As we head towards the second quarter of 2003, the world is a very different place than it was at the turn of this new century. Back then, New York City was riding high on the crest of the "New Economy," toasting success in a rocket-fueled, dot-com stock market, making money hand over fist, and sinking multimillions into super-luxe, showpiece apartments in Manhattan's most fashionable neighborhoods.
A lot has changed. The bubble has burst and the economy has sunk into a lingering recession; the echoes of September 11th still resound in our collective consciousness, and the potential of armed conflict in the Middle East looms on the horizon. This confluence of factors made for an unpredictable year in 2002, and for a good deal of hesitance on the part of real estate industry players to make any firm predictions past the end of 2003.
It seems as though the city, the nation - and the world - is in a holding pattern, waiting to see what will happen on Wall Street, in Baghdad, with North Korea, and during the ongoing war against terrorism.
All the post-2001 uncertainly spilled over into the first part of 2002, according to some industry heavy-hitters, though overall, the co-op and condo market remained relatively robust. According to Elizabeth Stribling, president of Manhattan-based brokerage firm Stribling & Associates Ltd., "2002 was a very good year. There was a lot of market activity, and sales volume was up from the year before. The perception was that investing in real estate was safer than investing in the stock market."
Roberta Benzilio, executive vice president at William B. May Company, believes that 2002 "was probably the second-best year in a long time. 2000 was the best year we had on record in over a decade, and after the disaster of 2001, 2002 went very well. There were a lot of people who were new to the market, a lot of first-time buyers."
Neil Binder, president of Bellmarc Property Management, is somewhat more taciturn in his assessment. "2002 was a year in transition. I'd say that in the initial portion of the year, the market was extremely strong, with pent-up demand from 2001 causing an explosion of business in the first half or three-quarters of the year." As for the situation now, Binder feels that, "The market is vibrant. It isn't exploding, but it is active."
According to Frederick Peters, president of Manhattan's Ashforth Warburg Associates, "You can't characterize attitudes for all of 2002 because they were so different in February than in November. The first half of the year expressed an enormous amount of demand that was the result of the post-September 11th depression in the market. There was a sense of urgency in the first six months of 2002 that drove prices up, but then the ongoing, underlying weakness in the economy that had been obscured by September 11th became more apparent as all the corporate scandals began battering the stock market. Buyers just became more cautious again."
According to Diane Ramirez, president of Halstead Property, LLC, 2002 must really be assessed relative to 2000. "When you look at our sales numbers and volume in 2001," she says, "you could say it was flat - or stable, depending on the word you want to use. When we look at numbers for 2002, we [should] compare it to 2000, because hopefully we won't have another 2001 to compare it to - it's not a fair comparison." Ramirez goes on to say that, "The year just gone by has been very strong. We had record second and third quarters - we're not seeing anything that parallels the financial market. The real estate market has separated itself and is taking on a life of its own."
And why is that, exactly? According to Ramirez and many of her colleagues, it's primarily because of record interest rates.
"We've had the lowest interest rates in 30 years, giving people much more purchasing power this year. The stock market and other financial vehicles aren't as attractive, and people are thinking after the tragedy of 2001, "˜what is important to me?' and more and more often, the answer is home, and family. People are feeling very comfortable about putting their money into their home, and are wanting to invest in a market that's holding steady," says Ramirez.
Joanna Simon, a senior broker with Fox Residential Group in Manhattan, agrees. "There was a kind of reverse in the market. Throughout the spring and summer, there was quite a lot of activity in the lower end, while the very high end has remained stagnant because the stock market has been so depressed, and the people who buy in the very high end are generally the people who were affected by the market - either investors or people who work in the market, and there aren't the big bonuses that there were. Also, people who've lost a lot of money in the stock market and put their apartments up for $9 million aren't finding a lot of buyers in that arena. There's a good deal of activity in the lower end and middle of the market, and not much in the high end. The lower end and middle is spurred by the fantastic mortgage rates that haven't been this good in 40 years - and prices have come down. There are quite a lot of buyers."
