Archive for January, 2012
Tuesday, January 31st, 2012
Posted by Leonard Steinberg on January 31st, 2012
In the period between 2004 and 2008 we witnessed the growth of a housing bubble. At the time we didn’t really see it happening although there were clear indicators. This was the new economy, where housing prices could double, triple, and it was all the ‘new normal’……
The first sign of a bubble to me is when everyone says its not a bubble…..when pricing escalates so dramatically, it seems unrealistic, yet you really want to believe its possible. Last year at this time word was that Facebook was worth about $ 50 billion. To-day a year later, just before the IPO, Facebook’s value is being touted to be around $ 100 billion….double! Sounds like Vegas housing prices to me. Now remember, just like the housing bubble of the 2000′s, most lost a lot of money, but some made an absolute fortune. With this IPO comes a bucket load of banker ‘fees’, hundreds of thousands of speculators (many of whom are bound to buy and sell and make some quick money….sound familiar?)…..but I fear the majority will lose. I hear of many de-Facebooking already as it has lost its cool. WIll it be replaced by the next best thing? What exactly is Facebook selling or making? Different questions to housing, yet eerily similar to me.
I believe FACEBOOK is a bubble in the making: I hope I am wrong, although I have to admit I really, really don’t like Facebook. There are elements about it that were fun for sure: at first it had its novelty appeal, connecting to school friends you probably didn’t want to re-connect with, but thought it fun to see if they had gotten bald and fat. Now I receive about 3 friend requests a day, often from people I don’t even know….or want to know. I have always resented friends who had dozens of friends. It diluted friendship for me. Now imagine your friends have HUNDREDS of friends. Surely friendship hasn’t become Kardashian too in its shallowness?
So only time will tell if I am wrong, but if you look at the fundamentals, just like the housing bubble, I really believe we all need to take a deep breath and stand back to see what this Facebook thing is really all about before diving in.
Sunday, January 29th, 2012
Posted by Leonard Steinberg on January 29th, 2012
To-day had to be one of the very busiest Sunday’s in New York real estate in a long time…at least since the 2007/2008 peak. I did 12 appointments, a record amount even compared to a busy week-day. The buyers were all 100% serious and focused. And the average price-point of property showed was about $ 4million. Heard during the appointments:
1) How are all those sharply reduced banker bonuses going to impact the New York luxury real estate market?
2) Are the BRIC BUYERS buying lots? What percentage of the market do they constitute? (The perception is that it’s 50%…..they are wrong: its closer to 10% at the most in my estimation).
3) Why are monthlies/taxes all over the map? Who decides who pays more or less?
4) (To a man with a large, long-haired dog)How can you live with that thing shedding all over your apartment? Answer: “I have a Miele vac!”
5) Murphy beds are so much more comfortable that pull-out sofa’s for guests, although a too-comfortable houseguest can become an extended stay housepest…. scratchy sheets could fix that problem.
6) Quartzite is much more durable/scratch resistent that marble, granite, limestone or stainless steel for countertops.
7) Just-finished, empty white-walled apartments look sad and bare compared to furnished or staged apartments.
8) A super-unfriendly doorman sending prospective buyers away (Owners in building take note!).
Saturday, January 28th, 2012
Posted by Leonard Steinberg on January 28th, 2012
As I look out of my window in the distance I see a large U. S. Post Office facility and it reminds me of the on-going debacle that is the Post Office. I speak on this subject from a real estate perspective living in an area (West Chelsea) that has witnessed a radical transition from an entirely commercial area (that died) to a mostly residential and art gallery neighborhood. Real-estate-wise this has happened here, in Soho, Tribeca and around the world. It’s called evolution, and some keep fighting it……especially the US Post Office.
The problem with the Post Office is it acts and thinks like a big government. So the first thing it wants to turn to is protecting exactly what it does, keep doing it the same way, but apply extreme austerity measures by cutting. The employees only focus on keeping their benefits and keep working in the exact same manner as before demanding that the rest of the country support this farce. Both are wrong. And they are an incredibly accurate reflection of what is happening in our country politically as well as what happens in real estate…..until smarter people step in to change things.
