Archive for November, 2011
Monday, November 28th, 2011
Posted by Leonard Steinberg on November 28th, 2011
Retail insanity was the order of the day starting mere seconds after the turkey and stuffing had been digested. Reports of fist fights, pepper spraying, gun-shots, etc highlighted American’s intense desire for a bargain. Retail sales were up over 8% over last year, setting new records. These are my questions:
1) Were Americans more desperate to buy the bargains this year because for many the economy is so bad they cannot afford anything less than a bargain?
2) With over 100 million Americans out shopping, maybe those isolated incidents of violence were actually low compared to a normal day, inspiring the press to make it a story as it provides great imagery?
3) Is this a sign of a retail/economic recovery? The US economy is mostly based on consumption that has remained pretty stagnant during the recovery……have American consumers grown tired of the gloom and doom, holding back to the point of a breakdown? Is this a resurgence of consumer confidence? Remember US consumers increased their savings rate from 0% in 2008 to about 5% in recent years….that’s quite a bit of money saved waiting on the sidelines…..earning next to nothing in saving’s accounts, and shrinking in value in the equity markets.
4) Is this a flight towards hard, tangible assets, steering away from cash? Many of the wealthy have been buying Manhattan real estate (as witnesed by the Luxuryloft team)and gold for this exact reason.
5) Have Americans come to the conclusion that yes, Kim Kardashian is actually right: it’s all about STUFF, not that other stuff no-one can see and covet?
6) If sales were up over 8%, did buyers actually buy more, or did the merchandise simply cost more because of …….inflation?
Saturday, November 26th, 2011
Posted by Leonard Steinberg on November 26th, 2011
So the NBA lockout seems to be coming to an end as a tentative deal was struck…..does it not amaze you that no-one finds any offence in basketball players earning MILLIONS of dollars each year for playing with a ball, when it appears OK to trash everyone in the banking industry and leaders of large corporations who earn equally large paychecks? (P.S: The average NBA coach earns over $ 3million and the average NBA player over $ 5million annually….)
Maybe its time to focus the anger, as Paul Krugman of the New Yortk Times suggested, on the 0,1%…..those earning very high, extreme incomes while their companies underperform or those who structure their incomes in such a way that they pay substantially less taxes than those earning equally high incomes? Surely a highly paid basketball player who does not perform qualifies? Generalizing that all in ‘the 1%’ are guilty of fiscal crimes against society is simply stupid: like any group, massing everyone together this way and concluding averages is almost as bad as the typical generalizations such as ‘all the Irish drink too much’….or ‘all Jews are rich’…. ‘all blondes are dumb”… We are constantly amazed how people want to average real estate: “The average apartment in New York costs about $ 1million….” Really? What is average? And what exactly qualifies?
Averaging ‘the 1%’ is much too simplistic and inaccurate….and tremendously unfair. As much as we live in a society that craves billboard-style simplistic-think conclusive analysis, maybe the time has arrived where we break complex problems down a bit more to provide more complex analysis…. and then hopefully more intelligent solutions.
Thursday, November 24th, 2011
Posted on November 23rd, 2011 by Leonard Steinberg.
In to-day’s Wall Street Journal it is reported that over the next 20 years, some $25 trillion will be passed to women through divorce, death of spouse or inheritance. Women already make up just under half of the nation’s millionaires. Combined with their growing earning and wealth-creation power, women may account for up for two thirds of the nation’s wealth by 2030. Single female buyers are a growing group of buyers, many empowered with self created wealth through their own professional efforts: New York real estate must cater to this potent force.
