Warburg Blog

One of the most interesting features of the Manhattan real estate market since L-Day last September 15 is the way in which properties of different sizes have had different trajectories. In the last quarter of 2008, only properties costing under $1,000,000 were selling. The most likely reason for that: with rents still high, it remained cheaper to buy them than to rent them. Prices were lower, in some cases sharply lower, but the general seller capitulation which brought prices down so dramatically across the whole property spectrum was really more a phenomenon of the first quarter of 2009. Not many deals were done, but those that WERE done were small.

Beginning in February that focus changed for us. More buyers, seeing real price reductions, began to bid on larger units. We gradually began to sell more higher priced properties, especially those with motivated sellers. Then the stock market plunged in the first week of March and everything got renegotiated or put on hold again.

Beginning in mid-March the real estate market took some tentative steps towards stabilization. Sellers acknowledged that the landscape was different. The Obama tax credit, although small for New York properties, combined with historically low interest rates to pull in first time buyers. People who had put off their search to wait out the market, and many who had been priced out several years ago, gradually and tentatively returned to looking and bidding. Those trends solidified over the ensuing months and deal flow  increased in every category.

Today we see moderate activity in all price ranges. Small units continue to hold their value best, with prices down anywhere from 15% to 25% off the peak. At the upper end, prices are off 30% to 40%. The recently issued Deutsche Bank report predicts that the peak-to-trough value reduction in New York real estate will be 40%. While I think this analysis lacks nuance in its understanding of our market segments, and displays Wall street’s usual glee in predicting the demise of real estate, the interesting fact is that at the high end we are already there. We hope for a summer of continued price consolidation, moderate activity, and PLEASE, no surprises!

Yesterday evening, more than 40 brokers attended an invitation-only reception at Harlem’s popular COVO Restaurant to celebrate the launching of sales of 23 premiere apartments at Ellington on the Park Condominium, located at 130 Bradhurst Avenue.

Set alongside Jackie Robinson Park, Ellington on the Park brings affordable luxury to one of the city’s most architecturally distinguished and culturally significant neighborhoods. With homes starting at just $375,000, Ellington on the Park offers a rare opportunity to own a one, two or three-bedroom home, many with a private outdoor terrace and glorious views. Residents can enjoy a healthier lifestyle, neighborhood amenities, and one of the city’s finest parks just steps from their front door. For details please go to our New Development section at http://www.ellingtononthepark.com/

As it happens, the location of last night’s reception is another WARBURG MARKETING success story. COVO Restaurant is located at 701 West 135th Street, in a new Harlem neighborhood that was nicknamed “ViVa” (for Viaduct Valley) by Warburg’s Marlene Hartstein and Dhia Barnes, who successfully marketed the restored 1926 freight house for retail and commercial use in 2005.

It’s nice to know that one Warburg success – ViVA and 701 West 135th Street – served as the site of the launching party for another successful Warburg Marketing project – ELLINGTON ON THE PARK!

Is it a “V”? A “U”? An “L”? A “W”? Economists are weighing in on what happens next. I am no economist, but I have been on the ground in the New York real estate business for nigh on 30 years and here’s what I think:

1) Our market has been less seasonal than ever before in recent years. So I don’t believe our busy spring is busy just because it’s spring. UBS just revised its forecast of the overall drop in real estate values in New York to 40% (it had been closer to 50%). In some of our market segments we are already there. In others, I don’t believe it will go quite that low. Even the rent/buy ratio is back close to where economists say it should be.  Buyers are buying because they see value. And with these price reductions, so do we. That’s why our gross contract signed numbers for May 2009 were actually a little BETTER than those for May 2008.

2) Prices are not rising anytime soon. It is value which is driving buyers back into the market, and only value will keep them there. If they sense that the market is increasing, they will return to the sidelines. And nothing in the overall economic picture suggests prices should be going UP!

3) Ongoing credit issues, including commercial loan defaults and credit card debt, will keep bank balance sheets toxic for a while yet. So lending standards and availability to funds may not loosen up any time soon. We are beginning to see a market in which people want to buy but are unable to get the financing they need. We can probably expect to see more of that in the months ahead.

