Wall Street is still reeling from the re-birth of the BIG DEAL, where this week Warren Buffet and a Brazilian group swooped in to buy out HEINZ. Similar confidence in the BIG DEAL is being seen in the New York luxury real estate market where big players are swooping in to buy mega-apartments…..many of them. This week in the sales office at 150 CHARLES STREET has been an eye-opener! I took a photo of the calendar so that anyone who did not believe just how crazy-booked we are would have hard evidence. Another confidence indicator? Gold traders are the most bearish in more than a year on mounting speculation that improving economic growth from the U.S. to China will curb demand for this year’s worst-performing precious metal. It’s official: confidence has returned to the rich.
Posts Tagged ‘new york luxury real estate’
In the coming weeks and months, over 7,000 units of new construction LUXURY apartments will be coming to the market in New York……that is a VAST number of units and will significantly alter the bland inventory landscape we are currently experiencing. While one could argue that the record prices achieved by those few developers who actually had a building to sell were as a result of great product, the reality is those prices were also probably fueled by the lack of competition. How would pricing at One 57 have fared if 432 Park Avenue, the MOMA Tower, One Madison Park, the new Extell Tower and Michael Stern’s Tower on 57th Street were all on the market simultaneously?
Until recently most developers and their bankers speculated that every buyer is looking for a really large apartment with super-duper-luxury finishes and amenities. This theory will now be put to the test as we enter the chapter where the consumer will give us the ultimate reality check.
We are working on several new buildings Downtown in the West Village (150 Charles Street), Tribeca, West Chelsea, Soho and Noho: All will be thoroughly unique and special and distinctive: There is really no room in the ultra-luxury market for anything less.
Again, averages will be the curse of the market: Just because a certain AVERAGE price was achieved for the past 12 months, is that price applicable to all product? I think not. I firmly believe that the buildings in the best locations with the best balance of quality, design, structure and price such as 150 Charles Street in the West Village will win and I am afraid there will be some sore losers where a disturbing reality check will come to those developers whose pricing expectations simply are not based on reality. Excessive, overly ambitious pricing will be met with resistance I believe because no-one knows exactly the depth of demand. Yes, there certainly are a strong group of buyers who are waiting to buy these large, very expensive apartments…….but are there enough of them to absorb all this inventory that seems to be focused on the exact same profile buyer? Only time will tell. I believe the very best will win and be perfectly successful, but I think there are several rather average products coming out whose expectations of well-above-average pricing will be met with disappointment.
Moving forward, developers will have to be much more innovative: This week, I met with a mega-developer planning a rather exciting new building. It was refreshing to hear him talk about the need for innovation and beauty before dollars per square foot…..all are important, but the blind focus on pricing alone may prove to be a wake-up call to many developers and their bankers in the coming months.
Posted by Leonard Steinberg on January 3rd, 2013
Bloomberg reported that the worlds billionaire’s net worth surged in 2012, some by as much as twenty percent. Does this imply a sharp escalation in LUXOFLATION, our measure of the pricing inflation we have identified in the super luxury markets?
I think it’s very likely. Already we are witnessing clear evidence across the board where luxury real estate pricing across the globe has surged in the past 18 Months. The price of a Rolls Royce, Birkin bag from Hermes, Patek Phillipe watch, plush hotel room, high end restaurant tab, etc have all risen at a pace that certainly surpasses the average rate of general inflation. The huge dilemma facing the makers of luxury products is theirs maintain their exclusivity. Is an Hermes Kelly bag really such a luxury when you know THOUSANDS are being sold just like it all around the world? Does that elevated price alone make it so luxurious?
The ultimate luxury is one that has collector value, some element of rarity or scarcity about it. I always refer to “collector qualities” in Manhattan real estate…….that something that makes a property so unique it is difficult to replicate it…….or preferably impossible to replicate it. That will be the huge challenge for all luxury product creators moving forward as the audience for super luxury grows dramatically across the globe.
And yes, I anticipate massive pricing escalation over the next few years as some luxury makers and buyers will automatically believe something is luxury just because it has a high price. They may learn the hard way that this is simply not true. Then again, the world looks to the Kartrashians and the likes for style direction……
Yesterday a client mentioned to me an interesting phenomenon that is hitting the New York/Manhattan luxury real estate market. He was visiting a very high end new building in Greenwich Village and as he stood in one of the secondary bedrooms, he felt the entire world around him had shrunken dramatically. Have you noticed the dimensions on some of these new “LUXURY” apartments? 9ft x 10ft bedrooms? I guess this would be acceptable as a secondary bedroom for a housekeeper in a much larger home or in a cheap walk-up, but is this really the ‘new normal’ in Manhattan luxury real estate?
As bankers and developers are fixated with maximizing profitability based exclusively on dollars per square foot, those dollars become more profitable the more the room sizes shrink. A new building came to market in the Meatpacking District: An almost $ 3million apartment delivers a bedroom measuring 10’9″ x 10’3″. Another building on Gramercy Park offering apartments in the mid teens (yes, around $ 15million)delivers living rooms that are 14ft wide…..