This message should be a wake up call to all real estate professionals who already witness this growing trend on a daily basis. I personally see women as the primary decision makers in the majority of residential real estate purchases. The big questions to be asked now are: how are real estate professionals addressing the needs of women differently? Women prefer a different style of communication to most men. They prefer a different approach. They are as in tune with their emotional needs as they are their practical needs. While men often seek the WOW factor in a property, women think more practically, exploring closet space (an issue most men completely ignore), the quality and selection of finishes, how a space functions for daily life, how a home has to not only fullfill the need for space, but how it should connect emotionally too. We have found while staging apartments, many men are most concerned with where they will place their big screen TV….women on the other hand want to know where they could sit, relax and read a good book and unwind. They truly appreciate a cashmere throw on a comfortable chaise perched by a window with a view…. Women’s esthetic awareness is on average very strong. This can sometimes be a disadvantage to some women buyers when they focus more on the esthetics (that can always be changed) instead of the fundamentals of space: volume, light, views, etc.
Women also have greater ease committing to something (in life and real estate): As Lady Gaga sings “We have a whole lot of money, but we still pay rent: you cannot buy a house in heaven!”, most women recognize a clock is ticking and waiting (and renting) is often not the smartest option if you have a lot of money…..establishing a more permanent home is wise investment-wise, but more importantly it’s wise for quality-of-life. I think men enjoy seeing their bank balance as much as women enjoying living in a very comfortable home.
This trend is probably one of the most important to watch for developers: most developers and their architects are male, and really have to consider this important female perspective in their future projects. I have spoken in the past for the horrific lack of CHARM in most new buildings….this is certainly an area that could appeal strongly to women, and strong consideration should be given to making new buildings feel more like homes than generic rental buildings or the latest of-the-moment boutique hotel. Bankers take note too: buildings are not purely about square feet and dollars although these too are important considerations.
We will explore this subject more over the next few months and get back to you with our survey results….in the mean time let’s GIVE THANKS to Women!
Tuesday, November 22nd, 2011
Posted by Leonard Steinberg on November 22nd, 2011
The news is out: Wall Street is shrinking with more than 200,000 jobs lost in the global financial-services industry this year, eclipsing 174,000 in 2009, according to a report by Max Abelson of Bloomberg. (That’s a lot of potential real estate buyers and renters). Wall Street rebounded from the financial crisis of 2008 with the help of unprecedented government support, including loans from the U.S, but this is very different and may indicate a structural change in the banking industry: with higher capital requirements, the failure of exotic financial products and diminished proprietary trading, the industry may just be undergoing a significant paradigm shift.
Banks, insurers and asset managers in Western Europe have been hardest hit, announcing about 105,000 lay-offs this year, 66 percent more than the region’s losses in 2008 at the depths of the financial crisis. The 50,000 job cuts in North America this year are more than twice last year’s yet less than a third of the 175,000 in 2008. Will this affect the New York luxury real estate market?
I hear repeatedly a very depressed tone on Wall Street: there is tremendous anger at those angry at Wall Street, a true amazement how the world sees Wall Streeters as the only culprits in the financial meltdown, when obviously there is a lot of blame to go around. A common theme is the anger against new regulation: one has to wonder how effective this regulation will be when John Corzine spoke so eloquently 3 years ago about the need for regulation, and then just a few months later revealed his MF GLOBAL was leveraged at 40 : 1 …..as opposed to Lehman’s 32 : 1……
The culture on Wall Street has been a breeding ground for excessive greed in the past few years: the intense demands on bankers and corporations to produce acute profits and better-than-forecast results EVERY SINGLE quarter is obviously not sustainable. And bankers are not alone in the blame for this greed: all of us who own stocks, including pension funds and those receiving escalating benefits, were used to never-ending stock price escalations, huge profits, etc. It is the perfect example of extremism. And the press thrives on extremism: its always a much more colorful story, right?
Extremism has failed the banking industry. Extremism has failed entitlement programs. Extremism is failing our political system on the left and the right. Extremism in home pricing helped topple the economy. The problem with extremism is that it is not grounded in reality. Extreme appraisals resulted in over-valued real estate and extreme pricing escalations. Extremism on the left and the right killed the super-committee’s ability to formulate a simple plan for debt reduction. Extremism produces news that is sensationalist, not substantial. Extremism of labor unions produces jobs……outside of the USA. Extremism in technology replaces the need for human jobs.
