Warburg Blog

Last week I wrote about the values which we at Warburg have tried to embody in our culture and in the way we do business. Of course, principles are all very well in theory; it is only in action where you can judge how much sticking power principals really have. And there is no topic on which the rubber of principal more jarringly meets the road than the topic of money.

As agents, one of the most complex issues we face, again and again, is whether a handshake has a price. Once a buyer and a seller agree on a price and terms, should that be sacrosanct? In many other states, agents are empowered to draw contracts; in some of them, each offer is written up as a simple contract and the seller signifies his acceptance of the offer with a signature. Game over. No lengthy delays, no fights between lawyers about which clauses in each of their riders are objectionable to the other. The negotiation of the deal and its finalization are concurrent. That would be a beautiful world for most of us agents to live in (although, I get it, not so great for the lawyers!)

Not so in New York. While it is rare that attorneys, given time, will not resolve whatever contractual issues there are, the week or two (or these days, even three) during which the contract is being negotiated leave the property in limbo; with no signed deal, is it available or isn’t it? There are two schools of thought, both arguably valid. One is, if the buyer can change his mind with no penalty and walk away, why not the seller? The other of course is that an accepted offer is the negotiated equivalent of a handshake, and that it should bind both parties regardless of what other temptations might appear. While I understand the first perspective, I am more in sympathy with the second, although it is not much in fashion today.

For most sellers, temptation is relative. Once they have an accepted offer, they will stick with it if someone offers them $50,000 more. $250,000, however, is another story. It is really hard to leave that sort of money on the table, even if there is already an agreement with someone else.

Over the years we brokers have learned that there are a variety of dangers in switching horses. In a disproportionately high number of cases, as much as 25 or 30%, the second buyer flakes out and the first buyer is so angry that the seller is left with nothing. As brokers, we often find ourselves in the middle of the storm, blamed by the angry buyer if he loses the deal and by the angry seller if both buyers disappear. All we can do is advise that sellers stick with the deal they have, which is often not advice they want to hear with visions of sugarplums dancing in their heads when some enormous offer makes an appearance the day before they were to sign with Buyer Number One.

What rarely gets discussed is the moral question. Now I have to start by saying, in none of these cases is it MY money which is at stake. I would like to think that I would stick to my word, but a quarter million is a quarter million. Still, doing what you have promised to do IS the right thing. We increasingly live in a world in which values are relative, but in my opinion the notion that a man’s (or woman’s) word is his/her bond shouldn’t be a relative concept. It is not morality if you will stick for 50k but not 250k. That is just another sort of price negotiation.

Einstein famously said, “Not everything that counts can be counted; not everything that can be counted counts.”  I’m with him.

Little did I imagine, as a graduate student anticipating an academic career during the late 1970s, only a decade later I would be running the residential sales division of a major real estate company, or that a few years after that I would actually BUY it. Coming as I did to the business of business by the seat of my pants, it took me a while to learn the ropes and figure out my personal philosophy.  But over the years I have arrived at some conclusions about what is right for Warburg:

* If you don’t have your word, you don’t have anything. Often, my agents will come to me, lay out a situation, and ask me what I think is the right thing to do. My answer usually is “You already know the right thing to do. If you are struggling enough to want my opinion, it’s because something is getting in the way of your doing the right thing.” More often than not, that “something” is money. Don’t get me wrong, I like making money as much as (and maybe more than) the next guy. But it never takes precedence over doing what’s right. It has been my experience, over and over, that doing the right rather than the expedient thing repays you 100 fold, both in how you feel and what you earn over the long haul.  Always acting with integrity is the best possible business plan. 

* The customer must always be respected. As the President of a real estate brokerage firm, I have two layers of customers to whom I am answerable: internal customers (my agents) and external customers (our buyers and sellers.)  These constituencies have different needs, but each always deserves the fundamental respect of being listened to and taken seriously. There is no room at Warburg for denigrating attitudes or comments about either our agents or our clients. My customers may not always be right (who is?), but they are always heard and their concerns are always paramount.

