Warburg Blog

21 years ago I assembled the shareholders and signed the papers which created Warburg Realty. Then, as now, we were emerging from a severe recession. I still believe in the future to which I pledged myself and the company in September of 1991. As a token of that belief, Warburg has just signed leases to expand and move our headquarters to a full floor at 654 Madison Avenue, on 60th Street. How the future shapes up will depend on many factors outside any of our control, but New York possesses a number of essential attributes which protect our real estate sales market against the worst sorts of adversity. Here they are:

* The city never stops growing. For a variety of reasons, from economic opportunity to energy efficiency, from artistic freedom to racial heterogeneity, America’s great cities are magnets whose attraction just grows greater from one year to the next. And what city is greater than New York? People from all over the country and the world flock here to live every year, eager to make our city’s energy and excitement work for them.

* There is little housing available. Every year, our housing shortage becomes more acute. The rental market is tighter than it has ever been, converting many would-be renters to would-be buyers. And according to the most recent census, rentals account for 70% of Manhattan’s housing stock! No wonder so many would-be buyers feel there is nothing for them to look at. With only 30% of Manhattan’s housing stock in the sales pool to begin with, there is never more than 1.5% or 2% available at any one time.

* The city is an incubator for business growth. An August 19th Crain’s article points out the discrepancy between the stubbornly high unemployment numbers about which we keep reading and the actual rate of job growth in the city, which has seen 200,000 new jobs added since the recession ended in September of 2009. Gradually, such job creation leads to business expansion, which in turn leads to increased commercial leasing, residential rentals, and residential sales. If more people are employed, those people need to actually live and work somewhere. 

* Quality of life throughout New York continues to improve.  Crime remains at historic lows relative to other U.S. cities, and New York has never looked more beautiful. We have green space extending up the Hudson Riverbank from the Battery to 125th St, we have the High Line, and our parks are oases of tranquility, magnets for New Yorkers of every income and age level. We have spectacular new residential buildings designed by the world’s greatest architects. Broadway, Lincoln Center, BAM, countless galleries, and hundreds of small cutting edge venues in every borough provide display and performance opportunities for artists of every variety. There is no more exciting place to live.

For 21 years we have built a business based on integrity, product knowledge, negotiating expertise, and a deep belief in the city we inhabit and serve. These qualities have made Warburg a force in the marketplace as we come of age. Who knows what our marketplace will look like 21 years from now? My colleagues, my shareholders and I look forward to finding out.

August was remarkably busy at Warburg Realty. Formerly the month when nothing happened, when buyers were “out of town” and sellers did not want to list, August morphed this year into a bonanza, with more contracts signed for more money than during almost any month since 2008. This phenomenon has led me to think about how this busyness differs from the busyness of five years ago, and how it is the same. These two eras, separated by only a few years, stand on different sides of the serious recession of 2008-2009. So in spite of the competitive bidding, the scarcity of inventory, and the harried buyers, the landscapes seem to me more different than similar. Here’s how:

1)         First, the active market of today does not carry with it the sense of optimism which characterized the middle years of the past decade. Although people are buying, they do not sense limitless possibility in the world or the economy. For some real estate is a hedge, for others just a decision to focus on enhanced quality of life. But today’s New York buyers, as a rule, don’t feel like residents in a world of endless growth.

2)         Probably as a result of this guarded perspective, most buyers don’t anticipate a big windfall in the value of their purchases. Yes, they believe it is appropriate to hope for appreciation keeping pace with and maybe even exceeding the Consumer Price Index, but unlike the buyers of 2006, they do not believe they could turn right around and sell their property for 15% more the week after the closing. And generally, they’re right.

3)         The upper end of our market is far more dominated by high ticket condominium purchases made by non-Americans. It is an ironic fact that just as the high flying Wall Street bankers of the early 2000s faced a day of reckoning, our market has been flooded with Asian, European, and South American buyers with vast purchasing power and a desire to park part of their wealth in New York condos.

