An Island in The Sun

 BY: Frederick Peters, Warburg Realty President

Throughout the country real estate is beginning to recover. Unevenly, with false starts and disappointments, as the economy strengthens, inventory is being absorbed. Prices are still depressed, time on the market still extends into the multiple months, foreclosures still abound, but the situation now improves a little bit each month.

Against this backdrop of gradual improvement, the behavior of the luxury marketplace in New York, where prices are rising, there are multiple offers on many properties, and absorption is quick – seems all the more exceptional. Why is it happening? None of us know the complete answer, but I have a few ideas:

• We are a confined market. Manhattan is an island, and an island with little construction currently under way. Between the recession and the loss of tax incentives, developers do not have much in the pipeline. The prewar co-ops are, of course, impossible to duplicate. There has been, without exaggeration, NO foreclosure inventory among the Manhattan co-ops. And we have a vicious cycle regarding inventory: owners won’t sell unless they know where they are going, and since so there is so little for sale they cannot find anyplace to go. So they renovate, or hang on. Inventory stays low. And when good new property appears, ten people are waiting to pounce on it. Someone wins, but for the other nine, there is STILL no place to move. So their properties don’t get listed. And so it goes.
• Manhattan is an international financial and business center. In many respects, our market is driven more by global than by national forces. And since finance is our hometown industry, the behavior of the stock market impacts our real estate market more than it does other locations. That said, real estate is still viewed as a separate asset class which does not always move in tandem with the market. We are also seeing, as we did a decade ago, an interest in bricks and mortar as a hedge against volatility with bonds and securities.
• Our condo market is driven by non-US nationals. They come from all over the world, with buyers from Russia, China, Korea, and Brazil currently leading the charge. For them, New York represents both a secure safe haven for their money and a good buy. Paris, London, Moscow, Hong Kong – the real estate in these cities costs more and (at least in London, Paris and Moscow) the economic situation looks less stable. For a variety of reasons, buyers from the Arab world still prefer London.
• New York is awash in cash. For many in the financial world, the last two years were not at all bad. AND many of the Wall Streeters have also seen their Restricted Stock Units from the boom-years earlier in the last decade vest, creating big windfalls. Certain legal specialties, especially those regarding bankruptcy and restructuring, have had several banner years. And merger and acquisitions activity is soaring in 2011.
• Commuting is a tough life with today’s work schedules. The suburbs were conceived based on a 9 to 5 workday, with Mom at home. With Mom and Dad both working high level jobs often stretching from 9 AM till 8 or 9 PM, boarding that train at the end of the evening, and getting home after the kids are already asleep, doesn’t seem so appealing. So even though there are great buys in Westchester, Connecticut, and New Jersey, a lot of New Yorkers want to stay in New York.

What are some other reasons? You tell me