As we watch the year come to a close, what will be interesting to see is whether those fired were fired to maintain the quality of income for those remaining. Is 2011 the year where we all become aware of extremism in all areas of life and decide its not working?
Monday, November 21st, 2011
Posted by Leonard Steinberg on November 21st, 2011
Who are the 1% anyway and are they really the cause of the huge wealth disparity in the USA? No, of course not: this is just being used as simplistic means to an end for political purposes. Many people who earn $ 250k/year are significantly wealthier than most, but certainly they do not qualify when it comes to the accusations being thrown at them by the OWS group. The real focus should be the o,1%: not all of them mind you as many do pay their fare share. It’s the disparity in what people actually pay in taxes rather than tax rates that should be the focus of outrage. I know of some people who earn $ 1million per year who pay double and triple the taxes of what others pay earning the exact same amount of money…..the difference being HOW they earn their income. Salaried people have virtually no deductions. Earning through capital gains alone more than halves your tax burden. Is this fair or equal (ie: constitutional)?
Capital gains are the key ingredient of income disparity in the US– and the force behind the winner takes all mantra of our economic system as reported by Forbes’ Robert Lenzner. If you want to even out earning power in the U.S, you may have to raise the 15% capital gains tax…..although that should be done prudently. Maybe adding tax incentives for job creation, at least for the next 5 years. Income and wealth disparities become even more absurd if we look at the top 0.1% of the nation’s earners– rather than the more common 1%. The top 0.1%– about 315,000 individuals out of 315 million– are making about half of all capital gains on the sale of shares or property after 1 year; and these capital gains make up 60% of the income made by the Forbes 400. It’s crystal clear that the Bush tax reduction on capital gains and dividend income in 2003 was the cutting edge policy that has created the immense increase in net worth of corporate executives, Wall St. professionals and other entrepreneurs. The reduction in the tax from 20% to 15% continued the step-by-step tradition of cutting this tax to create more wealth. It had first been reduced from 35% in 1978 at a time of stock market and economic stagnation to 28% . Again 1981, at the start of the Reagan era, it was reduced again to 20%– raised back to 28% in 1987, on the eve of the October 19 232% crash in the market. In 1997 Clinton agreed to reduce it back to 20%, which move was an inducement for the explosion of hedge funds and private equity firms– the most “rapidly rising cohort within the top 1 per cent.” Make no mistake; the battle that is to be fought over the coming attempt to reverse this reduction in capital gains will be bloody and intense. The facts are clear according to the Congressional Budget Office more than 80% of the increase in income inequality was the result of an increase in the share of household income from capital gains. In fact, you can go so far as to claim that “Capital Gains income is the most unevenly distributed– and volatile– source of household income,” according to Laura D’Andrea Tyson, University of California business professor and former chairwoman of the Council of Economic Advisers under President Clinton. No wonder the super wealthy plutocrats obtained the largest share of national income– 25% of the nation’s wealth- greater than any other industrial nation in the the period of 1979 to 2005. Make no mistake; after unemployment– this disparity between the 1%– 3 million– or the 0.1%– the 300,000– and the other 312 million citizens of the U.S. has become the major theme of the Occupy Wall Street movement– and an important national debate. OWS’s message is clouded by a kooky extremist minority (great for pictures!), but their theme message resonates with the majority of Americans.
Lenzner highlights the words of the late Justice Louis Brandeis warning to the nation that ” We can have democracy in this country, or we can have great wealth concentrated in the hands of a few, but we can’t have both.” We have to make up our minds to restore a higher, fairer capital gains tax to the wealthiest investor class– or ultimately face increased social unrest.