4) What letter is my recovery? It depends on if you are talking short term or long term. Short term I think we are looking at a “U”. We are now down at the bottom, where we will probably be for a little while. Then, over time, a modest rise in prices will begin. Longer term, I agree with those economists who see a “W.” A few years out, the huge infusion of debt incurred by the government to fund the TARP and TALF programs will probably mean that money will have to be tightened to control inflation. That is likely to cause the economy, and our market, to dip again.

But for now, all of us here at Warburg are just glad to be busy again.

Manhattan’s buyers’ market is picking up steam, and with any luck, any seasonal summer lull will be mild.  Following is my Manhattan Market Watch to appear in the August issue of Mann Report Residential. 

THE BUYER’S ADVANTAGE

By Shirley Hackel, Executive Managing Director, Warburg Realty Partnership

There’s been a burst of new activity over the last several months, with the volume of signed contracts increasing through the spring and continuing (hopefully) well into the summer.  As I write this on a mid June morning, buyers have been stepping out regularly in growing numbers to evaluate the inventory pool, and stepping up steadily, however cautiously, making offers to buy and going to contract with sellers who finally have come to terms with market realities.  

Lots of deals in every price and size category are being made—even in the over $10 million range which was largely stalled until very recently.  There’s movement and buzz and even competitive bidding.  Cash remains today’s king, as sellers settle for less money for a transaction that will close quickly with certainty.  More and more, requests for appointments by brokers are met with the news of accepted offers. 

The fear and inertia of last winter have abated, but we’re down from the highs of 2007 about 25-35%, more on prices for the larger apartments, and less for the smaller units.  Since March, an improving stock market has served to restore and rebuild consumer confidence.  In April, according to the National Association of Realtors, the number of signed contracts rose 6.7% nationally—the largest monthly jump since October 2001.

A smorgasbord of alphabet soup recovery models has been suggested.  Regardless of whether you believe the economic recovery will take the shape of a curved U, a protracted L, a straight V or a W, or whether you agree real estate prices will hit bottom by the end of this year, and the cycle will begin to improve in 2010, we continue to operate in an exceptionally strong buyers’ market. 

Buyers Maintain The Lead

First time purchasers especially who were priced out of the market before are attracted by steep discounts, low interest rates and the $8,000 Obama tax credit.   The federal inducement is for anyone who hasn’t owned a home in the past three years whose income is below a specified level who will live in the residence for a minimum of three years.  Slated to expire on December 1^st of this year, the tax incentive will continue to stimulate small apartment sales through the summer and early fall.  Efforts are underway in the Senate to extend this perk to all home buyers and to raise the credit to $15,000. 

Today’s buyers are also coming off the sidelines not only because they need to move on with their lives, but because they don’t want to miss the moment of opportunity.  Rising interest rates in the face of inflation have pulled in many fence sitters for fear they will miss the window to secure a low rate.  More often than not, those who try to time the market fail; if they wait too long, the chance to gain the advantage passes.  Bottom fishers are unlikely to conclude a deal, because they remain cemented in place with their low ball offers.  For those with a time horizon of at least five years, the most opportune time to join ranks is when the stock market is improving, but before the overall economy has caught up. 

Those sellers who are also buyers in this market—regardless of whether they are trading up or down—will make up any perceived loss on a sale with savings from a reduced future purchase.  In a down market, buying up costs less than in a rising market because fewer dollars are required for the percentage difference.  Today’s sellers are advised to price realistically, pay attention to value and respond to all bidders.  Even low ball offers warrant a counter to signal a desire to close the gap.  Those who bought after 2005 should expect to lose money or break even at best.  If prices were to go up now, buyers would retreat again.    

Uncertainty still clouds the big economic picture.  A new wave of defaults and foreclosures is spreading beyond risky subprime borrowers to previously stable borrowers who find themselves jobless.  Probably the biggest impediment to a full recovery is unemployment which hit 8.9% in April and 9.4% in May, and is expected to reach 10% by next year. 

