Warburg Blog

When I entered the real estate business in 1980, conventional wisdom had it that sales were seasonal. No one bought after Thanksgiving, nor in the summer. Active sales kicked off on January 15 and accelerated as the weather warmed into spring. All the moms left town after June 15, so nothing happened again till after Labor Day. Then the market bustled along till Thanksgiving, which initiated the turkey coma that lasted (with a little tryptophan boost from Christmas dinner!) till the new year began.

I had reason to revisit this calendar-based view of the market recently while I reviewed our August sales numbers, which were more robust than those for either July or September. I believe that the assumption of market seasonality, like so many assumptions based on past experience, doesn’t really hold up. Changing demographics and life patterns in our environment have rendered the old pattern obsolete. Today Mom is likely to be working at her own job, so the chances are good that she is spending plenty of time in the city during the summer. Similarly, slightly lighter work schedules for many people between mid December and mid January have also made that a busier time for looking at, and bidding on, property.  The rental market was always busiest in the summer, and the buyers of smaller units also tended to be active then, in both cases so they could be settled for fall. Now we have seen that trend extend to larger units as well, as the notion of seasonality shows itself to be increasingly obsolete.

The change in who works, and for how many hours every day, has also substantially impacted another piece of conventional wisdom: that young families move to the suburbs to raise their kids, then move back to the city when the kids are grown. Increasingly New York families try to skip that middle stage of leaving town if they can. Commuter life, as conceived in the postwar period, depended on a 9 to 5 workday and a stay at home wife, complete with station wagon for ferrying the kids around. Longer workdays, and the increase in two career families, have turned this paradigm on its head. Who wants to work a ten or eleven hour day with a train commute on either side? When do you see your kids? Who is spending the evening with them if neither of you gets home till 9 or 9:30?

The main reason we hear from people choosing the suburbs nowadays is financial. They WANT to remain in the city but prices in the suburbs have plummeted so that they can’t afford NOT to consider a move. The majority stay in town if they can. That way they can have dinner at home with the family at a reasonable hour and commute by subway, or cab, or on foot, usually for no more than half an hour.

Frequently our paradigms become outdated and we don’t notice. Familiarity is reassuring. But in fact things change, and we need to respond to those changes, as agents or buyers or sellers, if we hope to make the best decisions for ourselves, our businesses, and our families. 

Do New York City residential real estate and the stock market always move hand in hand? Last week I spent an interesting evening at The Real Deal annual forum at Lincoln Center, where I heard a panel discussing the state of the commercial and residential real estate markets here in New York City. I was particularly interested in hearing several of the panelist express their opinion that our residential market rises or falls in lock step with the stock market. While the two phenomena are clearly related, I think the reality is more nuanced than that observation suggests.

First, there IS a close relationship between the performance of the stock market and the city’s residential market. All real estate is local, and just as real estate in Houston is highly influenced by fluctuation in the oil markets, real estate in New York is very sensitive to fluctuation in the financial markets. Finance is our home town industry, so how it fares has a big impact on how the city fares as a whole. Tax revenues, real estate sales, charitable giving – all depend substantially on the health and wealth of Wall Street.

That said, real estate has really been somewhat decoupled from the stock market over the past ten years. We first noticed this change in 2000, when we saw the tech boom end and real estate sales and prices move up as the stock market moved down. People were disenchanted with stock in the wake of the Internet bubble and the appealingly concrete bricks and mortar aspect of property made it an attractive alternative.

That led of course to the real estate boom and bust, and now people are disenchanted with real estate in much the same way they were with tech stocks a decade ago. Fortunately for us here in New York, we were always primarily a first home market rather than an investor market. Our market dropped later and recovered earlier than almost any other in the country.  And today’s lower prices, combined with the continuing tax deductibility of mortgage interest and the once-in-a-lifetime interest rates, remain compelling incentives for many buyers.