While I believe buyers will flock to buy out of desperation from this ‘new normal’, I would caution them not to forget the fundamentals of good real estate…..good ‘luxury’ real estate requires rooms with good dimensions that can function in the real world. Maybe Bloomberg’s calorie counting legislation can help us all adapt to these shrinking dimensions? It seems the time has finally come for Leona Helmsley’s little people!
This morning Ben Bernanke spoke on the subject of the economy: his conclusion was that the improving employment and growth figures were a product of CATCH-UP. We can see the same thing clearly happening in the luxury Manhattan real estate market.
The above picture shows a line of prospective buyers (no this photo was not taken in 2007!) waiting to get in to an open house at 422 West 22nd Street over the weekend. The new building is one of very few new buildings offering ‘affordable’ price points for buyers eager to be in a top location and a brand new building. These price-points have been largely ignored in the past few years and even more so going forward as developers are mostly focused on the very high end of the market. More importantly this showcases how many buyers waiting for the ‘bottom’ of the market now feel they may have missed that. I spoke to some buyers over the weekend who regret not buying a unit I was selling at 245 Tenth Avenue…..it went to contract at the end of December 2011, and a very similar unit just went to contract…..3 months later……for about 12% more.
So the real estate market’s energy is probably just like the overall economy…. playing catch-up. Its always easiest to see the best time to buy or sell in the rear view mirror. So what does the future hold? Several thousand new apartments are currently in the development stages, and already the sleeping giant that was new construction has awoken. Around the city fences are being erected around construction sites, and the roar of concrete trucks is being heard throughout the city….this is just the beginning. I think the result will be a surge in construction-related employment. Imagine just the downtown market alone where I am personally familiar with about 2,000 units that will be built over the next 2-3 years: thats lots of concrete, wood, windows, steel, bath fixtures, appliances, plumbing, electrical, cabinetry, security, engineers, architects, etc, etc. And once they are completed, all these properties will require furniture, electronics, movers, transfer taxes….what I am really trying to say is that when a sleeping giant awakens, the earth moves and we will see an unprecedented hive of economic activity in New York very soon.
One area that Bernanke addressed was those un-employed who could not find work because they did not possess the new skills the market is looking for. If you compare this factor to real estate, many home owners are disturbed how their apartments are not selling at the record prices they read about in the N ew York Times and Post….or worse, not selling at all. Often these apartments exist in buildings that are out of touch with what the consumer of today wants and expects. I own an investment apartment in a building that had the most hideous lobby and entrance: it looked like a border crossing. The lobby renovation is almost completed, and all of a sudden the pricing in the building just bounced upwards: its a lesson that just like those in need of learning new skills to function in todays new economy, apartmentss and buildings have to upgrade and evolve to compete.
Posted by Leonard Steinberg on March 20th, 2012
Is a new trend emerging whereby ultra-fussy buyers who had passed on properties they visited some time ago return and re-visit with a new, fresh, less critical set of eyes? I see this happening right now in a few instances. Some buyers in the luxury real estate market in Manhattan learn faster than others, that perfection simply does not exist…..least of all in New York City…..and not at ANY price-point either! So these buyers who are possibly homeless many moths after they started searching are learning the hard way that evaluating the available inventory and picking ‘the best of’ can be better than waiting an eternity for the “perfect” place to come along…..and then only discover that it really does not exist.
The same can be said for the eternal bachelor seeking the perfect bride…..usually by the time he gets married, he settles for a lot less than what was available near the start of his search. And he has spent a lot of money on dates, drinks and dinners. He looks and feels more tired most times. He has aged. And time has marched on, maybe denying him a few more happy years. I have always found the happiest buyers are the ones who are pragmatic. And the smartest ones have told me their horror stories of how they waited for perfection, or waited to time the market price-wise, only to be delivered certain disappointment…. And for those who want perfection, you can be almost certain you will have to renovate, so buy quicker and get the process started sooner. By the time you have exhausted your search for perfection, more than likely your renovation will be completed and you will probably have gotten more of what you really want….sooner.
Many un-informed people are sometimes outraged by the commissions brokers earn for a real estate transaction in New York: its usually 6% and sometimes 5% for more expensive listing. This commission is split between buyer and seller brokers 50-50, so the average transaction leaves the broker between 2,5-3% of the sale price……often for doing many months of pretty intense work, often requiring years of experience to facilitate. And then the broker has to share a good percentage of that commission with the company they are affiliated with….and then they pay taxes on that income.
Granted, on a $ 2million sale that is quite a bit of money. Well, now comes the zinger: the taxman, who performs NO work of any kind during the transactional process, collects several taxes because, well, why not? It’s the taxman and it needs your money for all kinds of really useful endeavors…right? And the rich aren’t taxed, remember? On a $ 2million financed transaction, the taxman collects almost SIX PERCENT of the transaction between 1,825% transfer taxes, 1% MANSION taxes (yes, a 2 bedroom 1,600sf is a MANSION!) and 2,8% mortgage recording taxes. That’s well over $ 100k to the taxman, and yet relatively middle class New York luxury real estate buyers are told they do not pay enough in taxes?