4)         Competitive bidding has resurged in 2012. But in spite of that resurgence, American buyers remain cautious with their dollars. The desire NOT to overpay has never been stronger, and most multiple bid situations are created by the perception of real value in the property on offer. Importantly, even with many bidders, prices rarely stray much outside appropriate price parameters. 

5)         While co-op boards have always been stringent, the recession has made them particularly anxious about new applicants and their overall profile. Throughout the industry, agents are reporting a higher incidence of board turndowns than ever before; one of my colleagues at another firm has referred to 2012 as “the year of the turndown.” Buildings are going through applications with a fine tooth comb, and every co-op package we submit elicits additional questions and requests for explanation from the members of the board. We have also seen multiple examples of extraordinary requests from boards: 10 years of maintenance in escrow, a multi-million dollar deposit until a renovation is complete. These requests are unprecedented in my long experience. And the condos are following suit. Since they cannot turn buyers down (in theory a condo’s only two alternatives are to permit a sale to proceed or to buy the unit themselves), they use delay as a tactic, requesting one piece of paper after another until the buyer (hopefully) gives up and walks away. At Warburg, where we are hyper-careful about the quality and content of our board packages and each is reviewed multiple times, our board turndown rate is up 40% over last year.

So we find ourselves in a strange positive/negative environment. The market is strong , but customers are not particularly optimistic about the future. They buy as a hedge or for quality of life reasons (always, in my opinion, the best reason to acquire a home) without anticipating a huge return on their investment. The really big bucks are spent more by foreigners than Americans. And the boards are tougher than ever, so skilled agents are more integral than ever to the process of shepherding  transactions to a successful conclusion. In many ways, I prefer this environment. It feels rational. It moves (usually) at a reasonable pace. It expands our horizons. For 2012, this is the new normal.

When I travel around the country I am struck by the fact that most of our cities have turned into donuts. This is not an original thought. Many urban planners have noted the way downtowns are dying as cities are increasingly ringed by malls and big box stores where, more and more, everyone shops. Fortunately this fate has not befallen New York. Our downtowns and shopping thoroughfares remain vibrant and engaging in innumerable neighborhoods throughout the city. So how do we make sure they stay that way?

The excitement of New York reflects a mix of old and new. We have wonderful old neighborhoods filled with late19th century brownstones, we have iconic mid-century masterpieces like Philip Johnson and Mies van der Rohe’s Seagram Building, and we have new luxury residential towers from Costas Kandylis, Jean Nouvel, Richard Meier, and Frank Gehry, not to mention the ubiquitous Robert A. M. Stern. This dynamic between old and new energizes our skyline and creates the complex poem of our urban life.

Preservationists and developers are often seen as antithetical groups. Actually every city needs both. On the one hand we ARE our history. No urban area can be at peace with itself unless its history is cherished. The designation by the Landmarks Commission of such iconic areas as the Central Park West skyline and the homes on Hamilton Heights and in Ditmas Park remind us of our city’s cultural heritage as well as the sweeping changes in how we live over the past 150 years. By the same token, cities either change or they die. Without new buildings, especially those by significant architects, a neighborhood can become a mausoleum, a tribute only to its past and not an open door to its future.

So we as citizens need to support the need for appropriate landmarking while at the same time recognizing that age alone does not create value. Not every item in a junk store is an “antique”, and not every building built in the 1890s or 1920s should be preserved. Cities, like businesses, or people, have to change or get left behind. We need buildings and businesses, old and new, which create a vibrant street life and keep pedestrians interacting with their environment and each other. We need innovative ideas like the High Line and the wonderful Hudson River greenway stretching up Manhattan’s West Side. We need support for business, small and large, since these businesses are the engines driving New York into the future.

And most of all we need to remember that the ecosystem of cities is fragile. They can die from the center out as so many have across the United States. My job, and that of every urban citizen, is to make sure that doesn’t happen. I shop and dine locally, often in small owner operated stores and restaurants; as a small business owner myself, I strongly believe in the job and buzz creating power of small businesses. I support preserving  the historic legacy of New York while at the same time making way for transformational change. There is no either/or choice between the past and the future. To keep the hole in the donut full we need both!