Both the stock market and residential real estate sales are barometers of consumer confidence. But the sort of confidence they require is slightly different. Securities, into which an investor can make quick forays, small or large, are highly opportunistic investments.  Real estate is long term, especially today. No one is buying for a quick sale or a quick profit. So a real estate purchase requires confidence about the future, which is in short supply today. That’s why, even as the stock market topped 11,000 last week and the large bonuses forthcoming for Wall Street winners were touted in The Wall Street Journal, our residential sales market remains hesitant. We did not, and I predict will not, see a big bounce in response to the rising stock market and the record bonus numbers. Well priced properties continue to sell, some with multiple offers, but buyers have no appetite for a stretch.  Before our market accelerates again, buyers want more concrete signs of recovery than a rising stock market alone can provide. 

People all too often say New York City is a huge city, and that it lacks that “neighborhood feel”.

I think of New York City as a collection of many small towns and I encounter that neighborhood feel everyday-across various neighborhoods (it can feel like you’re taking a trip around the world, with just your MetroCard in hand !)

Feeling like you are a part of a neighborhood, means finding that neighborhood that appeals to you, and ultimately becoming part of its fabric.

One of my favorite neighborhoods on the Upper East Side is Yorkville. So many of my “favorites” both new and old are in this area .

Here are some of them :

Corner Cafe & Bakery -great food and fabulous cupcakes !

Eli’s Vinegar Factory - when I ponder what I’ll prepare ,one of my favorite places to shop !

92^nd Street Y- it’s just all around awesome, from cultural events, to fitness, to well-everything. I love it !

Mister Wrights- has been in the neighborhood for at least 30 years if not more. Across from the Rupert-Yorkville Towers, between 89^th and 90^th on Third Avenue. Superb service, great prices .

Parlor Steakhouse- on 90th and Third a wonderful relatively recent addition to the landscape of the neighborhood. Love it so much, even the wait staff recognizes us when we come in. It’sworth noting that the owners of this fine establishment were neighborhood residents when they dreamt up this place! They also are the proprietors of Blonde Brunette & Redhead aka BB&R a sports bar on 2^nd Avenue. Parlor has become a part of our fabric, our defacto go to when we can’t decide where to go eat in our neighborhood-and it is automatically at the top of our list for special occasions,such as birthdays and anniversaries!

Uptown Lounge- Third Avenue between 87th and 88th Streets.Did you know they have live Jazz on Tuesday evenings ? Well, they do-something else I enjoy doing when I want to hear some music after long envigorating days, but still be able to walk home !

Crumbs- Yes, I have a sweet tooth. And I’m proud of it, and I really enjoy cupcakes…often (having TWO locations that are walking distance is heavenly !)-the Yorkville location is on 93^rd and Lexington Avenue (there’s another location on 78th and Third…walking distance from my office!)

Barnes & Noble -I admit, I am biased, I miss the “old” Barnes & Noble, and by that…I don’t mean the one that used to be between Second and Third, I mean the one on Lexington. And I still remember not only when that one opened, but when there was a stand alone Barnes & Noble Jr-located just off Lex in a space which most recently was a Walgreens. I also remember the diner that was on the corner of 86^th and Lex (and no,I don’t mean the comfort diner that was there most recently before the construction of  the Lucida condominimum which has brought us a Sephora, H&M ,new B&N AND a Shake Shack most recently). Upside, they just had the groundbreaking for Fairway !

Shake Shack – ok,I freely admit-this is one of my newest guilty pleasures ,I love the shakes . I walk to and from the office as much as I can, on top of regular sessions at the gym, so I can continue to indulge. (And yes, most often I walk right past it, every evening, and very often can not resist stopping !)

Want to know more of my favorite spots ? I’d be happy to share them with you,the list can be extensive ! And if you’re interested in making Yorkville your neighborhood take a peek at our new exclusives high atop Yorkville Tower- not only will you be near all of these places and more, you’ll have mesmerizing views too from your spacious new two bedroom two bath home in a fabulous full service condo !

