The worst of the recession—big-time failures of investment banks and mortgage companies, huge banks in trouble, companies laying people off in the thousands—may be over. There are some signs of hope, and residential buildings that were long stalled are now getting off the ground. In most parts of the city, foreclosures are down. And loans seem to be more available.
But the hoped-for recovery still seems, at least to many people, to be as far away as ever. The unemployment rate fluctuates back and forth. Small businesses are still in trouble. And this must have an impact on the real estate market, especially the condo and co-op market.
New York is somewhat different than many cities in the country, in part because of the number of wealthy people who live here on either a full-time or a part-time basis. But in the same city, young people are staying longer with their parents because it’s more difficult than ever for them to get that first jobs. And in many workplaces, people who leave simply aren’t being replaced. How are these seemingly contradictory trends being reflected in the market?
What’s the general demeanor of the residential real estate market in the city and its suburbs, especially compared to the rest of the country?
Real estate professionals have several answers and they tend to agree that things are on the upswing, although they could be better. Earlier this year, we reported that the mood of the market is “cautiously optimistic,” and that still seems to be the case.
Holding its Own
For example, Greg Carlson, president of the Federation of New York Housing Cooperatives and Condominiums (FNYHC), said, “The New York City market has held its own. The only problem is getting share loans/mortgages, but recently that has loosened up.”
Mike Slattery, senior vice president in charge of research at the Real Estate Board of New York (REBNY), also believes things are looking up. “The market continues to improve. Prices are up slightly from a year ago, and the volume of sales is stable. Overall, New York City appears to be doing better than most parts of the country, which were hit hard by the financial crisis,” he said.
Dottie Herman, president and CEO of Prudential Douglas Elliman, said, “The Manhattan housing market has been surprisingly busy through the summer—it’s not just about the high-end market. Record low rates and low inventory are the key drivers of stable prices and steady demand for most markets. We’re still seeing the relationship between buyers and sellers stay about the same.”
Comparing the city to the nation as a whole, she says that, “housing sales [nationally] continue to improve slowly as well, but haven’t seen the stability we’ve enjoyed in our market.”
The high-end market has a somewhat different reference point from the market as a whole. For people involved in this segment, many of whom travel constantly and are involved in the financial markets, the point of comparison for residential buildings is not Stuyvesant Town or London Terrace, the way it might be for middle-class folks, but high-end developments in Hong Kong, London or Frankfurt.
And speaking for Stribling & Associates, a firm that specializes in the high-end market, Kirk Henckels, executive vice president and director of private brokerage at the firms, says that trophy properties have “gone through the roof—it’s not unusual to see prices of more than $10,000 or more per square foot, right up there with London and Hong Kong.”
Looking forward to the future, professionals see current conditions continuing, with slow growth and few surprises.
Henckels says that one factor that is contributing to the market’s recovery is that top-quality condos are now being built again. “One of the things that held the condo market back was the lack of first-rate product,” he says.
Interestingly, Henckels also says the expected rise in the capital gains tax next January will have an impact on the market. Obviously, many wealthy people in Manhattan are dependent on capital gains as well as wages for their income—and the amount they’re taxed affects how much they’re willing to spend.
Also looking outside the real estate arena, Slattery says that a solution to Europe’s debt problem is one of the factors that will keep the real estate market on the upswing, since many wealthy Europeans tend to have New York apartments.
Of course, these are only a few of the factors that could be driving the market during the next few years. There is a big demand for both condos and rentals, and this will be sure to spur new construction in the near future if financing is available. Indeed, there are already signs that this is happening.
“This year, new building unit permits are on a pace to be 50 percent higher than last year,” said Slattery. “Nevertheless, this may still not meet the demand we are seeing.
“During [the past few years] we were averaging about 6,000 new units a year, which were mostly government-assisted projects,” he added. “We are on a tract this year to issue new housing permits for 9,000. Nevertheless, this is well below the peak of 2007 and 2008 when we issued new permits for more than 30,000 units.”
More input comes from Susan De Franca, president and CEO of New Developments, and Sharyn Stuart, Director of Research for Prudential Douglas Elliman. “The market share for new development has remained consistent,” they said, “as much of the former shadow inventory created during the recent housing boom has been absorbed. Economic uncertainty abroad and the weak U.S. dollar brought more foreign buyers looking for an investment safe haven.”