* A service business requires that you perform the service. How is it that so many agents, when you e-mail them for an appointment, decline by saying, “I will be there next Tuesday at 10, can you come then?” The answer is no! Similarly, how is it that the exclusive agent unlocks the door for you, takes a cell phone call, then chatters away for the next ten minutes while you are left to show the customer around the apartment, which neither of you has ever seen before? The owner hires an agent to perform a service, and two big pieces of that service are availability and courtesy. Accommodation, of buyers, of other agents, of appraisers, of managing agents, is (along with providing expert analysis and advice) what we do. An agent who thinks accommodation and/or politeness are an inconvenience is an agent who should find a different career.

* In business, you change or you die. I am not by nature an agent of transformative change, but I have had to learn! The pace of change in our business (and in every business) has accelerated since technology first swept through our sedate lives in the mid-80s. Computers, the fax machine, the Internet, handheld devices, cloud computing, social media – one after another they have resculpted our landscape such that many aspects of it are unrecognizable today. Failing to embrace the opportunities of the digital age in their ever-evolving glory leaves established companies prey to younger, hipper models as we all compete for the next generation of agents. I am proud of Warburg’s cutting edge digital and Web 2.0 focus, in which I feel we have been leaders. But this race is never over.

* In the end, it’s all about relationships. The service Warburg provides to its agents, and they provide to our clients and customers, revolves around one of the most personal, financially significant, and life-defining choices in people’s lives: the creation or change of a home. Most people need to feel a relationship with the person who will assist them in this process. Everything I have described in the four points above comes together here: great agents are trustworthy, they are attentive, they are responsive, and they are fast on their feet – all in the service of creating a genuine agent/client bond.  It is my aim to create that same bond between the company and the agents who carry our card. No matter how much the world changes, a sense of personal connection remains the key to successful relationships: between me and my agents, between them and their clients, and between our brand and the world.

Every week, my agents at Warburg Realty receive calls from anxious buyers, asking “Has anything come up for me? Isn’t there anything new you can show me?” I make our buyers the following solemn promise: we are NOT hoarding these properties for family members or customers we like better. In fact, we are as frustrated by the lack of inventory as you. So I thought it would be interesting to write about the ebb and flow of inventory, both annually and over the arc of the last decade.

New inventory is more likely to arrive on the market at three major points during the year: on or about January 15th, on or about April 1^st, and on or about September 15th.  These dates are somewhat variable, the latter two in particular, depending on the exact annual timing of Easter, Passover, and Rosh Hashanah.  But generally speaking there is a post-New Year market, a spring market, and a fall market. Although the seasonality of our business has definitely declined over the last two decades, it is still rare for a major property to be placed onto the market in August, or the second week in December.

Of the three markets, the busiest is usually spring. Historically, the largest number of deals are consummated between April and June; prices also surge the most during these months. Mid-January, after the Christmas and New Year festivities decline, and September, at the end of the summer holidays, see less of a surge in listings than does the spring, but new offerings do often appear at these times.

The popularity of the spring market has primarily to do with the school year. For buyers with children, this is the moment to make a purchase which can then be spruced up over the summer and inhabited during the subsequent school year. And everyone’s real estate adrenaline flows a little faster in spring: daylight lasts longer, views look prettier, terraces feel more accessible.

That said, the flow of inventory has been constrained ever since the tax laws changed in the 90s. Until then capital gains from the sale of personal real estate could be rolled over from purchase to purchase over a lifetime; only when the buyer ceased owning or passed away were taxes due.  When rollover was replaced with the $250,000 individual exemption and the $500,000 marital exemption on capital gains, that meant that for most of the country, whose real estate never generated a gain that large, the sale of a home became a tax free transaction. For New Yorkers, however, the new law proved onerous, especially for those who had been many years in the same home. With a low basis, and Federal, state, and city taxes amounting to over 27%, whether selling made sense was called into question. And for many owners of larger apartments and houses, that question still stands.

