Manhattan on Sale
Manhattan’s luxury real-estate market is rotting, as Wall Street layoffs and tight credit squeeze demand. Why prices could slip another 30%.
ON A RAIN-DRENCHED AFTERNOON LATE last week, Michael Shvo, a renowned megabroker of Manhattan apartments, showed up at 20 Pine Street to answer our questions about the troubled development.
A stone’s throw from the New York Stock Exchange, 20 Pine once seemed a symbol of the area’s post-9/11 renaissance, sprouting Armani-designed apartments with oversized windows, exotic woods and recessed, virtually silent shower heads. Where Chase Manhattan built a vault for its first headquarters, there is now a swimming pool and Turkish bath. But for all its virtues, 20 Pine is starting to look like just another victim of New York’s luxury-housing bust.
Reports have circulated that the owner of the 409-unit building, Boymelgreen Developers, may unload 80 apartments for just $652 per square foot, about half the current asking prices. Shvo, 36 and perfectly coiffed, acknowledged the existence of “20-25 offers from bottom fishers,” some as low as $600 per square foot. But the offers didn’t seem to concern him. “The developer,” he sniffed, “isn’t interested.”
Not yet. First came Miami, Las Vegas and Phoenix. Now Manhattan’s high-end housing market is cratering. With Wall Street firms stepping up layoffs, and money for big-ticket mortgages drying up quickly, prices for new york apartments and townhouses of $5 million or more have been falling and may well drop by another 30% before finally bottoming out. That could help turn the Big Apple into the ugliest housing market in America.
PRICE CUTTING HAS BECOME SAVAGE. The 14-room Park Avenue apartment of the late socialite Brooke Astor — which Barron’s highlighted in that earlier story after its price had been cut from $46 million to $34 million — is now down to $29 million and probably has to be cut further.
But even with dramatic reductions like that, the inventory of unsold luxury housing is ballooning. Streeteasy.com, a Website that pulls together listings and insights from a variety of brokers and buyers, now shows 795 New York apartments offered for $5 million or more, up from 518 a year ago.
Realty brokers, the industry’s natural cheerleaders, are now unabashedly glum about the high-end market. “The $5 million-and-above market is inventory-rich and buyer-poor,” says Dolly Lenz, a broker to the stars and vice chairman at Prudential Douglas Elliman.
The price of a property, she says, “has to be 25% off the last sale for it to be a bargain. People have no sense of urgency. A sense of urgency is what the real-estate market needs as a stimulus.”
In short, the market is almost unrecognizable from a year ago. “People used to call and say ‘I have a Russian,’ and that meant you were supposed to drop everything,” says Leighton Candler of Corcoran Group, another top broker. That’s changing: The ruble buckled and so did oil. And the dollar is up sharply, making U.S. prices all the more expensive.
Says marketing chief Louise Sunshine of the residential developer Alexico Group: “We have definitely noticed a switch from international buyers to more of a U.S.-based and local purchaser base.”
The damage in Manhattan is spreading well into the suburbs-from Saddle River, N.J., to Greenwich, Conn., to South Hampton, N.Y.
The high end of the greater New York market “has been holding up better than that in many of the larger metro area markets,” says Celia Chen, the housing economist at Economy.com. But she sees continued drops ahead for luxury and other housing in and around the city.
“House-price depreciation in New York will likely be greater than the national average this year, as the impact of the lost jobs on Wall Street hits” the local economy, Chen says.
Indeed, Ivy Zelman, a former Credit Suisse analyst who was among the first to call a national housing bust, figures that the New York housing market is headed straight down.
“When we look at New York City, we look at a price-income ratio that historically has been four times income, versus three times nationwide,” says Zelman, who now runs her own firm. At 7.7 today, that ratio is “significantly higher than normal” because prices have only started falling. “If you want simply to get back to the median, it would be a 46% correction,” says Zelman.
She adds: “If I had to pick one market in the country with the most challenge and the most substantive rate of decline [ahead], it’s New York City. It has the greatest number of job losses among the higher earners.”