1623 Third Avenue, #41K

1623 Third Avenue, #33K

And if you see me walking around –say hi, don’t worry Bentley doesn’t bite and neither do I !

I’m Margaret and I live in TriBeCa with my husband, Kyle and our Labradoodle puppy, Keeney! Kyle and I are both originally from Toronto, Canada but we met at Brown University, in Providence, Rhode Island in the fall of 2002.  After graduating from Brown in 2006, we both moved to NYC and we haven’t looked back. We got married last fall, and moved to TriBeCa in July 2010, and we absolutely love it! Everyone always asks us if we are planning on moving “home” someday, but as much as we miss our friends and family in Toronto, this is our home.

Kyle and I were both Division I varsity athletes at Brown (Lacrosse and Ice Hockey, respectively) and are extremely in to fitness, we love doing anything that involves being active. We spend a lot of our free time training for triathlons, doing yoga, and lifting weights at the gym. When were not working out, you can always find us checking out one of our favourite or new local restaurants.

I am also a Licensed Real Estate Salesperson, and I work for Warburg Realty in the TriBeCa office (obviously!) focusing on residential real estate, which I love. That reminds me, please let me know if I can be helpful making your real estate dreams come true! :-)

Now that you know a little bit more about me… stay tuned for all of my favourite things in TriBeCa… the restaurants, real estate, parks, dog runs, and everything in between.

~Margaret~

Recently the Federal Housing Finance Agency proposed a rule prohibiting Fannie Mae, Freddie Mac, and the Federal Home Loan Banks from buying loans in buildings where there are flip taxes (transfer fees imposed by and paid to the co-op corporation or condo association at closing.) I have heard two very different reasons for why they are doing this: first, that some developers across the country are using these flip taxes as a way to enrich themselves, and second, that the anticipation of flip tax revenues makes the governing Boards of co-ops and condos less likely to budget appropriate contingency funds for unexpected problems.  While these reasons are not without merit, this rule proposed by the FHFA is nothing short of disastrous for our business and for consumers all over New York City.

Pretty much all loans made by the big banks which conform to Fannie and Freddie guidelines (in NYC, which has special guidelines because our real estate is so expensive, that means loans of up to $727,500) are sold into the secondary market. This rule, the moment it passes, will obliterate that secondary market. With no secondary market to sell to, the big banks (which make 75% to 80% of the loans in our market) will just stop making these loans. And presto! The loan market for everything under $730,000 will dry up. The local and savings banks which keep their loans rather than selling them can’t possibly keep up with the demand. So going forward, consumers just won’t be able to get loans for $730,000 or less in buildings with flip taxes. And let’s face it-just about EVERY co-op and condo building in New York City has a flip tax.

So whether you are a real estate agent doing business anywhere apartments are sold, or a consumer who might want to buy or sell one, this FHFA rule will have a big negative impact on you. Please write your representatives in government TODAY about this dangerous buckshot approach proposal (the comment period ends October 15th!). If you live in New York you can go to the Real Estate Board action site at http://www.RebnyActionCenter.com This site makes it extremely easy to contact all your elected representatives with just a few clicks. But please-DO IT! This is serious!

We’re poised in these last months of 2010 to finish the year with an improved 4^th quarter.  After a tumultuous 2009, our market rose slightly and hesitantly as 2010 began, picking up unexpected steam steadily through April, May and June, but then slowing and falling flat through much of the summer.  Following on the heels of Labor Day, market activity resumed, and the mood is upbeat again.  As of this writing on a crisp October 3^rd morning, the possibilities loom that the spring momentum can be repeated in the next eight weeks before Thanksgiving. 

On September 20^th, the National Bureau of Economic Research announced that the recession that started December 2007, had ended this past June, lasting two and a half years.  Economists identified June as the trough or low point of the economy, and reasoned that we were at the end of a declining phase and at the start of a rising phase.  Doomsayers, some forecasting another double dip recession, were quick to point out that unemployment statistics are nearly the same now as they were at the start of the recession, holding relatively steady at 9 percent.

