When does the Real Estate Bubble Burst?

[Edward]

FINANCIAL TIMES
Manhattan property bubble set to burst
By Alison Beard in New York
Published: October 14 2002 19:33 | Last Updated: October 14 2002 19:33

Two months ago, Benjamin Swinburne decided to get serious about buying his first Manhattan apartment. The research analyst went to several open houses and made an offer on a one-bedroom in the West Village.

Now his enthusiasm is fading. The shaky economy - and a dismal earnings outlook on Wall Street - have made large property purchases look risky.

"At a time when everyone's net worth is going down, it's a big investment . . . particularly since real estate - Manhattan real estate - is the only thing that hasn't," Mr Swinburne said.

His own industry could soon provide the catalyst for just such a dive, however. Wall Street firms have cut more than 60,000 jobs since the start of last year and are likely to slash bonuses significantly this year, according to recruiters.

That has translated into thousands more square feet of office space available to sublet, as well as a fall in demand for townhouses, co-ops and apartments. During this year investors have been supporting property values in Manhattan by shifting their money from stocks to hard assets. But Wall Street downsizing is taking a toll.

"Over the last decade or so we've talked about the diversified tenant base in Manhattan - the entertainment companies, the law firms. The reality, however, is that the financial services sector is really the key component," said Josh Kuriloff, executive vice-president of Cushman & Wakefield, the property services firm.

Office vacancy rates have held at 11 to 12 per cent, outperforming many other urban markets, but sublease space now accounts for more than 40 per cent of the inventory, he said.

Commercial rents have dropped from 10 to 15 per cent across the board. And building sales have slowed because buyers and sellers are finding it difficult to agree a price.

"I'm not painting a bleak picture," Mr Kuriloff said. "New York is poised to be an extremely healthy market in the next 24 months as the economy recovers because we've had no significant new construction."

Residential brokers say the same is true of their market. But they acknowledge significant softening over the last few months. Rental rates are down about 20 per cent overall, in part because of increased homebuying but also because the junior-level bankers who boost the numbers of available tenants were some of the first to be made redundant.

It is rare for homeowners to sell their main residences after losing jobs, but they may "get rid of the excess", selling vacation homes or downsizing to smaller condominiums, said Peter Marra, of William B May, a Manhattan brokerage.

Pamela Liebman of the Corcoran Group knows of two new listings from people who have lost jobs and of one potential buyer who was forced to drop out. "But it's not something that happens every day," she said.

Still, the prospect of slashed bonuses is deterring new buyers from accepting bull market asking prices. One client, who finally had his $900,000 (£576,000, €912,000) offer accepted for a one-bedroom apartment listed at $1.1m, decided to push for $850,000 instead. "He would have taken it three weeks ago, but now things are different," Mr Marra said.

The best performing segments of the residential market are the bottom and top tiers. Falling mortgage rates continue to draw first-time buyers to apartments priced below $750,000. And apartments worth $5m or more are selling well because the very wealthy are more insulated from economic and stock market swings.

But "we've seen a slowdown in the $1m-$3m market", Ms Liebman said. "People are waiting to see what will happen."

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[enzo]

Will this effect the lower end of the apt. market? I mean a few hundred grand to one of Corcoran's clients is chump change. A few hundred less a month would be very meaningful to the rest of us!

[fall guy]

I heard Ben Stein saying that the NYC real estate bubble will burst soon. What do you guys thinks

[BrooklynRider]

God, I hope so. I'm looking to buy in the next 2 - 3 years and I want options!

[Gulcrapek]

I hope so too, or else I'll have to live with my parents after I graduate college.

[Zoe]

It is a natural part of the real estate economic cycle for a drop. However the drop we will soon encounter will only last so long. You may want to look at some studies on NYC over the past 100 years; the appreciation in prices follows a very consistent curve. Figuring out that line is the key to purchasing here (or anywhere). Manhattan is unique in that it is a tiny island so land will always be at a premium. John Jacob Astor in an interview before he died on the Titanic was asked if he had to do it all over again, what would he do differently. His response was that he would invest every dollar into the Manhattan real estate market. To date he has yet to be proven wrong.

[fall guy]

I'm looking to buy in a few years also. So I hope it cools down soon.