In Soho, artists moved into mostly abandoned buildings where the wholesale textile industry used to thrive. When the industry died, so too did the neighborhood. Big scale developers were not interested because the land in Soho is not the best for building huge, hideous structures as it does not have the best bedrock for this type of construction. So artists moved in, upgraded the buildings to somewhat liveable….then came the restaurants and retail, and all of a sudden it was cool to live in a loft. So rich bankers bought lofts from the artists (making many of them very rich), renovated them, and within a few years Soho became a very high end residential real estate environment. But of course, government could not keep up, and still wants to enforce a program (A.I.R.) to protect the environment as an artist’s studio environment…..while collecting significantly higher real estate taxes from the new inhabitants. Another perfect example of government fighting evolution. Just like the post office.
Real estate is the most visible form of evolution in my mind…..seeing the speed of transformation of entire neighborhood uses is pretty astounding. And it works best when government and commerce work together as is witnessed now in the Hudson Yards, West Chelsea and the Financial District. Its smart government (raising real estate tax collection, encouraging transactional taxes, higher employment, etc) AND smart commerce (construction profits, rental incomes, tax breaks, etc).
Now back to the Post Office: the world has changed! We don’t mail as many letters as we used to. Federal Express ships boxes better than you and with much less attitude (lets face it: a trip to the post office used to be about being annoyed and insulted by rude, lazy, slow staff). We send e-mails. We send e-vites instead of mailed invitations. Now instead of ONLY focusing on cuts or preserving history, maybe its time for the Post office to re-invent itself. Here are some ideas:
1) Look closely at Federal Express and UPS: both have grown dramatically as the world evolved into ordering massive volumes of product on line, efficiently, cost effectively and with a friendly demeanor.
2) What other tasks could the post office perform, knowing that much of its real estate is located in PRIME locations in the hearts of most communities: how could they provide one-stop shopping for mail, stationery, coffee, tech supplies? If Duane Reade can sell sandwiches, what else can the Post Office sell?
3) Could the post office forge strategic partnerships with on-line retailers?
4) What about selling/leasing the roof real estate of all their locations for solar + wind farms? Replacing the light poles on top of their facility in West Chelsea with wind turbines could provide lighting for the roof as well as pay the electric bill.
5) What about all the post office vans becoming driving billboards advertising things besides the POST OFFICE? Or advertising all the new services they are introducing to the world?
Frankly I see ALL the opportunity for the post office in their real estate: yes, they have to trim costs and make their methods and staff more efficient. But more importantly they need to EVOLVE and re-invent their role in our society. Lets not forget: Apple was never a phone manufacturer a few years ago. Now just a few years later, it dominates the market.
Friday, January 27th, 2012
Posted by Leonard Steinberg on January 27th, 2012
Denise Rich, a songwriter for Celine Dion, Chaka Khan, Diana Ross, Mandy Moore/billionairess/heiress/divorcee, has placed her 785 Fifth Avenue penthouse, scene to numerous swell gatherings over the years, on the market for sale for $ 65 million, making it New York’s most expensive co-op listing…… the recent $ 88 million 15 Central Park West Sandy Weil penthouse sale comes to mind. This pricing clearly demonstrates the difference in pricing between co-ops and condo’s although 15 CPW was newly renovated: will the co-op board of 785 Fifth accept a buyer with a similar profile as the Russian buyer of 15 CPW?
Friday, January 27th, 2012
Posted by Leonard Steinberg on January 27th, 2012
GDP figures for the fourth quarter of 2011 were announced this morning and fell just slightly shy of estimates, although they were up 1.1% over the GDP of the third quarter. Consumer spending rose 2%: The great news was that housing investment rose significantly more than the 1% estimates by over 10%.
In Davos this week, the consensus is that we are entering TIGHTROPE TIMES where many different elements of the economy will have to be balanced and addressed simultaneously to work our way out of the global economic mess: this will involve a combination of writing down debts, defaults, printing money, policy changes, austerity measures, spending measures…..in short we are looking to at least 10 years to clean things up. The good news is that there is a global awareness of the big problems we are dealing with and that is good for markets….including real estate markets.
The overall consensus amongst hedge funds and investors is even greater diversification, with a lesser focus on equities. This is where real estate comes in. Gold and real estate are strong hedges against inflation and with consistent talk about printing money, we can be certain inflation is here to stay for a while, even though it may be somewhat more contained than the Ron Paul’s of the world say.
In the New York luxury real estate market, we are definitely seeing a spurt in investment buyers, and unlike the roaring 2000′s, now the investor is more interested in the long term as opposed to the short term fliper. That is always good for markets. I see the growth of Chinese (and other BRIC)buyers in New York as it appears more and more likely that housing bubbles could be emerging in those over-heated economies.