So now Obama wants to take away the one important tax deduction to homeowners, the mortgage interest tax deduction…..the one thing that rewards buyers for investing in real estate, one of the very largest job creators in the US economy. I think this is simply STUPID!
Buyers of $ 2million homes in New York are NOT rich. That’s a severe distortion that needs to end.
To-day’s New York Times examines ‘the one percent’ a bit closer than it has in the past. Just like the Times is guilty of espousing averages when it comes to real estate statistics (All media is guilty of that!) it has been guilty in the past of not looking deeper into the subject to fully understand the extraordinary diversity within ‘the group’. Today that changed.
The reality is that the “one percent” is a very, very diverse group and averaging them is completely misleading. Yes, the group does have a few things vaguely in common, but just like all averages, there really is no such thing as an ‘average’ one percenter. Here are some facts to ponder:
1) Within the 1%, only the top 10% of the group earn above $ 6, 5 million annually. Thats about 120,000 households. The average ‘one percenter’ household earns $ 1,5 million. In Manhattan to qualify as a One Percenter, your household has to earn $ 790,000.00 or more…..
2) To qualify, you have to earn at least $ 380,000.00 per year. We all know this makes you very middle class in Manhattan, yet you could be perceived as rich in a small town elsewhere. Its all relative. Many poor people in the USA are perceived as quite wealthy when compared to the poor in other parts of the world too.
3) The jobs of the 1% are not limited to finance, in fact the group has jobs as diverse as is imaginable: Many are managers, ce0′s, physicians, dentists, but there are also book-keepers, writers (yes, there are over 10,000 writers in the 1%!)….59,000 teachers live in households of the 1%…..
4) What do they have in common: not that much, although a good chunk have solid college educations, work extraordinary hours, many are self employed.
5) I asked my brother, the Swiss banker living the goodlife, if there was any one thing he thought was common to the top 10% of the 1%…..he paused briefly and said in his experience most were extremely smart. Smart in their ability to make money. Seriously smart. He then added that there is a growing international group of super-wealthy that combine seriously smart with seriously corrupt…..
6) Inheritance is a big chunk of the “1%” but not nearly as big as you’d imagine. Yes many have inherited some money (40%), but not all have inherited the great fortunes you read about. That is a smaller segment.
7) 22% of the 1%’s income comes from capital gains as opposed to the 99% where its only 2%.
8) Men earn 75% of the money in a 1% household.
9) Sales at the Americana Manhasset, the upscale Long Island shopping center, have already exceeded their prerecession high. Even in down times, the 1 percent has incredible staying power, being far more likely than any other group to stay where they are rather than slip to lower rungs of the economic ladder.
10) 27% of 1% couples BOTH have advanced college degrees.
11) MANY of the very wealthy are super-talented: Didn’t Warren Buffet recently say its unwise to assume everyone should get a college degree when many simply do not possess the IQ to do so? Yes this is an unfair fact of life, just like it’s unfair that someone has the physical ability to throw a ball very well. Or sing beautifully. Or imagine the next tech device. Or win the lottery.
12) Manhattan’s ONE PERCENT carry the New York luxury real estate market on their backs, indirectly creating countless construction jobs, service industry jobs, spurring massive retail purchasing that employs thousands……not to mention the massive real estate taxes paid every year and the transactional taxes (City and State transfer taxes, mansion taxes, mortgage recording taxes…..).
So what is fair in the ONE PERCENT argument? This it a quandary the world faces to-day. I truly believe life is not fair, but for a whole host of reasons. I don’t think its fair that a doctor studies for almost 14 years, making a huge sacrifice and investment, only then to be ridiculed because they earn lots of money. I don’t think its fair that someone blessed with an uncanny ability to play with a ball earns ten times what this doctor earns. And I don’t think its fair that some porno-looking-broad has a reality show that affords her an income tripe that. I don’t think its fair that Lions eat Zebra’s. And I don’t think its fair that Zebra’s make chic rugs. I don’t think its fair when clients take up hours of my time without paying me a penny. I don’t think its fair that wealth is distributed so extremely un-evenly in some arenas. I think its unfair that many have absolutely nothing.
But at the end of the day, what does fair really matter? Health is really all that matters: unfortunately, good health costs a fortune too…..now that’s really unfair.
In a recent Wall Street Journal article a survey of those with investable assets of $ 30m+ revealed that the rich prefer commodities, real-estate, private companies in 2012 to place their investable dollars. 48% plan to increase their allocation to commodities in 2012, and 45% of respondents are looking to real estate….we see this already with the market starting off with a bang.
The message is all about the need to invest in tangible assets. Art, collectibles should do well to. Maybe this is the strongest argument that those in the know (and lets face it, the rich usually know first) feel certain that inflation is on the horizon…..we think its here already, quietly hidden by government statistics that omit critical factors when evaluating inflation. And real estate has always been a solid hedge against inflation, which bodes well for the New York luxury cash-driven market. With Metlife getting out of the mortgage business too, obtaining mortgages will be the challenge for the rest of the market.
I suspect pricing records for premium properties could be broken in 2012. We shall soon find out.
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?