[billyblancoNYC]

I wouldn't look for more than 10-15%, solely b/c of interest rate hikes, not b/c of the city.

[londonlawyer]

What real estate bubble? Ask Californians on Skyscraperpage.com for NY real estate options, and they'll find you millions of houses in Nassau and Bergen Counties and Brooklyn and Queens for $250,000. Housing in New York is really affordable!!!!

:wink: :wink: :wink: :wink: :wink: :wink: :wink: :wink: :wink: :wink:

[muscle1313]

Real Estate prices are insane. They keep going up. They have gone up for years. Mortgage rates are rising. When does this real estate rally end? It can't go up in a straight line forever.

[sfenn1117]

The tide is turning

[Derek2k3]

When the downturn occurs will the quality of design and new construction go down with it?

[BrooklynRider]

The dollar is tanking. It is valued nearly 40% lower than in 2001. 60% of US currency is held by foreign governments - especially the Chinese with whom we have a tense and, at times adversarial relationship. If those governments decide to divest of their dollars, the real estate market will not burst - it will come crashing down. Hurting primarily small investors, who will no longer be able to rent or lease space and units at a price that covers cost, let alone makes profit.

There was a great article in Newsweek on this most probable scenario.

[Deimos]

On the contrary, the real estate market has been a better investment over the course of time than even the S&P 500. A correction definitely should be expected in the short term, but if history repeats itself again, we'll look back 10 years from now and still see a net increase in value. All it will really mean is that people who buy places to sell them for a profit will have to hold onto their properties for a little longer.

I'd expect to see people buying their neighbors' apartments and knocking down the walls more (or expanding their houses) when the correction does occur. This will be less expensive than moving and help in the long run by hedging their total investment.

[Stern]

When the downturn occurs will the quality of design and new construction go down with it?

Definetly.

[TLOZ Link5]

When the downturn occurs will the quality of design and new construction go down with it?

Definitely. Think Roaring Twenties.

[nybboy]

Hold on, this may not be directly related to NY real estate, but either way we're dealing with money. I find it hard to believe that the dollar is only 40% of its value compared to 2001. That would only happen if we were in a serious depression, or a severe recession (which still may not still have happened). When those buisness articles are talking about value, it's always comparative. i.e. the dollar might be down 3% percent against the Yen, but is 5% up against the Euro. All of the industrialized countries own some part of each other's money. 60% is not a suprise, Brooklyn Rider. Plus, the Chinese peg their currency to the dollar, so if the dollar goes out, so does their Yuan(Chinese currency). If the leading economy in the world goes out, so does theirs. It is not in most modern countries' interest to divest their money away form the U.S. The main holder is actually Japan. Actually, we still owe Japan somewhere in the trillions of dollars, when they literally bailed the entire U.S. government and practically the country in the early 90's. we haven't paid any of it back yet. The Japanese didn't have a timeline for us to pay it back. Because we have such close relations with them. Remember, even though China is the fastest growing econonmy and is striving to be the first in everything. Japan is still the world's second largest economy with the most disposable income, more than the average American.

[nybboy]

Eco 101: High trade deficit (bad thing) + low interest rate (good thing) = dollar depreciating against other currencies.

[Eugenius]

Actually, with the dollar depreciating against foreign currencies, we can expect more foreign investors to come into the US market armed with overflowing wallets (similar to the way the Japanese did in the late 80's). That should, in fact, prop up property prices. Anecdotal evidence supports this conclusion, as a large number of European investors has been snapping up Manhattan real estate.

I don't think the real estate prices will collapse. Rather, we might see a slowdown in the rate of growth (perhaps something approaching inflation); however, without a recession or a marked decrease in the attractiveness of living in NY, I don't see the prices going down.

[alex ballard]

Will the bubble burst only hurt NY, or will all metro areas see some affects?


Do you see NY keeping it's desireablity through potential bubbles?

[Stern]

NYTIMES:

March 27, 2005
What Happens if It Bursts?
BY MAREK FUCHS

At cocktail parties these days, the chatter often involves a bit of bragging about real estate profits before it winds down to those famous last words: "The market might go down, but my area will maintain its value."

