Warburg Blog

With all the talk of tight inventory and markets picking up, I thought I would share a bit of what I’m seeing to provide some on-the-ground color on today’s sales environment.  I’ll share two case studies to underline the primary trends I’m observing:  1) the higher end of the market is definitely picking up, and 2) the lower end is showing a material preference for fresh renovations.

Case Study #1:

·         Property: a 3300 square foot 3-bedroom corner apartment on the East River on the market 2.5 years ago priced at $6 million. 

·         Activity last year:  by last June, the price was reduced to $3.995 million, with several offers coming in around $3.2 million throughout the course of the year.  One foreign buyer was going to purchase it for approximately $3.6 million, when he pulled away due to the strengthening dollar. 

·         Activity this year:  the price was reduced to $3.3 million, which resulted in the property being bid up to a bit over $3.4 million by two all-cash buyers.  The contract was signed in May.

·         Takeaway:  a well priced property can easily get bid up above its asking price, now that the higher end of the market is picking up.

The higher end of the market ($3+ million for the purpose of this discussion) is finally beginning to experience the activity and excitement that the lower end has been feeling over the last 9+ months.  Some properties I’ve seen above the $5 million mark are receiving multiple bids if well priced and don’t require an excessive amount of work.  Further, and somewhat surprisingly, prospective buyers and their brokers are coming across 7-10 days’ wait lists to just see new, well priced properties, particularly for those high-end buildings in which open houses are prohibited.  ‘Nothing like a wait list to increase the sense of urgency in the market.

With respect to financing, the high-end market segment is clearly defined by all-cash or mortgage non-contingent buyers.  Often times, many of them will still opt to take out a mortgage despite the all-cash financial wherewithal due to today’s tantalizingly low rates.

Case Study #2:

·         Property:  1300 square foot 2-bedroom apartment in xxx neighborhood, on the market in XX, with an original ask price of $1.8 million

·         Activity:  lots of negotiations back and forth between $1.6 and $1.7 million.  Buyers were finally willing to pay approximately $100/sq.ft. above “market” for the renovated aspect of the apartment, and landed at $1.695.

·         Takeaway:  many buyers in the market are willing to pay a premium for a turnkey apartment with newly renovated finishes.

On the lower end of the market, most buyers are looking to newly renovated apartments due to the lack of home equity loans available to spruce up the properties according to their own tastes.  They are calculating that it’s cheaper to pay a bit more for fresh renovations and amortize that premium over 15 to 30 years, rather than decrease their liquidity by tapping into existing savings. All of this said, this pick-up in deal activity comes at a price, as it seems almost every deal getting done has a myriad of twists, turns and delays to overcome.  Buyers and sellers seem to be more frustrated than ever in the process of coming to a meeting of the minds; buyers are tired and worn down after months and months of looking for the right place, and sellers are looking ahead to better times, less willing to compromise on price.  This frustration only increases with the longer process of getting from signed contract to the closing table. Agents need to therefore be calmer than ever, and be part psychoanalyst, part financial advisor, part negotiator, etc.   I see deals falling apart left and right due to the financial and psychological nuances of this market … choose your agent correctly and put your ego on the backburner, lest you want a truly bumpy ride.

At the Winter Meeting of the REBNY Brooklyn Committee 2 of the Broker Members were reporting on activity in Williamsburg.  They each had large new developments to promote and sell and those properties came on line in late 2007 and early 2008.  There had been an initial burst of enthusiastic selling followed by a long quiet time.  You could tell the same story in any “emerging” neighborhood in New York.  In the fall of 2009 these developers began to capitulate on price, at long last accepting the “new reality” which as usual is simply reality.  Williamsburg was flooded with new development in 2007/08.  Many more units available than could possibly be absorbed in even the hottest selling environment.  The market in New York was showing signs of life and steady progress in the number of sales through the summer and fall of 2009 especially in Resale.  There had never been a rush to market with properties that “had to be sold” and consequently there had never been a large buildup of unsold inventory.  As the availability of apartments for resale dwindled buyers began to look at new developments again and discovered that some places were now reasonably priced and the developers were offering incentives.  Our Williamsburg Brokers were reporting that business was brisk.  The long quiet time was now over.  My next installment will be about a few places in Williamsburg and some other neighborhoods I have visited recently.

Ken Krasnow the Managing Director of Massey Knakal’s Brooklyn Office (M-K being the Giant Squid of Commercial Real Estate in NYC) was the guest speaker and gave a presentation on current conditions and predictions to mid year at a meeting of the REBNY Brooklyn Committee late last week.  In M-K’s view the bottom was reached in spring 2009, the last 2 quarters of ’09 being about recovery and stabilization.  Residential Buildings with five or more units for sale are not flooding the market; that is not what they anticipated a year ago.  Cap Rates (usually described as the net profit on Commercial Property) are not rising to double digits.  They are holding at an average of 6.75% to 7.5% which is the normal level of return for these properties in “Brownstone Brooklyn” (e.g. Park Slope, Cobble Hill, Brooklyn Heights &c).  This is another marker for a stable market situation not a deteriorating one.  And there is considerably more demand than places to buy.  This is tracking with the Residential Sales market in resale of Coops and Townhouses.  It seems that Banks have not chosen to dump their troubled assets all at once, largely because the Taxpayers (= us) provided them with Capital.  They see these trends continuing through the year. 

The feeling of the presentation was one of “pleasant surprise” that this was how it was turning out and not a fulfillment of more dire predictions.  On the whole I found it mildly encouraging, nice to think about as the snow falls in New York.