Yes it is true that these 300,000+ individuals constitute a large portion of the buying audience in Manhattan, and to alienate them with ridiculous taxation would be stupid. Providing incentives for employing should be a consideration. I feel 100% certain that if the capital gains tax rate was raised to 20%, it would not stop or even slow commerce: add into the equation lower unemployment, and the boost in the economy would largely off-set this raise in taxes. More importantly, tax rates could be lowered and generate more revenue, if the laws applied to all equally. Right now the disparity in who pays what and how, who gets what tax breaks, etc is simply absurd. The extremism towards taxation on the left and the right has to end: it is time to get practical.
Saturday, November 19th, 2011
Posted by Leonard Steinberg on November 19th, 2011
As our beloved government teeters on the edge of another major meltdown with the ‘super-committee’ due to formulate a solution to our budget crisis by the middle of next week (something that could cause radical ramifications throughout the markets, especially the credit markets…. think housing), maybe its time for all of us throughout this country to re-direct the anger recently demonstrated by the rather un-focused, semi-kooky and often misdirected OCCUPY WALL STREET to a newer, more focused, more pertinent movement: OCCUPY WASHINGTON DC!
Yes, we Americans are sick and tired of the games Washington plays: remember lots of the bad behaviour and criminal activity associated with the Great Recession happened in great part because of certain action and in-action by government. Now of course they are all blaming one another, even though they are all to blame. Pretty much all government activity seems to boil down to 2 things: 1) money and 2) re-election.
Both the Democrats and Republicans are playing political games at the expense of the country: Republicans delusional pandering to those who receive un-warranted tax breaks while a vast majority of ‘the 1%’ pay their fare share is disgraceful. Remember just because the tax rate is the same for all does not mean all earning the same income pay the same taxes: the same is true for real estate taxes where the disparity between very similar properties is often very different. Democrats on the other hand need to acknowledge that we are spending much more than we earn: raising the retirement age and a host of other common-sense budget cuts are practical and essential, not cruel, and willing this committee to fail to blame the Republicans for the gridlock so that Obama can be re-elected is reckless at best.
I never thought I would see the day when I’d agree with Sarah Palin, but this week her editorial in the Wall Street Journal struck a chord…..and it may explain why we have the housing mess that ultimately caused the financial meltdown that we are still suffering from. In her article she shows how Congress, the lawmakers of our country, obey a different set of laws than the vast majority of us mere voters (and taxpayers!)…. Here are some examples:
Insider Trading – using government information not available to the public at large to predict which companies’ stocks will rise or fall.
IPO Gifts – While it is illegal for members of Congress to accept cash gifts from interested parties, there is no restriction on their being offered initial public offerings in firms, which can be very profitable.
Self-Serving Earmarks – Some members of Congress have submitted infrastructure earmark requests for their districts that appeared to increase their value of their real estate holdings.
Encouraging Campaign Donations – Palin calls this “subtly extorting campaign donations through the threat of legislation unfavorable to an industry.” She may know about this subject first hand with the oil industry in Alaska?
The insider advantages to being a Washington player are obvious, and the hypocrisy pretty astounding as witnessed this week by Newt Gingrich. Ms. Palin cites in this article that 47% of Congressmen are millionaires compared to 1% of the US…..very telling, but also somewhat hypocritical when she has parlayed her career from a lowly beauty-queen/sportscaster to a career politician of almost 20 years…..and now more recently she dumped low-paying government realizing the value of her time in ‘the club’, transitioning from governor to a very highly paid book writer, speaker, activist and correspondent for FOX TV, certainly roles that would not pay as well were it not for her lengthy political career.
Maybe it is time for us to OCCUPY WASHINGTON DC: This government is obviously in need of a major overhaul, and the loudest possible message should be sent to end the political game-playing that is taking place at the expense of 99,99999999999% of the country that have to foot the bill.
Some may wonder why a real estate blogger would be writing this political post: let’s face it, there won’t be much of a real estate market if we do not fix this government….fast!