It's as if people think that an electromagnetic field of protection will shield a particular series of brownstones or cul-de-sacs from whatever might befall the market at large because of higher mortgage rates, mortgage defaults or an oversupply wrought by downsizing baby boomers.

Wishful thought, willful naïveté or irrational exuberance explain the extent of the conviction, according to many real estate appraisers, whose business it is to track sale prices and trends over time.

One has to look back only to the last time the real estate market's cabin pressure changed for the worse to see that every place loses value. In the late 1980's even areas as sought after as Greenwich, Conn., had go-go prices reversed. Controversies even raged about the number of "For Sale" signs staked into lawns, which some found gauche. A home built at 1 Round Hill Road, a showpiece address in the well-regarded back country section of town, stood unsold for months.

Although the most established enclaves of the most rarefied towns are not immune to market forces and psychology, the most intriguing areas to watch in downturns, said Jonathan J. Miller, the president of the Manhattan appraisal firm Miller Samuel, are those widely thought to have built and renovated themselves to a permanently new standing in the market. Frequently, Mr. Miller said, it is these areas that, despite the high expectations (or maybe because of them), are hit the hardest.

On the odd occasion, however, changes in an area will be so substantive that it will weather the downturn not with prices unscathed (a near impossibility, see: Greenwich) but with comparatively less pain.

Elliott D. Sclar, a professor of urban planning at Columbia University, said that the Upper West Side was at its low point in the 1960's and 70's, with single-room-occupancy hotels on many blocks, high crime and families moving out. Then came a sharp growth in restaurants, shops, renovation and co-op conversion in the 1980's - trends that some were convinced would prevent prices from plummeting, even when the stock market crashed in October 1987, limiting the cash flow of many prospective residents. The change did stick on the Upper West Side and prices held better than other areas, Mr. Miller said.

In the same era, the East Village was also thought to have gentrified its way to a new level of stability, but it experienced one of the sharpest price declines in Manhattan. According to co-op sales numbers prepared by Miller Samuel, prices in the East Village dropped more than 30 percent from 1987 to 1994. Though the East Village at the time was thought of as the latest, greatest frontier in Manhattan, Mr. Miller said the ensuing confidence overlooked important factors that could come into play during times of falling prices, like limited transportation.

Moreover, although there had been building and renovation, retail stores catering to the influx in new residents never caught up, as they had on the Upper West Side. When the gloss came off the real estate market toward the end of the 1980's, owners in the East Village suffered more than those in other neighborhoods.

But then came the upturn of the 1990's. Though there is still no Second Avenue subway, the East Village became one of Manhattan's hottest neighborhoods and with the increase in prices, the same old mantra returned: that the East Village finally had changed its stripes to the point that it could better weather a downturn.

This time, Mr. Miller said, such hopes might be realized. He points to the higher level of owner occupancy brought by the current wave of building and the increase in support services that followed. In order to test to how an urban neighborhood might perform in a down market, Mr. Miller said, one must look at whether essential services like supermarkets, dry cleaners and a choice in restaurants can be found within a several block radius of any given apartment. That wasn't the case in the East Village as the last flush market began to teeter. But now it more frequently is.

"If you are walking 15 blocks, those high prices get hard to justify," Mr. Miller said, when macro trends, like mortgage rates, turn against a market. "You need a certain base line to become a more stabilized community."

By this measure, Mr. Miller said, it is not the East Village but many Harlem neighborhoods that might be vulnerable in a downturn. Although residential prices have soared, commercial activity hasn't developed deep roots. "It's still early in the process there," he said, pointing to the long walks to pick up everything from greens to shined shoes. Likewise, he said, the far West 40's, where there has been a great deal of rental construction, reminds him of the far East 30's in the 1980's, where many rental buildings were built before the support services caught up.

Dr. Sclar of Columbia, who has a map of the proposed Second Avenue subway (circa 1955) in his office, said that transportation is a key to performance in bad markets and that because of that, he doesn't agree with Mr. Miller's forecasts. He said that because the subway still hasn't been built, the East Village may suffer again. And on the subject of Harlem, he also disagrees with Mr. Miller, pointing to the base line strength that good subway access brings.

