman Sachs, Blackrock, etc are all doing rather well. With reduced staffing, and streamlined costs achieved in the depths of the recession, the bottom line always improves…..and those in power make more money, feel more confident and spend more. The two economies being discussed are also very relative to education levels. Unemployment in the USA is about 9.5%….yet amongst those with stronger education levels, college degrees, etc, unemployment is less than half that. This bodes well for Manhattan luxury real estate, a city that attracts the very talented and educated from around the USA and the world.
Wednesday, July 21st, 2010
Reports to-day lament the state of the housing market, and for sure the markets around the country are not very healthy. Some housing markets show signs of healing. Home-sales activity in New York, Washington, D.C., and parts of California continue to improve. But other markets, including Tampa, Fla., and Chicago, face rising foreclosures and weak job growth. Low mortgage rates and falling prices have made homes more affordable in many markets than at any time in the past decade. But those affordability gains have been offset for many buyers by tighter lending standards, particularly for “jumbo” loans that are too large for government backing. Banks are requiring down payments of 20% and more and strong credit scores because they must hold jumbo loans in their portfolios.
DUH? Is it just me, or is it not EXPECTED that sales activity would drop significantly after the home buyers tax credit expired? (The Gap has slower traffic when they take the ‘buy one get one free’ sign down….) Is it not GOOD that more homes are not being built? Wall Street wants builders to BUILD LOTS, yet they want buyers to BUY LOTS, yet they don’t want to provide the mortgages to buy …..and buyers think its CRAZY to put down 20% when buying a home?
LETS PRETEND: Let us pretend a few years ago we had not built that much, had implemented stricter lending practices and required buyers to put down 20%….would we even be discussing this topic now?
It is not surprising that with Manhattan’s tougher buying standards, our market is stronger than most.
Friday, July 16th, 2010
Home sales in the Hamptons, the beachside resort towns favored by celebrities and Wall Street financiers, more than doubled in the first half of 2010 from a year earlier, according to recent reports.
Sales in 15 New York villages and hamlets that make up the Hamptons rose to 923 homes from 433. The dollar volume of all transactions more than doubled to $1.5 billion, while the median price of homes sold climbed 34% to $935,000.
Wall Street hiring and bonuses sparked confidence in would-be buyers. New York’s financial companies added 6,800 jobs from the end of February through May, the largest three-month increase since 2008. The industry’s year-end bonuses gained an estimated 17% to $20.3 billion in 2009, according to the state comptroller.
Both the Hamptons and North Fork of Long Island rose 9.3% in the second quarter to 7,963, Included in the reports were single-family home sales as well as sales of condominiums. Another indicator that the high end of real estate is recovering.
Friday, July 16th, 2010
 West Chelsea and the hudson Yards on Eleventh Avenue will be connected to midtown by the # 7 subway expansion: In what City Council Speaker Christine Quinn on Thursday called “a great day for the West Side and the future of New York City,” the year-long tunneling project on the Number 7 subway line expansion was completed. City officials held a ceremony marking the completion of the first phase of a $2.1-billion project to bring the subway line to what will eventually be the Hudson Yards redevelopment.
“For decades, people have talked about the Hudson Yards on Manhattan’s Far West Side as a potential opportunity to provide new office space, housing, parks and jobs adjacent to the world’s premier business district, but nothing ever happened,” says Mayor Michael Bloomberg in a statement. “We’re acting to make sure that it does.”
Up next will be work on station entrances and finishes and support facilities such as ventilation and traction power substations. The new service is expected to open in December 2013, according to the Metropolitan Transportation Authority.
Whether that new service includes a stop at Tenth Avenue and 41st Street, a block east and seven blocks north of its current terminus at Eleventh Avenue and 34th Street, remains to be seen. The Tenth Avenue stop was originally planned but was scrapped in 2008 when the Hudson Yards Development Corp. said the funding wasn’t there to build two stations. However, following a lobbying campaign led by the Real Estate Board of New York, the Bloomberg administration earlier this month said it was applying for $3 million in federal TIGER II grants for a feasibility study on reinstating the Tenth Avenue station, which would cost about $550 million to build—money neither the MTA nor the city says it can spare.
As reported in the Wall Street Journal earlier this month, the administration’s proposed redesign of the Tenth Avenue stop would entail building a station with two entrances and two separate platforms, one for eastbound trains and one for those continuing west to the line’s new terminus at Eleventh Avenue. This would allow the station to be built after the rest of the extension is completed, assuming that funds become available.
Completion of the tunneling portion of the 7 line extension, which involved a pair of 1,000-ton tunnel boring machines, occurs a few weeks after another milestone in the redevelopment of Manhattan’s Far West Side. In late May, Related Cos.—originally chosen in 2008 to develop the Hudson Yards project—announced that it had signed a binding contract on a 99-year lease with the MTA for the 26-acre site. It came to the agreement with a new general partner, Oxford Properties Group, the real estate investment and development arm of Canadian pension fund OMERS, the Ontario Municipal Employees Retirement System.
The new agreement, approved by the MTA’s board this past spring, delays closing on the project until certain triggers are reached in the city’s real estate market. Related will not be obligated to close on the deal, and start paying its 99-year lease, until Midtown’s office availability rate declines to 11%, apartment sale prices reach an average $1,200 per square foot and the AIA Architectural Billings Index hits 50.
Currently, the availability rate in Midtown is 13.7%, according to CB Richard Ellis, while Prudential Douglas Elliman puts the average apartment price at $1,051 per square foot. Work on the Hudson Yards project, which will also include construction of elevated platforms over the Eastern and Western Rail Yards that are in daily use by the MTA’s Long Island Rail Road, is expected to begin after the 7 extension is done.
Soon Midtowners will easily be able to access the recently opened CHELSEA COVE PARK at 25th Street and the West Side highway. Eleventh Avenue continues its ascent…..
Friday, July 16th, 2010
 Richard Meier’s Model Museum in Long Island City is a small gallery devoted to the architect’s ongoing love of the physical process of architecture. The 3,600 sq ft warehouse space is dominated by a vast model of the Getty Center in Los Angeles, still one of the architect’s most celebrated and sizeable commissions. Rather than offload the creative output of his model-making studio – overseen by Michael Gruber – the architect has created this small private museum for a whirlwind tour of his oeuvre in miniature. Richard Meier Model Museum, open Fridays by appointment only, contact Richard Meier and Partners to book on (212) 967-6060
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rocky 
Hermes is an extremely strong brand that appeals to the truly rich. They never introduced a lower priced line to appeal to a younger group. The wait list adds further to the allure.
Their products can be viewed as an investment, similar to jewlery, a swiss watch. The same does not apply to designer clothing.