Saturday, November 19th, 2011
Posted by Leonard Steinberg on November 19th, 2011
The other night I was invited to the launch of EXTELL’s newest addition to the New York skyline, One 57, the Christian de Portzamparc-designed 90 story, 1,000ft tall Tower located at 157 West 57th Street between 7th and 8th Avenues. Towering above the Time Warner Center, Trump’s One Central Park West, and certainly looking down on the neighborhood icon 15 Central Park West, the 135 residential units will rise above a 210-room Park Hyatt Hotel, offering un-obstructed panoramic views of Central Park and the entire tri-state region.
The occasion was a grand one indeed: Manhattan Brokerage Royalty came out in full force, immaculately attired in Prada, Louboutin’s, sequins and all. A string quartet greeted guests as they embarked from the elevators and led them through palatial double doors into the sales office/showroom. No expense has been spared in creating certainly one of the most dramatic showrooms ever, resplendent with floor to ceiling screens showcasing a movie of the building and environment, two mock-up kitchens and a master bathroom. Severely chic black, white and deep wood tones featured. The interior design is the responsibility of uber-chic Thomas Juul Hansen, one of New York’s premiere designer architects responsible for projects such as One Madison Park, One York, Jean Georges and Perry street to name a few. The quality of the Smallbone kitchens is immediately apparent, vastly superior to most of the designer name kitchens one sees regularly. I thought the floorplans were particularly strong, the perfect take on a classic apartment with a very modern, purist sensibility. The well proportioned, squared off rooms are reminiscent of One Beacon Court, another building many considered to be in a less-than-stellar location that has been hugely successful.
I thought the bathroom was rather beautiful and especially grandly scaled for highrise living. Architecturally, the look of the building is one of Severe Gotham Chic with definite Art Deco-inspired undertones, and should definitely appeal to many foreign buyers seeking a glossy New York experience.
Several brokers muttered that there are not enough Russian buyers to buy all these units: I suspect that sales will start to take off mostly once buyers have the ability to witness the views on site, and it may be challenging at the $ 5,000+/sf pricing not being directly on Central Park: 57th Street is not exactly Fifth Avenue. I also believe the true value of these apartments may only be realized once the building is completed and buyers have the ability to walk through the spaces, getting a feeling not only for the bathrooms and kitchens, but also the light, views, volume of space and the other finishes so critical to this price point. Hopefully the finish quality takes its cues from One Hyde Park, where this profile of buyer was willing to spend the extra dollars knowing the apartments did not have to be gutted. This building is for those that love super-highrise living, want spectacular views, grand spaces, full services, tight security, a central location, sleek, modernist design (the opposite of the Plaza or 15 Central Park West) and do not want to renovate.
It was heartening to see luxury Manhattan New Development spring back to life: this will be one of several new modernist buildings for the uber-rich coming to the market over the next year or so, including Macklowe’s 1,300ft + tall Drake building on Park Avenue at 57th Street and One Madison Park. Other, more humanly scaled buildings are coming too, so the mix and variety will be outstanding, bringing an end to the very limited inventory of top-notch apartments currently available. I believe the quality bar will be raised dramatically by this level of competition, and it will be an exciting time in New York real estate for sure.
Saturday, November 19th, 2011
Posted by Leonard Steinberg on November 19, 2011
Republican presidential candidate Newt Gingrich, certainly one of the most eloquent, informed and intelligent of all the Republican candidates, is now embroiled in a rather major embarrassment: After consistently and repeatedly blaming Freddie Mac and Fannie Mae for the Housing Bust that still wreaks havoc on our economy, it has been revealed that he and his firm acted as an advisor to both entities, raking in fees estimated to be somewhere between $ 1,5 and 1,8million. Oops!
Before Gingrich was hired, Freddie Mac paid $2 million to a Republican consulting firm in the hopes of killing legislation that would have regulated and
trimmed both companies. The legislation died without coming to a vote in the Senate. But the danger of regulation wasn’t dead, so Freddie Mac hired more consultants, Gingrich among them. Fannie Mae and Freddie Mac had traditionally purchased a small number of subprime mortgage loans, which involved borrowers with credit problems who could not qualify for cheaper prime loans. But starting in the late 1990s many firms started purchasing subprime loans, and Fannie and Freddie followed suit.