The impact of a slowdown in one segment of the market is profound. If owners of large properties decide that it is not tax-effective to sell, then those who want those larger apartments have fewer alternatives. So they renovate and make do in the homes in which they already live. A logjam develops; less selling at the top reduces the number of transactions all the way through the marketplace. This, to a greater or lesser extent, has been the reality of the co-op market for the past decade and a half. Those who have owned for many years often prefer to let their heirs pay the taxes, impeding the flow from the top of the pyramid.

And so we all wait, agents and buyers alike, for birth, death, job transfer, marriage, or divorce to create a chink in the dam through which a precious property or two flows down to those waiting in the tier below.

The area from 40th Street to 48th Street between Third Avenue and the river was originally know in 1639 as the Deutal Bay Farm and had a small bay with a prolific turtle population.  In 1868 it was covered over and the North garden of the United Nations now stands on the site.

 Today this thriving community boasts luxury apartment buildings, townhouses, excellent restaurants, quiet parks and many historical and landmarked sites.

 Starting on 43rd Street between United Nations Plaza and Second Avenue is the landmarked Ford Foundation with a vast atrium.  Across the street the United Nations spans from 42nd Street to 48th on First Avenue.  One can visit and observe some of the sessions at this international institution dedicated to world peace.  In the summer the lovely rose garden overlooking the East River is truly wonderful as is the Delegates’ Dining Room opened to the public Monday to Friday with a reservation.

 Dag Hammarskjold Plaza is located on 47th from First to Second Avenues.  The very active community association, the Turtle Bay Association, was instrumental in creating this park. With fountains and the beautiful Katharine Hepburn gardens it is a quiet respite from the bustle of NYC.  It is also the venue of a green market, street fairs and cultural events.  Sit quietly in the outdoor café under a market umbrella and enjoy some refreshments and a snack or go across 47th Street to the Japan Society for their exhibits and Zen Garden with an atrium waterfall.

 Number 227 – 247 East 48th Street and 236-246 East 49th Streets are famous remodeled brownstones which surround a private common garden and are the former homes of Dorothy Thompson, Katharine Hepburn, Stephen Sondheim, Maggie Smith and Tyrone Power.

 Also on 49th Street between Second and Third Avenues is the restored and reconstructed Amster Yard where small brick buildings surround a verdant courtyard.  It is the home of the Instituto Cervantes which hosts lectures, art exhibits, poetry readings, language classes and cultural events.

 For a specular view of the neighborhood go to the Top of the Tower in the Beekman Tower Hotel, one of the city’s great Art Deco skyscrapers. Enjoy a drink or some food and take in the special views of the UN gardens, East River and the rest of the surrounding area.

 Not only is Turtle Bay an interesting place to visit and walk, but also a terrific place to live.  Check out this apartment on 49th Street.

http://www.warburgrealty.com/property/102015020120301

The area from 40th Street to 48th Street between Third Avenue and the river was originally know in 1639 as the Deutal Bay Farm and had a small bay with a prolific turtle population.  In 1868 it was covered over and the North garden of the United Nations now stands on the site.

 Today this thriving community boasts luxury apartment buildings, townhouses, excellent restaurants, quiet parks and many historical and landmarked sites.

 Starting on 43rd Street between United Nations Plaza and Second Avenue is the landmarked Ford Foundation with a vast atrium.  Across the street the United Nations spans from 42nd Street to 48th on First Avenue.  One can visit and observe some of the sessions at this international institution dedicated to world peace.  In the summer the lovely rose garden overlooking the East River is truly wonderful as is the Delegates’ Dining Room opened to the public Monday to Friday with a reservation.

 Dag Hammarskjold Plaza is located on 47th from First to Second Avenues.  The very active community association, the Turtle Bay Association, was instrumental in creating this park. With fountains and the beautiful Katharine Hepburn gardens it is a quiet respite from the bustle of NYC.  It is also the venue of a green market, street fairs and cultural events.  Sit quietly in the outdoor café under a market umbrella and enjoy some refreshments and a snack or go across 47th Street to the Japan Society for their exhibits and Zen Garden with an atrium waterfall.