Both Dr. Sclar and Charles Lockwood, the author of "Bricks and Brownstone" (Rizzoli International Publications, 2003), an architectural history of New York row houses, also point to the appealing housing stock in areas of Harlem like Strivers' Row. Demand for brownstones with space and elegant detail could help the area maintain its footing, they said.

The biggest risks, Dr. Sclar said, might be in changing areas in the industrialized margins of the city, like Red Hook and Williamsburg, Brooklyn. Brad Lander, the director of the Pratt Institute Center for Community and Environmental Development, said that fashionable areas where there was "fringe gentrification" were always harder hit, but that the influx of immigrants to the city in the past generation had pushed these patterns to Brooklyn and Queens. If prices come down in general, Mr. Lander said, buyers will be less willing to deal with the relative isolation, limited retail and school choice in a place like Williamsburg.

The hunches and guesswork involved in predicting which areas have changed enough to weather a downturn do not end at the city limits.

In Westchester, the heralding of the birth of White Plains as a legitimate small city have been a feature of several real estate runups. In the harsh light of a downturn, however, its limitations - like a traditional lack of life at night - come back to haunt it. But in the past several years, the development has reached a new level and given White Plains something it never had before: a skyline.

Marge Schneider, an executive vice president of Cappelli Enterprises, a developer of condominiums in the area, said her company has raised prices repeatedly because of demand and has also become partners with Donald Trump to sell apartments in the city. She said that White Plains will remain in good standing because the more than 2,000 luxury apartments in the center of town have put residents on the streets at night. Everything from big box retailers to restaurants and a new movie theater have opened, and teem with customers.

John Mason of Mason Appraisal Services in Yorktown said that the large number of corporations that have settled in and around the nearby Route 287 corridor speak well to the ability of White Plains to survive a bad environment for real estate.

But over all, he said, he is not confident in its prospects. Mr. Mason said that there is an inorganic element to a city built on the back of large development projects. He is more confident in the sustainability of progress in the northern city of Peekskill, which, unlike White Plains, has been settled by a burgeoning population of artists, taking advantage of available lofts and river views.

"The cultural beat in Peekskill far exceeds anything in White Plains and that could make a difference," he said.

In looking at communities outside Peekskill that sit along the Hudson, Mr. Mason said that there are often two narratives to a town's future: a rosy one you hear in good times and a more guarded one in bad; with this in mind, he said some of the river towns like Hastings and Tarrytown that have long anticipated redeveloping their waterfronts with recreation and retailing might lose hope under the umbrella of a bad market.

Though waterfront development has not materialized in areas of Westchester, the Midtown Direct train line that now links parts of New Jersey to Penn Station in Manhattan has changed communities from Maplewood to Madison. That change in transportation will keep demand much stronger than it otherwise would have been, said Jeffrey G. Otteau, president of the Otteau Appraisal Group in East Brunswick. The settling of so many corporate headquarters in the nearby Routes 78 and 287 corridor will also help. But ironically, he said, many of the fast-growing "exurbs," or outer suburbs, near the Jersey Shore may suffer. Their growth and rising prices are based on their easy commute to that north central corridor in New Jersey. There is no similar job source nearby to give the area its own base line.

When it comes to future prices, of course, all is speculation. And perhaps, just maybe, this will be the time when famous last words will come true and everything will be different. Gregory J. Heym, the chief economist at Brown Harris Stevens, is not sold on the inevitability of a downturn. He bases his confidence in the market on things like continuing low mortgage rates, high Wall Street bonuses and the tax benefits of home ownership.

"It is a new paradigm," he said.

[muscle1313]

NYTIMES:

When it comes to future prices, of course, all is speculation. And perhaps, just maybe, this will be the time when famous last words will come true and everything will be different. Gregory J. Heym, the chief economist at Brown Harris Stevens, is not sold on the inevitability of a downturn. He bases his confidence in the market on things like continuing low mortgage rates, high Wall Street bonuses and the tax benefits of home ownership.

"It is a new paradigm," he said.


Same thing was said about the stock market in 1999. New paradigm. I love the real estate boom, but nothing goes up in a straight line. I agree with the poster that said 10 years from now prices will be higher, but there have to be corrections along the way.