Wednesday, January 25th, 2012
Posted by Leonard Steinberg on January 25th, 2012
Some good news for the real estate markets (and markets in general): To-day the Federal Reserve pushed back the likely timing of an eventual interest rate hike until late 2014, much later than it had previously said, as it nurses a still-sluggish economic recovery. In a historic step toward greater transparency, the Fed announced an official inflation target of 2 percent. Three of the 17 policymakers expect rates will need to rise this year and two others did not see any increase until 2016.
Low interest rates are historically good for the residential real estate market, and this indication for the future is healthy, although it certainly will remove any urgency a buyer may have had they believed a rates rise was imminent. For new developments it is especially important, as a buyer committing to-day to buy in a new building that could only close in 2013 or 2014 has some measure of re-assurance that rates will not rise, or rise significantly at the time they are ready to close.
Now lets hope that 2% inflation target can be maintained: all indicators in Manhattan lead me to believe otherwise. Then again, the official inflation rate does not take into account the cost of housing, fuel or food (believe it or not!) even though rents and food costs rose close to 10% in 2011 in New York.
Tuesday, January 24th, 2012
Posted by Leonard Steinberg on January 24th, 2012
Last night I had a conversation with a seller: we were trying to establish ‘the state of the deal’ to figure out solutions for a host of issues in an attempt to make a sale……I made it very clear that unless we outlined all the issues 100% honestly be they good, bad or ugly, there would be no way to formulate strong solutions. Wouldn’t it be wonderful if the same were true for our country? For real estate taxes? For Federal income taxes?
Tonight, the president delivers his STATE OF THE UNION speech. He will probably quote the constitution quite a lot in justifying his assessment and plans. Has the Constitution become similar to the Bible, providing a means of selecting the few chapters or verses that serve your cause best while ignoring the other chapters that may contradict you? Will the president address these items that concern me most?
1) Why do some people pay 15% in federal income taxes and others who earn the same pay double? Doesn’t the Federal government (based on the Constitution) protect us from the vile practice of charging 2 vastly different prices for the same product?
2) Why do some neighbors in almost identical neighboring buildings pay more real estate taxes than one another: surely the Federal government plays a role in protecting our constitutional right to fair and equal treatment? The States don’t.
3) Why does the federal government want to raise taxes, when federal government employees owe over $ 1 billion in unpaid taxes?
4) Why are political and especially presidential campaigns flooded with so much money from corporations that are owed favors after a win?
The vast majority of us would be much better off if there was more honest disclosure in our world. Without honest disclosure, there can be no real, lasting solutions.
Monday, January 23rd, 2012
Posted by Leonard Steinberg on January 23rd, 2012
A recovery is under way. And now there is absolutely no doubt about it. I hear it from my very wealthiest clients most of whom are scrambling to put deals together before prices rise. I even heard one say the other day he was willing to pay more on a deal he was structuring because he felt the markets were improving enough to give him confidence. I believe many of the buyers in this busier-than-normal January are buying because they believe a hard asset like prime real estate is poised for gains, and may be a safe-haven for wealth in inflationary times.
The housing bubble began deflating almost six years ago; house prices across the US are back to 2003 levels, yet in many areas of the New York luxury real estate market they have surpassed the highs of 2007/2008. After a protracted slump in housing starts, we now look seriously underprovided with apartments and houses, at least by historical standards. In Manhattan this shortage is fueling pricing escalation, which I feel may be a bit artificially inflated in certain areas because of acute shortages.
This January, already we are witnessing the New York luxury real estate market booming: So why aren’t there more buyers out buying across the country? Because the depressed state of the economy leaves many people who would normally be buying homes either unable to afford them or too worried about job prospects to take the risk. This affects the lower end of the market mostly, although the more recent financial markets philosophy of trimming back and cutting costs could affect the higher end too.
The economy is depressed mostly because of the housing bust, which immediately suggests the possibility of a virtuous circle: an improving economy leads to a surge in home purchases, which leads to more construction, which strengthens the economy further, and so on. If you analyze the recent data, it looks as if something like that may be starting: home sales are up, unemployment claims are down, and builders’ confidence is rising.
Furthermore, the chances for a virtuous circle have been rising, because we’ve made significant progress on the debt front. There are four things that stand in the way of a strong recovery:
1) The oil price is very high: this is a form of high taxation on the masses, making an essential monthly expense (transportation) a bigger chunk of their income.
