The Market Strikes Back
Brokers Look Ahead to 2004
Now that 2003, which opened with political strife and closed with one of the worst winters on record, is over, brokers are looking ahead and eagerly anticipating another strong year in 2004. An improved economy and enticingly low interest rates have helped to fuel a market resurgence unseen in many years. Empty nesters are migrating to Manhattan and would-be renters are buying, making once-iffy neighborhoods the newest hotspots. While brokers predict continued growth, they also warn of a price increase due to an inventory shortage and increasing demand.
The Silver Lining
As we enter 2004, the market in New York City looks as strong as ever. "Based on today, looking forward, it is very bright out there," says JoAnn Kennedy, chief executive officer of Coldwell Banker Hunt Kennedy, a brokerage firm in Manhattan. "We are extremely optimistic based on low interest rates, based on increased jobs, based on Wall Street bouncing back with bigger bonuses."
"I think it's going to be one of our biggest years ever," adds Patrick Lilly, also of Coldwell Banker. "Interest rates are still so low and they will probably stay low because [President George W.] Bush wants to be re-elected, and he will do what he can do to keep the economy going strong at least for another year."
Going into an election has always been good for real estate and while that's good news, some people are growing increasingly worried that things could be a little too good at the moment.
"In the current market right now brokers are complaining about lack of property, an over abundance of buyers and highly appreciating pricing in which asking prices have become basements rather than ceilings," says one Manhattan broker. "It's not uncommon for our salespeople to tell new buyers not to expect paying asking price, that they'll have to pay more."
According to Neil Binder, a principal with Manhattan's Bellmarc Realty, "It's kind of scary - a lot of our brokers are finding more animosity between [colleagues] because everyone is scampering," to make sales. "I think there is an increase in "For Sale by Owner' because owners recognize they can put an ad in the paper and get a slew of offers and may not think brokers are needed."
Don't Look Back"¦
"Last year was a year of transition in which we started to see an improvement in the perception of wealth by our customers, a solidification of the economic environment and a continuation of low, lower and lowest interest rates," adds Binder. "It initially started out predominantly serving middle-management types looking for studios and one-bedrooms because they could take their income and exploit it to higher levels of pricing. Around summertime, the improvement of the stock market caused the upper end to become solidified"¦ and it [led] into a surge of activity in the higher-priced properties."
Hey, Big Spender
High-end real estate - which came to a near halt during the recession because of capital loss in the stock market and a shaky economy - is regaining momentum. Kennedy says properties that have been on the market for a year are seeing activity.
"[At the beginning of 2003] the luxury apartment was a little bit on the stagnant side," says Jacky Teplitzky, executive vice president of Prudential Douglas Elliman. She attributes the lag to the war in Iraq, which, she says, made people a little nervous about the outcome and its effect on the U.S. economy.
However, according to Judith Thorn, executive vice president and sales manager for Warburg Realty Partnership in Manhattan, all segments of the market have recovered and even surpassed their old highs. "After 9/11, the high-end properties in TriBeCa were affected - especially in the southern part, closest to the World Trade Center," Thorn says. "But now things have changed again - there's tremendous optimism, and high-end properties in TriBeCa are moving as quickly - if not more quickly - than they ever did before."
Scott Durkin, the chief operating officer of the Corcoran Group, agrees. "In the third and fourth quarter of 2002-2003, the high end - meaning properties over $5 million - came back extremely well, and we saw many sales well above $10 million, a couple over $20 million, and one over $40 million. So the high-end has returned to levels that we haven't seen in a couple of years."
Thorn says luxury buyers - usually high-wage earners with secure professions - represent a small segment of the overall market. With the job market having solidified in the past year, She says it's a "really fertile market for someone who's looking to buy. I think that not only has the market recovered, but it's going to get even better."
A Promising Horizon
Brokers are optimistic about the year ahead. "It's going to be highly competitive," Kennedy says. "I expect that this is going to be an incredibly good year. Hopefully we're going to get some more people selling."
William Morris Hunt III, president of Coldwell Banker, says empty nesters are returning to Manhattan, and that the inviting interest rates are encouraging more buying. "They're buying when they can," he says. "It's all putting pressure on the resale market."
Because of that, he says, "This year certainly there's a very favorable economic climate. I think it's going to be a wide open year." Although he doesn't foresee see any looming negative scenario, he says "it's really a question as to whether they can meet the demand for the need. Right now the demand is very high."
And high demand has put a serious squeeze on what brokers have to show clients - as well as what clients may be willing to pay for their dream apartment. According to Durkin, "In the last quarter of 2003, we could see that there was a listing inventory shortage. We have 50 percent fewer listings this quarter than the last quarter of 2003 - 50 percent less! So yes, we have a serious listing shortage, which has pushed prices farther north, and we're seeing the bidding war re-enter the market."
"We started  from a place where we have no inventory, low interest rates, more money because of bonuses and high demand," Teplitzky adds. "We have had overbids that were as high as $50,000 above asking price, and sealed bids as well, which we haven't seen since 2000."
"In the fourth quarter of 2003 the list price vs. time on the market went down dramatically," she says. The negotiability factor between the listing price and the actual contract price, around 3 percent at the beginning of last year, now is likely non-negotiable.
Teplitzky says a price increase will occur if inventory remains low. "You have bidding wars going as much as $20- to $30- to $40,000 above asking price," she says.
Kennedy says rising interest rates after the election could create a slowdown. "I think the interest rates will be held low until after the election - that's my guess - and then they'll probably be allowed to ride back up," she says.
