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The Price is…Right? Adjusting Valuations for Pandemic’s Impact

Even before the COVID-19 crisis hit, the question of where real estate values were going was the elephant lurking in the corner of the room. Some submarkets (like Florida, for example) were strong—and getting stronger. Others (like New York City) were suffering declines—primarily thanks to tax law changes passed back in 2017. The limitations on deductibility of state and local taxes had already had a  deleterious effect on co-op and condominium prices in New York City, its suburbs, and nearby New Jersey, which are all high-tax areas. Other factors, like the change to the so-called ‘mansion tax,’ also contributed to a decline in prices and values in New York, as did substantial overbuilding in the high-end luxury market.

Then along came COVID, and its accompanying economic shutdown—which has changed the realities of work and lifestyle, perhaps permanently to some extent.  Are brick-and-mortar office spaces as essential as they once seemed? Can businesses such as law firms, advertising agencies, even financial institutions conduct their daily operations without a physical space in which personnel can congregate? If not, will an urban lifestyle be as appealing as it once was, particularly if the attractions of that lifestyle—dining out, theatre, nightlife, and the rest—are sharply limited, or fraught with anxiety?

What Does the Future Look Like?

David Eisenbach is a historian, author, and lecturer at Columbia University, and is an expert on urban history, particularly that of New York City. He sees huge potential changes coming. “Density is what makes New York—and maybe breaks New York under COVID-19,” Eisenbach says. “Just look at the subway. If you think flying exposes you to COVID, think about a 40-minute subway ride with a transfer in Times Square during rush hour. Or what about the packed elevator to the 30th floor of your office building, every day, twice a day, five times a week? Density is what fills New York’s universe of restaurants, clubs, and theaters every night, making it the hotbed of cuisine, culture, and entertainment that it is. But what if nothing’s open? Or the experience of sitting in a restaurant or theater is stressful? What if great New York pastimes like window shopping or rambling through Central Park are now anxiety-provoking?” New Yorkers are often quick to counter complaints about the cost and hassle of living here with examples of all the amazing things one can do and see here, and nowhere else. But, says Eisenbach, “With all the frustrations and expenses of living in New York City, what happens if there are no perks?”

Eisenbach points out that a big test of the durability of urban lifestyle will be whether schools can reopen in September. “No decision has been made,” he says, “but it’s not looking good. If offices and schools aren’t open, or if your office allows telecommuting, there isn’t much need to live in New York City.” And if that’s the case, a major reshuffling of residential properties may be on the near horizon.

The Possibility of a Rebound

Alternatively, “The default assumption by most is [that the pandemic will have] a negative impact,” says Jonathan Miller, principal of Miller Samuel, a national real estate appraisal and advisory firm located in Manhattan, “but there is literally a shortage of empirical evidence for that assumption—and until the New York brokerage community is allowed to physically show property, we won’t have that evidence. I suspect there will be a surge of contracts at that moment, and from that point on, we will see price discovery.”

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