2011 Year End Market Review

In New York, a slowing real estate market characterized the fourth quarter of 2011. Fewer purchasers at every level signed contracts than in the preceding three months, and the market retained the highly stratified characteristics which had marked it throughout the year. Co-ops at the lowest end of the market remained an extremely tough sell, while condos at the upper end continued in popularity, especially with foreign buyers.

The marquee sale of Sanford Weill’s penthouse at 15 CPW for $88 million was a particular highlight of the fourth quarter. While unique at $13,000 per foot, the sale was emblematic of the willingness on the part of foreigners, particularly those from the former Soviet Union, to spend extraordinary amounts of money the world over for trophy properties. All over Manhattan, foreign buyers, especially from Russia, Asia and South America, have driven new condo prices up as they use our real estate as a safe haven for their capital. The lower priced properties, frequently in multiples, are the preferred purchase of Asian investors. The high profile, high price units are more often purchased by South American or Russian nationals, likely as pied-a-terre apartments for use a few times per year.

In addition to serving as investment vehicles for investors from around the world, sales continued briskly in the one to three bedroom new condo markets all over town. The fourth quarter saw continued healthy absorption in Harlem and Williamsburg, in Chelsea and the Madison Park area, with a mix of users, investors, and parents purchasing for kids writing the checks. While the pace slowed from earlier in the year, it continued strongly enough to further whittle down the inventory overhang from what appeared to be overbuilding a few years back. Now that these units are getting absorbed, however, an inventory shortage seems more likely to afflict us than an overhang. And for the first time in several years, eager buyers are buying new condos from plans; the Toll Brothers building on 65th and Lexington is almost sold out although the infrastructure has only reached about the eighth floor.

The co-op market, meanwhile, was subject to a highly different set of forces. Without the boost of foreign capital, the mood remained cautious. Among properties costing $5 million and up, scarcity dictated the terms of the market; with so little available, well priced properties in excellent condition were still attracting multiple offers. But with an uncertain economy, the prospect of shrunken Wall Street bonuses, and a country paralyzed by political bickering, the fourth quarter was a time for caution. No one wanted to go too far out on a limb. So even larger co-ops had to be priced exactly right if they were to sell. Buyers were not stretching. They once again liked real estate as an alternative to the zero-sum roller coaster of the stock market, but only at the right price. As for the older condos, they are increasingly indistinguishable from co-ops; their Boards are demanding more and more information, both financial and personal, in the Board packages, and just waiting out the buyers who won’t supply it. Sooner or later, most of those buyers just throw up their hands and walk away.

In the $2 million to $5 million market, the same realities applied. There was less multiple bidding during the last few months of the year than there had been earlier, but even in the multiple bid situations which DID arise, the properties had to be well priced and in great condition. And then the bids rarely went much, if at all, above the asking price. And as the co-ops got smaller, the inventory got larger. The studio and one bedroom markets, especially in the postwar buildings which line the eastern avenues of the East Side from 96th Street down to 14th Street, are still available in quantity and absorption continues to be slow. One of the events to watch for in 2012 will be the tipping point between the undersupplied rental market and the saturated sales market: at what point do those one and two bedroom renters get their increase notices and say, “For this money it would make more sense for me to own”?

2011 was a year in which the complex realities of the newly global economy were felt in every corner of the world. It was a year of market unpredictability during which, on the whole, our New York real estate market was in balance. Buyers and sellers remained largely within their comfort zones, and deals were negotiated aggressively but fairly on both sides. There were some unexpected peaks, like the spring mini-boom, and some unexpected valleys, like the winter doldrums which began the year. But overall well priced properties sold at fair prices to satisfied buyers. We like to think of this as a broker’s market, in which our contribution as brokers in educating both sides and bringing them together seems particularly concrete. We look forward to more of the same in the year ahead.