 Number 227 – 247 East 48th Street and 236-246 East 49th Streets are famous remodeled brownstones which surround a private common garden and are the former homes of Dorothy Thompson, Katharine Hepburn, Stephen Sondheim, Maggie Smith and Tyrone Power.

 Also on 49th Street between Second and Third Avenues is the restored and reconstructed Amster Yard where small brick buildings surround a verdant courtyard.  It is the home of the Instituto Cervantes which hosts lectures, art exhibits, poetry readings, language classes and cultural events.

 For a specular view of the neighborhood go to the Top of the Tower in the Beekman Tower Hotel, one of the city’s great Art Deco skyscrapers. Enjoy a drink or some food and take in the special views of the UN gardens, East River and the rest of the surrounding area.

 Not only is Turtle Bay an interesting place to visit and walk, but also a terrific place to live.  Check out this apartment on 49th Street.

http://www.warburgrealty.com/property/102015020120301

The following Manhattan Market Watch column will appear in the April issue of Mann Report Residential. 

March 5, 2012.  What’s a buyer and seller to think when on March 1 we read on wsj.com about a “weakness in sales” and a deepening real estate slowdown during the first two months of this year, and then on March 2^nd urbandigs.com highlights the highest deal volume since 2008 in February? Shut the front door, we say, as we proclaim that February was an especially strong month. We expect the first quarter of 2012 to finish on an uptick, signaling continued stability as we enter the spring market.   

Josh Barbarnel’s reporting for the Wall Street Journal is based on closed sales filed with the city’s Department of Finance. Although these postings capture actual closing prices, they lack immediacy and less relevance in terms of timing, because not only do they lag behind actual closing dates as they are filed late, their numbers represent deals that were made at least 2 if not 3-4 months earlier, since it takes about 2 months after contract signing to secure financing and even longer to gain board approval in the case of co-ops. On the other hand, Urban Digs’ Noah Rosenblatt compiles statistics in real time for signed contracts which REBNY broker firms are required to submit within 24 hours. In February, Rosenblatt counted 871 new deals that went to contract in Manhattan. As a reflection of actual activity, Rosenblatt’s analysis is a more reliable indicator of the market pulse. 

There are reasons to be optimistic. Last month, the financial sectors achieved significant milestones:  the Dow closed above 13,000 on February 28 following 5 consecutive months of gains; on the same day, the S&P settled over 1,370; and on February 29^th, NASDAQ reached 3000. 

Bonus money may be down, but encouraging market indicators abound. Investment real estate sales recovered in 2011 with commercial property sales approximating $25.8 billion—a whopping 88% more than 2010. Unemployment is down to 8.3% in January from 9.1% last July, declining at a more rapid pace than expected. Consumer spending is up, and consumer confidence was at its highest in a year in February, according to the Conference Board. Car sales have improved by 16% to a pre recession peak in spite of rising gas prices, because of pent up demand. Likewise, retail spending is strong, attributable in large part to a warm winter—a factor which also led to lower heating oil needs. Homebuilder confidence was at its highest level in February since May 2007, according to the National Association of Home Builders/Wells Fargo sentiment gauge.

Sustained stability, balanced activity

In some parts of the city, we’ve seen a return to the pre-recession trend of buying from plans. At the Toll Brothers 15-story condo designed by Lagrange at the corner of East 65^th and Lexington, 17 of the 22 units have reportedly sold, though the building won’t be ready for occupancy until next winter at the earliest. Extell’s One57, the 90 story tower being built at 57^th between 6^th and 7^th Avenues, is attracting foreign buyers to the tune of $4000/sf for one bedroom apartments and over $6000/sf for 3 bedrooms. Recently the building’s duplex penthouse price was raised to nearly $100 million after 15 CPW’s penthouse realized $88 million in a resale. At 323 Park Avenue South, which is a hole in the ground at the moment at 24^th Street, Tessler Development has opened an office to presell 18 units in a 10 story condo designed by Gwathmey Siegel.   

