Warburg Blog

Last week the Wall Street Journal published two articles, one Tuesday and one Friday, about high priced Manhattan sales. In the first, the reporter noted the enormous price difference between sales at 2 East 67th Street, the first a few years ago and the second a few months ago. He used these two sales to draw conclusions about the change in the market between then and now, since the recent sale closed at a price slightly less than 40% of the price in 2008.  And on Friday there was an article about a recent contract signed at 15 Central Park West (allegedly for slightly under $7000 per foot) in which the author observes that the upper end condo market shows more strength than the upper end co-op market and quotes expert opinion that 15 Central Park West is “operating somewhat independent of the luxury market”. He also quoted me giving, in abbreviated form, the opinion I reiterate below-

Here’s that opinion: one or two sales do not make (or break) a market.  In every environment there are outlier sales (sales which occur outside of the normal price boundaries) both high and low, occurring in both the co-op and condo markets. These outliers usually tell more about the personal circumstances of the principals involved than about either the type of property or the market overall. Has the estate reached that crucial moment when just getting the damn apartment sold counts for more than anything else?  The buyer who arrives at just this moment may be getting the deal of a lifetime. Similarly, the buyer who has just sold his company and will pay literally anything for the trophy property he longs for is an unexpected gift to the seller who has listed that property at a price unjustified by all the comparable sales.

As my wife says, the world divides into two types of people: those who brag about how much they spent and those who brag about how little they spent. Both types buy real estate, but what real estate they buy, and for how much, should never be a gauge by which to judge the market as a whole.

We are pleased to recognize four Warburg agents – Leslie Modell Rosenthal, Karen Gastiaburo, Robert Doernberg and Steve Goldschmidt – who recently obtained the coveted NYRS® designation from the Real Estate Board of New York (REBNY). The NYRS designation recognizes the business and educational achievements of highly qualified residential brokers. In order to qualify to take this course, candidates must meet special criteria established by REBNY including the following:

- Be an Associate Broker
- Have negotiated at least 50 transactions in NYC
- Closed at least $50 million in sales or $17 million (based on 12 x monthly rent) in rental transactions in NYC
- Completed a minimum of five year tenure in NYC real estate 

The NYRS course consists of eight sessions of advanced real estate topics including Ethics, Negotiating, Marketing, Real Estate Economics, Commercial Real Estate, and Real Estate Law.  

In addition to the newly designated agents, other Warburg NYRS® agents include Harriet Kaufman, Shirley Hackel, Andrea Daniels and Linda Reiner.

In June, 1980, as a 28 year old doctoral student with a two year old and a baby on the way, I got my real estate license in order to make some money while I completed my Ph.D. At that time the overriding perception of Manhattan real estate agents was one of ladies draped in mink carrying a bunch of keys. Getting a real estate license then (as now) presented almost no barrier for entry; you needed only to take a ridiculously simple state test and endure a mind-numbingly dull and uninformative 45 hour course. I survived both and went to work as a residential broker, not yet understanding that real estate would eat my life.

Brokerage was a very different job in the days before widespread computer use. We had listings, we advertised them in the paper, and buyers came to us for information about what was available. While negotiating and organizational skills were important to success, even the least skilled among us had the keys to the kingdom: file drawers filled with cards containing listing information. There were almost no exclusive listings so there was no co-broking. Buyers had no access to information about what was for sale except through us.

Over the years I have watched an extraordinary step by step transformation in our industry. As real estate firms started to proliferate, the notion of branding crept into the mix. How would we distinguish ourselves one from another? Marketing, which had been limited to placing classifeds ads in the Sunday real estate section of the Times, began to include magazines. Then radio and TV. As sellers began to give exclusives, the real estate community began to co-broke. For the first time, the possibility arose that a buyer could see everything in the marketplace with one agent.