According to Benzilio: "One- and two-bedrooms are selling faster. We're seeing under-a-million-dollar properties sell faster than over-a-million. That's not to say that deals aren't being closed at every price point, but if you're looking for more activity, it's in the under-a-million category. Even in the $400,000 to $800,000 range, there's more activity. I think it has a lot to do with first-time buyers deciding that they can pay mortgages instead of rent now."
According to Binder, what moves and what doesn't depends on a number of factors. "For a long time, the West Side has been selling at premiums that have been unsupportable. But it's starting to loosen up a little as a result of a little bit more supply, which has been good for everyone. In some markets people are willing to compromise location to augment space, and other times it goes the other way. Right now, the East Side and Midtown have the biggest demand, because in proportion to their populations, they've got the highest number of smaller apartments; studios and ones. That's the highest segment of activity, since those buyers are most sensitive to lower interest rates."
Ramirez agrees, and adds that, "Right now, our strongest market is the one- two- and three-bedroom market. The top luxury market is our slowest right now."
And what about those trophy apartments of the late 1990s? According to Stribling, their glitter has dulled a little, though it still sparkles through the economic haze. "In the last quarter of 2002 the very top of the luxury market began to take off again. This is very interesting, because the very top of that category - we're talking about $20 million apartments - [they] really hadn't had any activity for a year and a half. As price adjustments over that time gradually produced $20 million listings that could be had for say, $13 million, or $15 million listings selling for $10 million or $11 million, the category began to move again in November and December. The low-end and the super high-end tended in the last quarter to almost act like bookends to contain the market."
What was the average co-op or condo buyer's overall mindset in 2002? Did trepidation over tumbling stock prices color their prospective purchasing plan? According to Stribling, "Ultimately, what it all came down to is pricing. The word that really came into use for home-seekers this year was "˜value-conscious' - they wanted to see value for the buck."
"People were looking for lifestyle," echoes Binder. "Their first concern upon moving to New York is to find a place they can afford. The next thing is a place they can afford that's also safe. After that, it's where they can have certain kinds of services within the building. After that, then they say to me, "Okay. Now let me have a look at that apartment."
Binder continues, pointing out that at his firm, "We're recognizing that buyers are taking their time. There's not that feeling that "˜if I don't bid, I'm going to lose the apartment,' whereas [in 2000], there was such a lack of supply that if you didn't get the apartment you were bidding on, you worried. Now, if you don't get the apartment, big deal - there are a few more around. It's not going to be terrible if you don't get that deal.
To affordability and safety, Peters adds that, "For several years now, and particularly since September 11th, there's been an attitudinal shift with buyers really preferring renovated apartments. That, more than anything else, is a market characteristic. People want more instant gratification. The sense that nothing is forever seems to have entered the New York psyche, and as a result, people want to start enjoying their new purchase as soon as possible."
Industry figures also are quick to point out at every turn that early 21st Century buyers are more educated and market-savvy than their predecessors. This is largely thanks to the proliferation of the Internet, and the presence of any brokerage of significance on it. "They can go on everybody's Web site, and look at photos and floor plans, and become more knowledgeable," says Stribling. "They perform their due diligence and do their homework before they even see a property. Consequently, they view fewer properties than before. When they come to you, they're not novices."
That confidence affects the buyer/broker relationship for the better, according to Benzilio. "We noticed a lot of confidence [in prospective buyers] this past year," she says. "Confidence in the market, and in the thought that they're making a better investment and putting their money someplace safer. Buyers had essentially the same concerns they've always had "“ will my value hold, and will this apartment be worth what I'm paying for it now when I sell? Generally, I tell people that if they're planning to stay five years or more, it'll definitely be worth that and more."
And just what were people paying in 2002? According to Binder, "There's great variety in pricing based on location, but I'd say for studios, you're still looking at $225,000 or so, the one bedrooms are $325,000 or so, two [bedrooms] are about $700,000, and three [bedrooms] about $1 million, $1.1 million."