Despite the upbeat news, however, it’s foolhardy to think that we might return to the heady days of a rapidly rising boom market. It’s important to keep any euphoria in check and acknowledge that the business of doing real estate in Manhattan has become increasingly complex. Securing financing is exceedingly complicated as Dodd-Frank reforms have created major impediments to lending in New York’s co-ops and condos.  Although credit availability has improved, banks and mortgage brokers continue to adjust to new regulations. On top of that, it’s been a brutal year for co-op board difficulties. Turndowns and conditional approvals are on the rise as boards tighten their scrutiny or ask for huge escrow deposits. 

While the problems of the European debt crisis remain, at present they are balanced by a steady upturn for the U.S. economy. In his semi annual report to Congress on February 29^th, Fed Chief Ben Bernanke described a slow and “uneven” recovery and predicted “modest” growth for 2012. On the same day, the housing market was also characterized as “improved somewhat in most districts.”

In New York, the market is best depicted as stable and busy. With quality inventory still tight, buyer demand strong, and interest rates still at historic lows, there is every reason to believe that prices will stay steady or gain small increments over the next 24 months. Cautious optimism remains the hallmark for today’s sellers who are advised to use discipline to set appropriate prices to generate action and stimulate bidding, and not misinterpret confidence as a reason to set unachievable levels. More and more purchasers are stepping up to buy often to compete in multiple bidding for well priced desirable properties. A robust rental market is sending renters out to explore purchasing options. As the ducks line up on both sides of the trade, a more balanced and vibrant market has emerged with brokers working harder than ever to guide buyers and sellers to the closing table. 

I polled my agents this week-end for their insights into the market and here is what they told me:

* Overall, there is a lot of showing going on. Open Houses are packed week-end after week-end in most locations. Buyers are frustrated at the rate with which new inventory is appearing on the market. Some have even ended up befriending other home shoppers they are encountering at Open Houses week-end after week-end!

* Showing these apartments is one thing, but selling them is another. There is a consensus among Warburg agents that the strong sellers in this environment are mint condition and price. Well priced mint apartments don’t stay on the market long, in any category, and they are frequently selling with multiple offers. Interestingly, the multiple offer phenomenon has spread downward into the 1- and 2-bedroom market, especially where these units are scarce. Several of our buyers have lost 1,000 or 1,500 square foot properties in competitive bidding in Chelsea, Flatiron, the West and Central Village, and the Upper West Side.  These are all markets with big demand and little inventory in this size range.

* As a corollary, we are seeing an influx of renters into the first time buyer market at price levels from $500,000 into the multiple millions (although not so much above $5,000,000.) The record low vacancy rates and associated record high prices for rentals make buying, especially with today’s low interest rates, an increasingly attractive alternative.

* Those apartments which are NOT in mint condition or very well priced tend to linger on the market, be they big or small. We see a number of such listings which have been on the market for 45, 50, or even 75 weeks. Buyers tend to offer low these days on anything needing work, no matter how good the bones of these apartments are. And many sellers of these units came onto the market during the mini-boom of April and May of last year, when it seemed, briefly, as if prices were skyrocketing again. Then after Memorial Day they fell rudely back to earth, and for many it has been hard to catch up.

* At the top end of the market trading is brisk. There is VERY little inventory above $6 or $7 million, Nonetheless, the rules of price and condition still apply.

* In general, my agents believe that if a property doesn’t sell in the first month, the most successful strategy is to surgically lower the price. If the market has not responded during those first four critical weeks, it signals a price problem.

* The new condo market moves faster in every way than the co-op market, as foreign buyers compete with new West Coast Google and Facebook millionaires to buy luxurious pied-a-terres here in New York.

* Finally, throughout the marketplace, financing from the Bank of Mom and Dad is ubiquitous. We see more guarantor and co-purchaser situations (not to mention a year or two of maintenance in escrow) than ever before. And in spite of that, and the difficult economy, and the longer sale times, co-op Board turndowns are more frequent and, often, more inexplicable than ever.  

The market has never been more nuanced than it is today. Each property type has its own metric and pressure points, as does each neighborhood, and each property size. Navigating  these complexities is, more than ever, a full time job.