Despite the contracting economy which continues to struggle with mounting layoffs and ever-dysfunctional credit markets, economists are predicting that the recession will end in either the 4^th quarter of this year or the 1^st quarter of 2010.  As the recession nears an end and sales activity increases, price stability will follow.  The big picture needs to improve significantly before our market regains a bounce. 

In the meantime, savvy buyers are out shopping with their brokers in increasing numbers, taking advantage of substantial discounts, not worrying about near-term paper losses or gains, and reaping the benefits of living in their brick and mortar investments.

Shirley Hackel

Executive Managing Director

Warburg Realty Partnership

212-439-5197

shackel@warburgrealty.com

From 6/11/09 REAL DEAL online …

With CBHK gone, Warburg takes over marketing of Twenty9th Park Madison

June 11, 2009 12:45PM By Candace Taylor

Warburg’s Richard Steinberg

 
Warburg Marketing Group has replaced the now-defunct Coldwell Banker Hunt Kennedy as the exclusive marketing and sales agent at Twenty9th Park Madison, Warburg said.

Richard Steinberg, an executive managing director at Warburg, is overseeing sales at the 142-unit condominium, according to Andres Hogg, U.S. general manager of Espais Promocions Immobiliáries, the building’s developer.

The on-site brokers, formerly CBHK agents, will now be employed by Warburg and Steinberg will lead the team.

“We made a decision to keep the sales staff we had in-house, but to bring in a person like Richard to manage the people who are doing our sales,” Hogg said.

Twenty9th Park Madison is located at 39 East 29th Street between Park and Madison avenues. Roughly 100 of its 142 units have gone into contract since sales started in September of 2007, according to Hogg.

In the final weeks of CBHK’s existence, the bulk of agents there were encouraged to move to the Corcoran Group, and to take their listings with them. Others were slated to go to Sotheby’s International Realty.

NRT, the parent company of Corcoran, Sotheby’s and international real estate company Coldwell Banker, is a subsidiary of New Jersey-based Realogy, which also operates independently owned Coldwell Banker franchises like the late CBHK.

Hogg said he received word a month ago that CBHK would close, and was told that some agents would go to Corcoran and others to Sotheby’s, but “we never had any formal proposal from them,” he said. Corcoran declined to comment on Warburg’s takeover of sales at the building.

Since then, Hogg said, Espais had time to “discuss some ideas with other firms.”

The developer chose Warburg, in part, because it’s “not one of the huge companies,” he said, and may be able to focus more attention on the project than would a larger firm.

“I can have good face-to-face interaction with the people who make the decisions in the company,” he said.

Steve Goldschmidt, a senior vice president at Warburg Marketing Group, agreed. “We have a very intimate management format,” he said. “There’s going to be a lot of attention paid to the property.”

He added that the transition is a little unusual because the development changed sales teams because of CBHK’s demise, not because of poor sales.

“As opposed to Barack Obama, this is not about change,” Goldschmidt said.  

Because the project, designed by H. Thomas O’Hara Architects, is already selling well, Warburg isn’t planning a major overhaul of the building’s marketing strategy, he said.

“We wanted to assure the developer that we’re not coming in like bulls in a china shop to disrupt an already successful project,” he said.

The remaining units range in price from $600,000 for studios to $4 million for higher-floor units, he said.  

According to Streeteasy.com, the average sale price-per-square foot for units in the building is $1,396. Some units in the building have sold for discounts of up to 28.9 percent off their original asking prices.

“We understand that things are not what they were last year,” Hogg said. “We are working around it.”

This coming Sunday, June 14th from 11-4pm, Manhattan’s first Silver LEED (“green”) certified house and our exclusive at 151 West 122nd Street, will be part of the Mount Morris Tour of Homes, an extraordinary annual event. This year, 12 brownstones, apartments and churches will open their doors and share their stories. I would like to encourage you to come up to Harlem to experience for yourself Harlem’s Renaissance. For further information about the house visit our website at www warburgrealty.com/property/305072 .  Marlene Hartstein and Miles Chapin, Warburg Realty Partnership