Binder and his colleagues caution against using such general numbers as templates against which to judge the entire market. "That's just cookie-cutter property," says Binder. "If you go to certain areas, like the West Side, that figure is more like $1.3 million [for a three-bedroom], if you go to the East Side, you can get it for the $1.1 million, in Gramercy or Chelsea, you can get that for a million, but in Greenwich Village, you can't anything, because they aren't there - unless you're talking about a loft. Down into SoHo, you're looking at some pretty big numbers."
Exact numbers notwithstanding, Stribling has some (very general, she insists) tips for those seeking deals. "You can get your best value for the buck on the Far Upper East Side - you can get really unbelievable townhouses there [that are] more affordable than in Chelsea. For a studio apartment, your best value in New York is the Yorkville area, around First, Second, York, and East End Avenues. Also the East 50's; East 57th Street going toward Sutton, East End Avenue and Sutton place if you want a grand, grand apartment with better value than an equally grand apartment on Park Avenue or Fifth."
Through it all, Manhattan remains the white-hot epicenter of New York City real estate - though some spots burn brighter than others. According to Simon, "The hot areas of the market are the same as they've been for the last 25 years: the prime real estate is on Fifth Avenue and Central Park West and Park Avenue - that's where people want to live; between 65th and 79th Street." Simon also names Clinton (otherwise known as Hell's Kitchen) and Harlem as areas to watch in the coming few years.
According to Stribling, "Chelsea continues to be wildly popular as more and more art galleries continue to locate there. TriBeCa has bounced back with an unbelievable resilience, and Chinatown is pushing up toward NoLiTa."
More than one broker has an eye fixed on the far West Side of Manhattan, from the 30's through the 50's as Chelsea moves northward and the renovation of Columbus Center moves southward. Mayor Michael R. Bloomberg's proposal to transform the underserved Jacob Javits Center area with expanded train service and more residential and commercial construction may change the face of the far West Side. "I think that whole corridor from Chelsea to Columbus Circle will become more and more a young professional area," says Stribling, adding that, "The great thing is that there's no one place to live in New York "“ there's no one zip code you've got to have. People go to their neighborhood of choice."
And those choices vary, depending on what point buyers are at in their lives, and what kind of lifestyle they wish to cultivate, says Benzilio. "The Upper East and Upper West Sides are popular with younger families," she says, "and young professionals are moving all over. Downtown is especially popular with kids and single professionals, and the East Village is becoming really popular these days. It's gone off the charts, actually. Retirees want to be in mid- to uptown."
The only area that defies trends, according to Binder, is the West Village. "The Village is a mysterious beast. [Village properties] are the last to come down when there's a recession; they're completely intransigent in their pricing, they hold value more than anybody, and are the most expensive [properties] per square foot of any in the city. It's a niche market. People in the Village don't sell, but they don't care that they don't. They love it there. There's a different personality in the Village for sure."
At the end of the day, however, most brokers would agree with Ramirez, who says that, "There's not just one neighborhood anymore. We used to have customers come to us and say they wanted to live on the Upper East Side, and they'd even say what streets they wanted to live between. Now, we often have customers who come in and say, "I'll live anywhere in Manhattan. Buyers are much more flexible on neighborhood than I've ever seen them in my entire career."
Along with frenetic neighborhood hunting, a few other trends bit the dust in the last year or so, only to be replaced by new obsessions. Among the more notable sea changes was the demise of the often-ostentatious mega-quadruplex apartment. According to Peters, "Everybody still wants to decorate - redo the floors, repaint, repaper, and so forth - but by and large, people aren't so preoccupied with the huge Jacuzzi - they want a high quality of work, not so much for every bell and whistle. In general, I think excess is out."
As in years past, brokers say, buyers are looking for the perfect balance of space, convenience, comfort, and security. New bathrooms and kitchens are edging out more old-fashioned fixtures, and in light of September 11th and the possible war, doormen and security staff have become necessary features for many buyers. Says Benzilio, "People are really valuing doormen and amenities in and around their buildings. It's personal security and more time-sensitive convenience to have a doorman help you with things, or having bike rooms right there inside the door. Security is an issue - better background checks for people, more information wanted - I see the trend of condos acting more like co-ops, wanting more specifics and qualifications from prospective buyers."