And then technology completely rocked our world. With the rise of the Internet, brokers no longer controlled access to listings. Information of every sort became public. That change, with all its ramifications, forced us to update our business models and re-imagine our value proposition. If buyers did not need us to find property for them, and sellers did not need us to find buyers, what did we add to the transaction?

Our job, no longer information provider, is now more akin to investment advisor. Today the ranks of residential brokers are filled with former bankers and attorneys. We bring our expertise to bear on the many nuances of the purchase and sale processes. We have become expert online   and offline marketers of property and of ourselves,  brand building in both the personal and the corporate spheres.  We still show listings, and we still negotiate (although today more likely with another agent representing the other side than between two principals). We are still, mostly, paid on commission rather than salary. But overall, it’s a different world from the one I entered 30 years ago this month, with a far more empowered consumer population and a better educated and more expert broker force. And today it’s a BIG business!

In C.S. Lewis’s children’s classic “The Magician’s Nephew”, the title character and his friend wander into a new world in which they accidentally awaken the witch Jadis. She flings open the doors of her palace and shows them her city, Charn, which stretches as far as the eye can see in every direction. Shanghai, where my wife and I have been on and off for the past week, is our world’s Charn. With over 20 million people, it stretches as far as the eye can see in every direction, a crazy quilt of towering skyscrapers, construction cranes, and demolition covered every day we were there by a haze of smog. We took a walk recommended by one of our guidebooks in a historic neighborhood, only to discover that the old buildings had all been demolished since the book was written in 2008 and empty lots surrounded us on all sides.

Shanghai is energetic, vital, and fast paced. Everyone seems to be in a hurry. Recently a newly constructed building literally fell down, as the developer had bribed engineering officials to allow him to build a garage below the building rather than a foundation. It has the acutely capitalist anything goes feel which must have permeated our cities in the late 19th century during the railroad boom. There does not appear to be much in the way of zoning – giant skyscrapers of 50 stories or more adjoin low rise buildings in neighborhood after neighborhood. Except in the French concession, there are few trees.

New York is small by comparison. Our real estate markets are comparably expensive, although in Shanghai values in the luxury market have surged 40% during the last three years. But our time in Shanghai has made me acutely aware of the beauty of Manhattan. We are surrounded by parks and tree lined streets. Ultra high rise buildings are mostly confined to the Midtown and Wall Street areas. And our city has a strong desire to retain its own history, actively using landmarking to make sure that local neighborhoods preserve their character and encourage a mix of old and new to flourish.

My son, who is spending the summer working in Shanghai, asked me this morning if I like my work as much as I used to. In answering him in the affirmative, I was moved to think about what makes being a residential broker in New York a wonderful job. The charm of the city and the endless diversity of our housing stock have never ceased to be fascinating. Like brokers everywhere, we are helping people create a home, around which their lives will be centered for years to come. But in the end we are selling New York, with its architectural marvels, its commitment to philanthropy and cultural life, its endless diversity of ethnicities and national origins, its acceptance of all choices and lifestyles. What could be better than that? 

A while ago, I wrote about a way to make life easier for our mailmen, building staff and the environment by going to www.CatalogChoice.org  and opting out of receiving unwanted catalogs.  That site is getting better and better.  With over 1million users and 2059 catalogs on their “do not mail list”, it has expanded its value by  enabling users to stop getting direct mail solicitations and those annoying preapproved credit card solicitations.  I don’t know about you, but those are the letters I can’t just throw away, but must get out my shredder and shred before dumping.  Though more complicated than opting out of catalogs, it is worth it not to get those unwanted credit card applications.  

Congratulations!! Shirley Hackel, Executive Managing Director at Warburg Realty Partnership was named to NY RESIDENTIAL Magazine’s Top Ten Women in Real Estate in 2010. Shirley will receive her award at the organization’s fifth annual gala on June 9th.

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.