Is there an optimum time to list a property?  Yes and no.  Spring is the season of perennial promise when inventory, demand and activity peak.  But buying and selling occur year round, and while the seasonal calendar affects the volume and velocity of sales, there are two more important considerations than the time of year a property comes to market—namely the life stages of buyers and sellers defined by marriage, birth, death, and employment and the life cycle of a listing which is shaped by pricing and condition.

During spring, the forces of nature conspire to spike all numbers.  Warmer weather and longer daylight hours contribute to increased showings during April, May and June.  Lush green lawns, flowering gardens and landscaped terraces maximize curb appeal, so there is greater product and choice.  Families opt to settle their children before a new school year begins, so more contracts are signed in spring.  

More often than not, however, life gets in the way of making a seasonal move.  Couples have babies and need room to raise another child.  Professionals relocate to accommodate job losses or position transfers.  Estates require money to pay taxes.  Overriding the residential real estate calendar, life events can not always be planned.

That’s when the cycle of a listing needs acknowledgement.  Nothing quite equals the surge of energy that comes in the first few weeks of a well priced new offering no matter the time of year.  This initial period when the savviest brokers and the most motivated buyers come through is nearly impossible to recapture once missed either because of a calendar interruption or because the property fails to show well or is mispriced.  The bloom on the rose is transitory.  As a result, the critical first three to six weeks of marketing need deliberate planning. 

There’s every reason to take the time and spend some money to prepare a property to show to its best advantage.  The stage needs to be set not only for the buyer but first for the camera. Today’s purchasers who begin their searches online take little notice of those homes with unappealing settings or cluttered rooms.  If a property is uninviting online, it may be overlooked entirely.  With home staging, less is more.  Most properties benefit from editing out unnecessary furnishings and accessories.  Buyers will always walk to a window, so anything that blocks a straight path is best removed and stored.  There’s value to painting with neutral colors so buyers can envision how their own possessions will fit in a space.  Similarly, there’s a benefit to organizing and uncramming closets and repairing anything broken.  Buyers respond to homes that are clean and depersonalized.  First impressions are critical, and there are no second chances for sellers.  Staged properties sell faster and for more money than unstaged ones.   

The allure of freshness that attracts large numbers of lookers to a property’s first few open houses fades with time on the market.  A crowd of more than dozens of interested buyers  during the first couple of weeks  is halved typically in later weeks and trickles down to a mere handful in three months.  Always interested to know how long a property has been on the market, buyers today can ascertain “days on market” on sites like StreetEasy with the stroke of a key.  Before the advent of these public website portals, brokers responded directly to questions from buyers to explain why a property might be lingering on the market.  StreetEasy provides a cold hard number for Days On Market which only resets if the listing has been off the market for six months or more.  StreetEasy also features Price Drop alerts which help to bring new attention to stale listings.  If after three months, a property fails to attract an offer, a price adjustment is warranted.  But rather than chip away with successive small increments, it’s best to reduce by 5-10% to be noticed.

The weather and calendar events impact a listing.  Heat waves and snow storms can put a drag on activity, so there’s less competition, and there’s something to be said for encouraging the contrarian off season principal.  Thanksgiving causes a slowdown with holiday distractions that extend through much of December and the first week in January.  Spring school vacations, Passover and Easter also suspend showing activity more often than not.  Another market deceleration occurs before Labor Day when the vacationing real estate community doesn’t usually resume business in earnest until the Monday after Labor Day.  In Manhattan, The Jewish High Holy Days influence showings.  This year, with Rosh Hashanah and Yom Kippur occurring early and not late, the start of the fall selling season is pushed back.  Many sellers will list in October this year so as not to interrupt and thus diminish the initial excitement of their new listings.  

October 2012 is expected to be especially busy despite the uncertainty of an election year.  Smart sellers and wise brokers will be marketing new offerings that have been staged carefully and priced realistically to capture buyer attention and stimulate early bidding action.  If spring brings promise, then autumn conveys wisdom.