Some argue that it wasn’t Fannie’s and Freddie’s fault that a bubble formed around mortgage values, then burst; some even argue that it wasn’t the banks’ fault either…..although that is extremely hard to believe. Many lay the biggest blame on the U.S. Congress, both sides of the aisle, that pressured these and other institutions to make credit easily available to anybody for purposes of purchasing a home, regardless of actual credit worthiness. This availability of absurdly easy credit inflated markets and property values to bubble proportions, indebted a large proportion of American households beyond their capacity to ever recover, and set the stage for the inevitable explosion. It also allowed the politicians to claim to their constituencies that they were actually doing something besides collecting a paycheck, and thereby increased their chances of re-election.
It is not and never was the legitimate role of government to manipulate credit markets to increase home ownership levels. I will however say that the blame for the housing crisis is shared by many: Freddie Mac, Fannie Mae, the US Congress (all of them!), the banks that encouraged loans to highly unqualified buyers, the banks that made loans that were designed to make buyers default by excessive rising interest rates, the bankers that sold loans knowing they were junk and betting against them then, the Federal reserve, presidents Clinton, Bush and Obama, mortgage brokers for forcing up the purchasing power of buyers, appraisers for over-valueing properties artificially, real estate brokers for encouraging buyers to over-extend themselves, buyers who speculated, buyers who used their homes as ATM machines drawing funds from their home equity for vacations and Ferrari’s, buyers who knew they could not afford what they were buying but bet they would earn more in a few years, our education system (and parents)for not educating people to be more responsible with their money…..the list goes on. And now back to Newt….
Mr. Gingrich, for someone as intelligent and informed as you are, it is simply not believeable that you were unaware of what you were doing as part of this meltdown, and worse, it’s really hypocritical of you to lambast all the other guilty parties while not admitting your share of the blame. Unlike some of your couterparts, we simply don’t believe the facts are twirling around in your head…..you are smart, and have an outstanding memory. The US voters don’t (which could work to your benefit considering Conservatism does not only apply to fiscal policy).
During the 2008 campaign, Gingrich suggested in a Fox News interview that presidential candidate Obama should return contributions he had received from executives of Fannie and Freddie……that was good advice then, and its good advice now. Just come clean: admit you thrived off this dirty ‘system’ too and repent. The truth may set you free and maybe you can inspire all other guilty parties, and there are many, to do the same. Lord knows the world has forgiven you of a host of worse sins, although self righteousness is way up there.
Friday, November 18th, 2011
Posted by Leonard Steinberg on November 18th, 2011
Last night I attended the auction of a park facing apartment at the Grand Madison located at 225 Fifth Avenue once owned by an ex Credit Suisse employee whose new home is a lot less elegant….
The 9th floor, approximately 1,600+sf apartment featuring 2 bedrooms and substantial south-facing frontage (about 50ft)onto Madison Square Park was auctioned off fully furnished with a significant B+O system included. Behind the (rather dirty) windows was an impressive view featuring the Flatiron building and other New York landmarks. The winning bid was $ 2,75million, almost $ 500,000.00 below the most recent sale of an identical apartment above this……but throw in the 6% buyers premium, the transfer taxes and some money needed to renovate the apartment and you are over $ 3million. Not the best price I thought, but then it is an auction and real estate auctions have proven to usually give buyers a good discount in New York. But then, a bank ruled this sale, so what do they care, right?
The bad news is I feel strongly a thorough, regular market sale would probably have produced a higher price. The good news is the price is far from being a bargain and the (at least 2 dozen) bidders hoping to buy this place for under $ 2,5million were disappointed….more importantly, the volume of bidders proves that Manhattan real estate has an automatic safety net of vulture buyers with deep pockets built in to prevent massive pricing declines. That’s great news.