Yesterday my wife Alexandra and I were taking the ferry across Victoria Bay between Hong Kong and Kowloon. We were looking at the architecturally fascinating Hong Kong skyline, when I noticed a big building going up, right on the water, designed by architect Robert A. M. Stern.

The building is in its early stages and it was impossible to see if it would conform to the Stern paradigm we have become familiar with in New York, in which a graceful Neoclassical red brick tower articulated with limestone rises from a limestone base. But it did start me thinking about a certain sort of nouveau prewar product of which Stern’s building The Chatham, on 65th and Third, was an early example, and what distinguishes the newly constructed apartments of today from their counterparts of 20 years ago.

The distinction is space. Most apartments built in the 50’s and 60’s favored the notion of efficiency.  Hallway and foyer space were minimal, and ceilings were low. Formal dining rooms were abandoned in favor of the dining area. The architects of the time concentrated on fitting as many units as possible into the allotted floorplate. With very few exceptions even the “luxury” product of the period felt decidedly utilitarian.

Today’s new buildings have once again embraced the pre-war idea that space is the ultimate luxury. Their architects appreciate that there is no such thing as “wasted space.”  The sense of entry created by a spacious foyer, the sense of grace created by a formal dining room, and the understanding that height and volume are as important as square footage demonstrate the debt these architects feel to Rosario Candela, J.E.R. Carpenter, and Emery Roth, the Big 3 architects from the golden age of New York apartment construction in the 20’s and 30’s.

This change in design fundamentally altered buying patterns in the city. As better crafted, more spacious apartments like those in the Chatham became the norm in the new construction market, formerly die hard pre-war co-op owners began to flock to them, finally able to get contemporary amenities (and blister free walls!) without having to sacrifice space, ceiling height, or layout.  Nothing has been more significant in contributing to the democratization of the city’s many neighborhoods than this transformation in the planning and construction quality of new building inventory. Today, everyone lives everywhere, and this is a big part of the reason why!

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Someone emailed this to me a while ago.  I have no idea where it originally came from but it talks to me and I thought it would talk to anyone who lives in and loves this city.

Only those that grew up or lived in NYC can understand the meaning of this:

 There is no north and south. 

It’s ‘Uptown’ or ‘Downtown.’ 

If you’re really from New York, you have absolutely no concept 

of where north and south are…and east or west is ‘cross-town.’  

You know how to make an egg cream. 

You ride in a subway car with no air conditioning just because there are seats available.

You take the train home and you know exactly where on the platform the doors will open that will leave you right in front of the exit stairway. 

You know what a ‘regular’ coffee is. 

 It’s not Manhattan …it’s the City.’ 

You cross the street any where but on the corners and you yell at cars for not respecting your right to do it. 

You move 3,000 miles away, spend 10 years learning the local language and people still know you’re from the Bronx, Brooklyn , or Long Island , the minute you open your mouth. 

You return after 10 years and the first foods you want are a ‘real’ pizza from De Ninos or Joe & Pats, and a  ’real’ bagel.

 A 500 square foot apartment is large.

You are not under the mistaken impression that any human being would be able to actually understand a p.a. announcement on the subway.

You wouldn’t bother ordering pizza in any other city.

You get ready to order dinner every night and must choose from the major food group menus: Chinese, Italian, Mexican or Indian.

You’re not the least bit interested in going to Times Square on New Year’s Eve. 

Your internal clock is permanently set to know when alternate side of the street parking is in effect.   

You know what (and where) a bodega is. 

Someone bumps into you and you check for your wallet. 

You don’t even notice the lady walking down the street having a perfectly normal conversation with herself. 

You pay ‘only’ $230 a month to park your car.

You cringe at hearing people pronounce Houston St .. like the city in Texas   

The presidential visit is a major traffic jam, not an honor.

You can nap on the subway and never miss your stop. (this always amazed me.)

 The deli guy gives you a straw with any beverage 

You buy, even if it’s a beer.

 That’s New York , baby!      

ya gotta love it!!!!!!!!!!!