[REALESTATEGOLD]

I am an investor and I am banking on real estate in Arizona.
a) Affordability, I am buying houses at $75 to $85 per sq foot and dirt at $.50 to $1.00 per sq foot.
b) Job Growth, Pheonix is the #1 in job growth in US right now, major companies such as Intel and honeywell have moved here and many more are on the way. Construction is practically on FIRE.
c) Two of the largest universities in United states are in Arizona with over 70,000 students, phenoix is rated #5 in the nation for singles activities
d) Average income is $75000 per household and growing.
e) population Growth, Pheonix is the fifth largest city in US now and is estimated to grow to #3 by year 2020.
f) Californian are migrating to Arizona at a rate never seen before. 900 sq feet Condos in California are selling at an average price of $400,000. You can buy a masion with that in Pheonix.
g) Las vegas factor, prices have gone as high as in california and have been declining for the past 8 to 10 months. The only business is Casinos and pays minimum wage. Las Vegas no longer is a family destination. Families are moving to Pheonix.
h) Chineese currency floating in about 18 months. currently 1 to 8 ratio, it is estimated to be 4 to 1 ratio by then.
i) dollar losing ground and estimated to fall to 60% of its face value by 2006 against euro making real esate attractive to foriengers specially chineese once their currency floats.
J) Chineese moving to California, New York and Toranto, where they have already been established increasing the real estate values and guess where the californians and the Newyorkers will come to...ARIZONA.
K) Baby boomers and snowbirds....Need not to mention...Arizona is the choice for them. Already is.
Anyway, Don't let the bears scare you form the real estate market. IMHO Buy in Arizona and Hold for a couple of years. BUY AS MUCH AS YOU CAN AFFORD TO HOLD AND CASH IN BIG IN A FEW YEARS. GOOD LUCK.
PS. Look into these places: Buckeye, Surprise, Peoria, Casa Grande in Arizona.
YOU ARE WELCOME.

[alex ballard]

Ahhh....

The spam has come.


Yes, you forgot to add the wonderful water situation out there ;).

[REALESTATEGOLD]

There Is No Water Problem In Arizona. For Your Info, Arizona Just Sold 450,000,000 Cub Gal To Las Vegas.
I Take It You Have Never Been To Arizona.

[Stern]

I've been to Phoenix Arizona and its sprawling. Regardless this thread is about NYC real estate and although you have not made an offering, it still does not belong in this thread.

[REALESTATEGOLD]

This is not about NY vs AZ. NY is NY, there is nothing like it. As for investing,
I think timing is on the side of Arizona. That's all.
Plus, think about where you want to be when all those chinese move to NY. They've already taken over southern cal, Irvine, Mission Viejo, Cerritos and..............................You go to Cal state Irvine these days, that's all you see, chings.
AZ is 85% white and polite.

[Schadenfrau]

Wow, racism is totally cool in Arizona? That's it, I'm packing my bags today. Thanks, REALESTATEGOLD.

In all seriousness, today is the first day I've ever wanted to see someone banned from these boards.

[ryan]

J) Chineese moving to California, New York and Toranto, where they have already been established increasing the real estate values and guess where the californians and the Newyorkers will come to...ARIZONA.

I'm so naive that I actually took this to read something like "buy into Arizona now, before Chinese investors price you out..."

Any coincidence that blue states tend to be more expensive/desireable? Happy to pay a premium to stay away from this.

[Edward]

In all seriousness, today is the first day I've ever wanted to see someone banned from these boards.
Your wish is granted...

[macreator]

But as long as their is a large demand for real estate in New York City, especially in Manhattan, and there is a smaller supply won't the bubble never pop?

[TonyO]

NYSun
April 14, 2005 Edition

With Prices Set To Hit New Peaks, Smart Money May Cash Out
Commercial Real Estate

BY MICHAEL STOLER
URL: http://www.nysun.com/article/12232

Unfortunately, I don't have a crystal ball, nor do I often partake in gambling, but if I were a betting man, I would wager that 2005 will be a record year for sales of commercial property in New York City. According to the Capital Markets Group of Cushman & Wakefield, a record $14.9 billion in sales were reported in 2004, well over the prior record of $12 billion in 2001, which included deals for the World Trade Center and Rockefeller Center. Preliminary reports suggest that sales volume for the first quarter of 2005 was almost $9 billion.