2) The banks are impossibly incoherent with some of their demands. They blame the government, but where did the government require banks to hire incompetent appraisers to provide valuations that simply do not make sense? I have written on this subject before, but no bank read what I said or cared.
3) Politicians who are committed to power over and above the welfare of the country will continue to fuel divisiveness and claim the economy and country are down the toilet: no-one ever wins an election by saying things are getting better.
4) If the economy improves too rapidly, the Fed will raise rates to curb inflation, and the governments may be too eager to cut spending. Spending needs to be trimmed, and government needs to be made more efficient, but it would be better to fuel this recovery through growth as the priority.
Sunday, January 22nd, 2012
Posted by Leonard Steinberg on January 22, 2012
With Newt Gingrich’s remarkable surge in the South Carolina caucuses, I have to ask the following question: did he win on substance, or on the soundbite mentality that has overtaken our society?
Is Newt really more qualified to be president than Mitt Romney? What exactly in Thursday’s CNN debate demonstrated his real abilities aside from his Jersey Shore-style attack on the media for making it difficult for politicians to lead sordid private lives…..the same media he encouraged to vilify Bill Clinton and John Edwards for equally bad behavior? Yet this new Kardashianist-soap-opera-esque tone of the debates fueled Newt’s popularity even though none of it made much sense in light of the great historian Newt’s personal and professional history. Just like Kim Kardashian’s marriage, isn’t Newts protests about the media exposing politicians private lives just as fake?
I often ask the same question about my fellow New York real estate brokers: sometimes I am saddened how some really, really good brokers suffer because they don’t participate in the loudness of our industry, choosing to focus on substance rather than noise. I don’t think there is any harm in a bit of both, but the noise without the substance is really painful. There are too many brokers who are truly incompetent, or worse….really corrupt: These super-stars are seen on television, quoted in some of the most prestigious publications and their word is perceived my most to be reality and the truth. Not too long ago, wasn’t Shvo the ‘it’ broker of Manhattan……to-day he has all but dissappeared. He is not alone, although a good number of this breed are around continuing bad traditions and inventing worse new ones.
One can only hope that the future of these Kardashianistas fades fast and is replaced by competent and smart brokers……and substantive presidential candidates.
Saturday, January 21st, 2012
Posted by Leonard Steinberg on January 21st, 2012
This week reminded us all about contracts when the architect of THE CONTRACT WITH AMERICA, Newt Gingrich, was exposed for allegedly attempting to re-negotiate his marriage contract with one of his ex-wives. Has the meaning of a contract changed over the years?
A contract is defined as an agreement between two or more parties, especially one that is written and enforceable by law. Now we all know that the law is a rather maleable thing, even more so this week when we learned that even the king of the moral majority seemed eager to re-negotiate his contract with his wife. No-one was shocked about the Newt revelation: what was most telling was how even the ultra-conservative audience at this weeks CNN presidential debate applauded Newt for his contract breaking, even in the most holiest of contracts, a marriage. Surely this is the biggest flip-flop? Newt was actually ousted for his fixation on punishing President Clinton for his extra-marital dalliances (while in the midst of his own affair).
Now back to real estate: the question I ask to-day is that if the (supposed)most moral of people are quite comfortable re-negotiating contracts, practically changing the very nature of its intent, surely all contracts are very, very fragile…..at best? I have found recently that more buyers and sellers seem to view contracts more lightly, and often arrive pre-closing or as late as the closing table itself and attempt to re-negotiate. A friend reminded me at dinner this week how at her closing, her buyers arrived and smuggly demanded a whole host of items (and money) that had never been discussed before. Of course, a contract does govern legal obligation, and often the only recourse to a conflict is a lawsuit. Most times the issues at hand are relatively minor and resolution is negotiated knowing the legal route would be more costly.
Minor contracts, the regular day-to-day promises and agreements we make seem to be under greater attack in my opinion. I am finiding more and more that some people hide behind the premise of the concept that ‘oh well, things change’ as a weak attempt to justify truly bad behaviour. The bad behaviour of individuals is always made worse by those around them who don’t voice their outrage at this bad behaviour. Its a slippery slope towards a really decayed society when a promise, contract or statement are always open to re-negotiation and re-interpretatio, especially when the initial intent is to allow this. Some may call this lying, deception or even fraud. Breaking contracts is nothing new…..it has happened all through time….that still doesn’t make it the kind of behaviour we should endorse.
Lets remember that we are all better served when contracts are respected and honored.