Thorn predicts that interest rates will begin to climb by the middle or end of the year. However, she adds, the large numbers of new projects on the books could help balance out the market. "I think we're going to see new product coming from those more than we're seeing from resale," she says
Breaking New Ground
Manhattan is also getting some important new structures in 2004 that will change the area's landscape for the better.
"I love the fact that there's a new condo being built on Broadway in the Columbia University Area called the Opus at 107th and Broadway," says Kennedy. "That is breaking new ground for that kind of building in that type of area."
"The big ticket numbers are the Time Warner [Center] and the One Beacon Court [condominiums]," says Elizabeth Stribling, president of the Manhattan-based brokerage Stribling & Associates. "They are very, very important. The whole corridor from Columbus Circle across 57th, across 59th Street to the Sutton area, it's all being transformed. From Columbus Circle to Chelsea, the whole West Side will be fabulous."
Lilly sees a trend happening downtown in new construction projects where lofts are being built instead of converted. "We're calling them lofts even though technically, they are not lofts. The entire facade is wall-to-wall windows," he says. "If you want to trace that trend, it goes directly to the Richard Meier buildings at 176 and 173 Perry Street right on the [Hudson] river. Those sold out so quick to celebrities like Calvin Klein and Nicole Kidman. The demand for that was so high."
And all this new construction comes with new, higher price tags as the popularity of build-to-suit raw space continues and high-end buyers demand a hand in the ultimate look and feel of their home. "If you spend $15 million or $18 million now," says Durkin, "you have to put in another $5 million. It used to be that that would buy you everything. You'd just show up [at your new home] with a toothbrush. Now, you bring your architect or your decorator."
The New Hot "Nabes
Right now, there are so many areas that are hot in New York that it's hard to find any real bargains. Some people are looking at places once considered fringe areas as they see advancement going in all directions. Everyone seems to have an opinion on what the hottest area around town is.
"My forecast for the next big thing is Washington Heights," says Kennedy. "We've pretty much exhausted Manhattan south of 110th Street. Harlem has been in a huge renaissance. We've done lower Manhattan so we need to push north and I'm sure we'll go up to the George Washington Bridge. The next great area is the Bronx and the Grand Concourse."
Kennedy also notes that many neighborhoods have become gentrified over time, most recently Harlem. "I [also] see neighborhoods like Inwood becoming popular," she adds. "Lower Manhattan and the Lower East Side have already become gentrified. It's happened in every single neighborhood." She says money follows the young people, artists and workers, who renovate apartments and neighborhoods in need.
According to Binder, "Right now the Chelsea area has the greatest pricing premium over its expected value given that location due to the fact that the area has gone through transition from being a frontier to a "go-to' neighborhood. The Upper East Side is the hottest market in the city right now."
For his part, Lilly says, "Sutton Place is excellent value for your money. The Upper East Side east of Lexington Avenue is also very good value."
Stribling believes that Murray Hill is also a prime location at the moment. "It used to be just professionals but the property is more affordable and you're finding a lot of families moving into Murray Hill now," she says. "There are a lot of trendy restaurants, a more hip, young crowd. It's a good value."
According to Durkin, "Hudson Square is probably the hottest right now, since there are so many new loft conversions. North of TriBeCa and below the West Village is really becoming the hip new place, and Central Park West is very hot right now. We'll probably be having the greatest shortage of apartments on Central Park West - and we're talking big, eight- nine- and 10-room apartments. It's a large shortage, and the new Time Warner Center has helped that."
"The upper, Upper West Side is hot in the Columbia area," counters Michael Shapot, a broker with Coldwell Banker. "Other upside potential is the West 30's, 40's and 50's. I would say areas people would have otherwise thought of as fringe may be a bit undervalued today."
Roberta Benzilio of William B. May agrees, and advises prospective buyers to seek out new neighborhoods in order to find the best deals, especially when it comes to investments. "Be a trendsetter," she says. "There were years when nobody would live in the East Village and now apartments there are selling for $8 million. If you have less money but more time, you should look at new areas and invest in them because Manhattan is an island - and it's spreading."
To some, there may just not be enough neighborhoods for everyone who wants to live here.
"I would say right now the prices are pretty high all over and it's not a question of finding neighborhoods but individual apartments," says Shapot. "I'm not seeing anything but prices going up all across the board. Nothing is cooling off."
"It's every area getting uncovered now," Hunt says. "There are areas where you can still get better deals, but I think everything's been discovered." He adds that new construction is ongoing in Harlem. "There's been so much pressure to build everywhere they can," Hunt says.
Teplitzky says demographics dictate an area's popularity. Young people flock to the West 40s, where new rental buildings are going up. Housing on the Bowery and the Lower East Side is becoming as pricey as that in TriBeCa.
2004 and Beyond
We're now nearly two-and-a-half years out from the tragedy and economic freeze-frame of 2001, and it would appear that despite hard economic times, international conflict, and the constant, low-level worry that many New Yorkers live with since the attacks of 9/11, real estate in Manhattan seems to be going stronger than ever, with no sign of slowing down or losing value. Durkin echoes the sentiment of nearly all New York City brokers in saying, "The first six weeks of 2004 have far surpassed our expectations."
With new construction and conversions happening constantly, even the least-desirable corners of the tiny island will more than likely be next year's goldmine properties. As long as people desire a Manhattan address, the city's brokers and real estate professionals will no doubt have their work cut out for them.
Michael McDonough is a freelance writer living on Long Island.
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