The ensuing press reports have been conflicting.  What’s a buyer or seller to think?  Is another dip coming?  Are home prices in Manhattan stabilizing?  For sure, the U.S. recovery has been slow and uneven.  But again, New York has fared better than the rest of the nation.  Manhattan’s housing sector is more stable than the rest of the country because of its preponderance of co-op inventory which sets limits on purchaser financing.  Additionally, with improved profits at financial institutions and resulting increased hiring in financial areas, a recovering Wall Street—our local industry—is contributing to the city’s economic health.    

A New Normal

We’re decidedly past the market’s bottom which probably occurred some time in mid 2009.  Although buyer mentality of maybe-we’ll-be-able-to-buy-for-less-next-week is fading out, it’s not gone entirely.  Neither activity nor pricing is likely to become exuberant again any time soon.  On the contrary, growth is expected to be slow and steady over the next few years.  Recently Pimco’s Managing Director Bill Gross defined a “new normal” for future investment gains as “saying goodbye to double-digit returns.”  Similarly, a “new normal” for residential real estate will mean modest near-sideways incremental price increases. 

Often a herd mentality drives Manhattan’s marketplace.  This spring, the $3-5 million category was most active with apartments trading at asking price or better in competitive bidding with prices jumping an astonishing 8% in isolated instances.  Then in mid summer, a temporary push back came as some buyers exited the market, walking away from contracts about to be signed at $4.5 levels.  In September, a record breaking price (reportedly at $15 million) for an eight room apartment in the South Tower of The San Remo buoyed the top end of the market.  New offerings at this Central Park West icon have asking prices of $20 million for an 11 room corner apartment and $15 million for two apartments that can be combined into a duplex of approximately 4400 square feet.

Buyers with substantially deep pockets are coming out again to search for trophy apartments, breathing new life into the high end of the marketplace.  As the top end resurges, confidence is spreading through all market sectors.    

Supremely price conscious, buyers continue to hunt for value in all areas of the city.  Price reductions abound for apartments that were mispriced, buyers are making offers and sellers are listening as brokers bridge the gap toward a meeting of the minds.  Realistic pricing at the start of a new offering continues to be the best advice, as the first 3-6 weeks of marketing are most critical in identifying a buyer at the best price. 

As transaction volume increases, our market gains a more solid footing with appraisers.  Banks are lending again, though the process is still fraught with time consuming checks and balances.  Historically low interest rates are motivating buyers to take action.  Because of uncertainties, however, there are more and more contingent contracts, and more and more conditional co-op board  approvals.

In the aftermath of the U.S. recession, the world economy remains fragile.  With new concerns about global budget deficits and failing European banks, uncertainty lingers.  The years ahead will be leaner than those with froth that came before, and there will be less leveraging.

Buyers with cash continue to rule the roost, able to buy with fewer dollars than those who offer to pay more with contingent bank loans.  Sellers with plum properties in mint condition can expect to achieve superior results.  Everyone else needs to be guided by market realities and demonstrate flexibility.

I was fortunate enough to be at a gathering this week,where the manager for Family Programs and Cultural Celebrations from El Museo del Barrio presented to us ,her fellow members of Las Comadres de Las Americas about the upcoming “Dia De Los Muertos” celebration. A few others also shared their traditions related to this holiday and its origins.

If you have not been to El Museo del Barrio in a long time-or not at all,you may not realize what a wonderful new look they have.They undertook an enormous renovation which was completed last year,I remember going to the opening festivities and they were simply fabulous !

The third Saturday of every month,they have free admission-and events targeted for all age groups.

Great event to learn about Mexico’s 3000 year old tradition about how they commemorate their friends and relatives who have passed away.We were learning about the altar that was comissioned for this years event,and how it is also a public alter-so you may bring a note or a photo to be placed there as well.

This celebration will include a musicial procession thru Central Park,concerts,face painting,arts and crafts ,story time and much more.