The new year means new challenges and some adaptation on the part of the city's brokers. "It used to be that we'd have offices in various localities," adds Binder, "and our reference would focus just within [that community]. Now, [if a customer] were to come to the West Side office and ask to see an apartment, the broker will show the West Side, but also listings up in the Lincoln Center area. The span that we're searching to find viable properties is definitely expanded dramatically. That's the biggest single thing that's changed for brokers. We're showing many more apartments, and we're expanding the area in which we're showing."
Simon views her upcoming year a little differently. "The biggest challenge is when a client says, "˜I want to live in TriBeCa,' or "˜I want to live in the East 60s, and this is the amount I want to spend,' and you have to make the match between the area and the amount they're willing to spend, and still find them a wonderful apartment."
For her part, Benzilio feels that, "For brokers, the biggest challenge of 2003 will be adjusting how they sell - having to work in a different way. Whenever a market changes, brokers always do well if they know how to adjust to who you're talking to and how you sell, because you're the one with the information. Brokers have to educate their buyers and sellers about the new market and how it affects them."
Ramirez says her biggest job will be to "convince everyone that the marketplace is stable and will remain stable. You have a lot of people insisting that it's going to mirror the financial market, and that concerns buyers who ask if this is the time to purchase. The challenge will be to show buyers that the factors of good interest rates and the supply aspect will prove that the market is strong."
Overall, industry opinion on what's next for the New York City market is guardedly optimistic, with a healthy dash of realism.
"I think that for a while, until the whole Iraq situation has been straightened out, and until the stock market really comes back, things are very good for buyers," says Simon. "A lot of younger people who might have been renting before are making that commitment now, and jumping into the market to buy."
According to Peters, "At this point, it's almost a give that we're going to have some kind of armed conflict in the Middle East, and it's increased people's inclination to put their purchases on hold. Once it actually happens - and assuming it's a relatively expeditious event - it may shake a lot loose in the market, and sales will pick up. Nobody has a crystal ball, but we may begin to see some signs of economic recovery by the fourth quarter, and that would unquestionably invigorate our marketplace."
"I think that downtown is going to be the destination point of the future," counters Stribling, "and that Mayor Bloomberg's vision for the redevelopment of all of Lower Manhattan "“ not necessarily just the Trade Center site "“ is very exhilarating. I think in seven to 10 years, it's going to become a real, "˜24/7' community with parks, and vistas and trees, and it'll be very exciting."
Benzilio also exudes optimism: "No one has a crystal ball, but my general sense is that it's going to be a decent year. There are always those who are a little cautious, and a little hesitant, but I think people are looking long-term, and looking globally, and while things aren't looking quite as rosy as they have in the past"¦my outlook is optimistic."
For his part, Binder expresses some concern over how the overall economic picture will affect the market. "My great concern is the threat of higher interest rates. The budget proposed by Bush shows a deficit after a number of years of surplus. That money came last year from borrowing from Social Security, which makes me fearful that the government will have to go to the financial markets to borrow money to support the deficits. That's what results in increased interest rates. If interest rates increase, that means that there's a very uncertain future for the market. Right now, people are buying carefully, but because rates are good. I'm worried more about six months from now."
Ramirez predicts a fairly levelheaded year. "In 2003 and into 2004, I think we'll see a very steady market. I don't think we'll see big shifts in where people want to live. I think we'll see steady years where there won't be huge increases in prices, but more a solid, steady marketplace. I don't see it plummeting. The costs of living in apartments aren't going to go up so astronomically that it'll price people out."
What it boils down to for Benzilio - and many of her colleagues in the real estate game - is simple: "There's a lot of confidence in New York," she says, "Especially after 9/11. People really have an allegiance to the city - they want to be here." And that will likely stay true, regardless of the market.