(By the way, if you don’t know what “shadow inventory” means, according to www.investopedia.com, it refers to “real estate properties that are either in foreclosure and have not yet been sold, or homes that owners are delaying putting on the market until prices improve.)
De Franca and Stuart also say that the new development arena is primed to bring well over 50 new developments for the New York City marketplace over the next 12 to 24 months. But because there will still be a shortage of condos, prices are expected to rise, they add.
Among the new developments that are scheduled to open next year are:
150 Charles Street, West Village. 91 units. New construction.
The Puck Building, 295 Lafayette St, Nolita. 6 Penthouses. Conversion.
301 East 50th Street, Midtown East. 60 units. New construction.
11 East 68th Street, Upper East Side. 12 large family-sized units. Rental conversion.
71 Laight Street, Tribeca. 34 units. New construction/conversion.
One recently finished development in the high-end sector that Henckels mentioned as especially generating a lot of interest and selling quickly include the Devonshire House, 28 East 10th Street (a condo conversion of a prewar building). 157 West 57th Street, also known as One57 and Carnegie 57, which topped out in June and is on track to become the tallest residential building in Manhattan, “seems to be the luxury trophy of the market,” he said.
What kinds of changes might we see in the near future in terms of incentives being offered to developers in the New York City area, and to prospective buyers to get them into new buildings?
Observers believe the well-known 421a tax abatement program for multifamily residential housing will continue to be an important incentive for the creation of new housing in the city. Another government incentive worth noting is Mayor Michael R. Bloomberg’s New Housing marketplace plan, administered by the Department of Housing Preservation and Development (HPD), which helps to create incentives to develop housing for low-, moderate- and middle-income New Yorkers.
In addition, says Herman, “The Inclusionary Housing program offers developers floor area bonuses of up to 20 percent in exchange for providing affordable housing within their developments.”
Parts of the Greenpoint-Williamsburg waterfront, West Chelsea, and Fourth Avenue in lower Park Slope are all examples of Inclusionary Housing Areas, according to the city. “What we might see in the future,” added De Franca and Stuart, “is the continuation of innovative changes to zoning.”
The Regional Plan Association recommends several “best practices” to make sure that large real estate development projects support the city’s long-term goals. These include:
Establishing benchmarks to guide development projects and balance economic, environmental and social equity objectives.
Incorporating earlier public planning process to develop greater consensus on project priorities.
Greater public oversight as well as the promotion of long-term partnerships among public agencies and private developers.
Prioritizing public space by designing, constructing and programming in advance of the buildings that will be constructed around them.
Connecting real estate and transportation improvements to effectively serve the greater pedestrian volumes added by new development.
However, Carlson has some reservations. “Incentives are disappearing because of government budgets,” he says.
An Attractive Place to Live
No matter what happens, the city will continue to gain status as an attractive place to live. The days of the 1970s and 1980s, when New York City was synonymous with crime, abandoned buildings, vacant storefronts and shrinking city services, are a thing of the past. Today's New York is a global city, and it attracts people from all over the world. Where else can you find the Museum of Modern Art, Lincoln Center, Yankee Stadium and Central Park? Where else can you be in Chinatown one minute and in Harlem an hour later?
Still, there’s a danger that people will increasingly perceive New York, especially Manhattan, as a city only for the very wealthy. And that’s not necessarily the case. New York City has the Upper East Side and Brooklyn Heights, but it also has Astoria, Inwood and Borough Park.
“More than half of all sales in Manhattan were less than $1 million, and I think that people outside of our market area think all sales are multimillion-dollar properties,” says Herman. ‘While I don’t think the recent recession has leveled the playing field for all, I do think the opportunities to thrive in New York City as a single person or a young family still remain.”
On the same note, Slattery, “As the population of the city and the region grows, we will need to produce more housing for all income groups. This will require tax incentives to bring down the cost and other policy changes to encourage greater density in areas of the city served by transit, and that can sustain this new housing.”
New infrastructure developments, like the High Line park, and those still in the planning stages, like the Second Avenue Subway, will make living in New York City even more desirable. When the recession is finally over, the city will be in an even stronger position—and that includes its real estate market.
Raanan Geberer is a freelance writer and a frequent contributor to The Cooperator.