Many great places to eat,also the Museum of the City of New York is right across from El Museo del Barrio,as well as Central Park’s Conservatory Gardens.

A great way to spend a day !

2010 has been a year of contradictions for Manhattan real estate and the third quarter embodied many of these contradictions. We saw a slow summer market which nonetheless featured several high profile, high priced sales; we saw interest rates devolving to their lowest point in a generation; we saw the rental market weaken; and in spite of everything as we move into the fourth quarter we have an overall market which, like the old Timex ad, “takes a lickin’ and keeps on tickin.’”

By June 30th our market had slowed considerably from its active pace earlier in the year, as the beginning of summer coincided with worries about the global economy. Sales remained sluggish throughout July in our marketplace, as buyers in all categories once again adopted the wait and see attitude which had characterized their behavior in late 2008 and much of 2009. Interestingly August was slightly better, in spite of the fact that the stock market was swooning during much of the month. There continued to be little inventory, with nothing new coming to the market, and contract signings picked up from July; some sellers saw the confluence of low interest rates and the possibility of higher capital gains taxes in 2011 as indicators that the moment to make a deal had arrived. At the same time brokers began to become aware of a countervailing trend, which grew in September, and which once again harkened back to the months after Lehman Brothers collapsed: a lack of similar perception between buyers and sellers about value. In September, as the stock market and inventory both rose, this trend gained momentum. Many sellers believe the market is strong, and there is little reason for them to compromise about prices, while many buyers, reading the data throughout the media on the poor national performance of real estate since June, have been inclined to hold back or look for bigger concessions.

While the market behaved quite consistently from sector to sector, there were a few significant variations which I want to note:
* As I mentioned above, the rental market weakened over the course of the summer. Ordinarily as sale slow rentals pick up, but in this environment that has not been the case. Some bigger landlords were offering to pay commissions (what we call an “OP” or “Owner Paid” deal) which the industry had not seen very much in 2010. Demand seemed to be stronger at the upper end of the market.

* One and two bedroom sales were definitely slower during the past three months. These units, which had been absorbed briskly throughout the late winter and early spring, were definitely affected by more cautious buyer behavior over the third quarter.

* As is typically true, sales of six to ten room properties (and the loft market which coincides with them) slowed considerably over the summer, but activity has picked up since Labor Day.  Seller ambitions have definitely escalated here, with properties coming on to the market 10% and even 15% higher than the last similar sales earlier in the year or late last year. It can often take several months before a seller is convinced that these ambitions are outsized and most properties are simply not selling for more than they did six to nine months ago.

* While the luxury townhouse market remains largely inactive (the much noted and highly discounted sale on E.70th Street notwithstanding) there is more sales activity in the ultra luxury sector than at any time in the past two years. Numerous sales in excess of $10,000,000 and several in excess of $20,000,000 occurred in September, suggesting that, even as uncertainty about the global economy continues, those at the acme of the financial pyramid have not had a bad year and don’t believe that there will be a double dip.

Looking forward, I predict that we will see a continuing but measured influx of inventory over the next six months. While there is no urgency in today’s market, and I don’t foresee urgency entering the market, I anticipate that the steady rate of sales we have seen over the last two months will continue. Overpriced properties will sit, but realistic sellers, many of whom want to be done by December 31 of this year to avoid possible adverse tax consequences, will command strong historic prices for their properties. No-one knows exactly how the November elections will turn out, nor how those results will impact the economy as a whole. Republican gains in the House and Senate will likely mean less legislation, and less legislation usually help the stock markets to remain perky, which in turn adds to consumer confidence across the boards. On the other hand, many of the Wall Street firms are looking at hiring freezes and possible additional layoffs. So the road ahead is unclear. That said, we have been lucky in New York: our residential real estate market was late to be hit and early to recover in the recent recession. We at Warburg have confidence in that recovery, gradual and halting as it may be, so we see stability with minimal price growth ahead.