A number of industry leaders agree that we're in for another record-breaking year, including the managing director at Eastdil, Douglas Harmon, who has been responsible for the highest volume of sales of commercial and residential properties in New York over the past several years. "2005 is the first year that I can remember where almost every form of asset class is establishing new sales-per-square-foot records," Mr. Harmon said. "Today, investors from around the globe are targeting New York as their prime investment priority. Nothing is out of bounds for purchase: Retail is hot, land is hot, rentals, conversion, A and B buildings, vacant buildings, and industrial properties."

During the past three weeks, sales volume alone exceeded more than $3.5 billion. On April 1, a joint venture between Tishman Speyer Properties, the New York City Employees' Retirement System, and the Teachers' Retirement System agreed to pay $1.72 billion to MetLife for the 58-story, 2.8-million square-foot MetLife Building at 200 Park Ave. It was the highest price ever paid for a single building in America, exceeding the $1.4 billion purchase of the 1.4-million-square-foot General Motors Building at 767 Fifth Ave. by the Macklowe Organization. Sources involved in the negotiations over the MetLife Building said that they felt the insurance company could have fetched an additional $200 million for the signage rights on top of the tower, though they decided in the end not to sell. As reported in Commercial Mortgage Alert, Lehman Brothers is providing $1.2 billion in financing for the deal.

Scott Latham, executive director of the Capital Markets Group of Cushman & Wakefield, told me, "The risk of terrorism and insurance had no real effect on the sale of 200 Park Avenue." Many of the interested bidders reduced their offers due to the potentially high cost of terrorism insurance for the property.

***

Earlier in the week, MetLife entered into a contract to sell its 1.4-million square-foot former headquarters, One Madison Avenue, to SL Green Realty for $918 million. The property occupies an entire city block between Madison Avenue and Park Avenue South between 23rd and 24th streets. One Madison Avenue is comprised of the 1.2-million-square-foot South Tower, 96% of which is leased to Credit Suisse First Boston, and the 267,000-square-foot North Tower, which is zoned for residential and office use. A spokesman at SL Green said that another component of the transaction was the purchase of about 470,000 square feet of air rights, which he said will be used to construct a second tower on top of the North Tower for either office or residential use. As reported in Commercial Mortgage Alert, Credit Suisse First Boston will provide $815 million in debt financing, consisting of a $690-million, 15-year mortgage for the North Tower, and a $125 million loan for the South Tower to fund conversion of a portion of it into residential condominiums.

***

On April 1, Ofer Yardeni and Joel Seiden, principals of Stonehenge Partners, closed on the acquisition of The Pennmark, at 304-324 W. 34th St. and 305-319 W. 33rd St. A consortium of investors including CDP Capital-Real Estate Advisory, a subsidiary of Caisse de Depot et Placement du Quebec, paid approximately $240 million to a partnership of JD Carlisle and smaller investors, which developed the property in 2001. The Pennmark is a 33-story, 600,000-square-foot mixed-use building containing 333 luxury residential units and 300,000 square feet of commercial space. Tenants include a 13-screen Loews Cineplex, Landmark Education, Bank of America, and Central Parking Garage. The purchasers do not plan to convert the property into a residential condominium.

***

On April 6, a partnership of Yair Levy, Serge Hoyda, and Kent Swig closed a deal to buy The Sheffield, a 50-story, 845-unit market-rate rental apartment building at 323 W. 57th St. The 28-year-old mixed-use building has a 376-unit garage leased to Champion Parking and six floors of office space. The partnership paid $418 million to developer-owner Rose Associates. At a capitalization of almost $545 million, which includes funding for renovation costs, it is the largest deal ever for a single residential building in America. Acquisition financing was provided by CS First Boston. The new owners plan to convert the residential apartments into condominiums at prices averaging $1,100 per square foot.

On the same day, SL Green Realty and Morgan Stanley Real Estate Fund III LP agreed to sell a 265,000-square-foot Class B office building at 180 Madison Ave. to Sitt Asset Management for $92.9 million, or approximately $350 per square foot. The joint venture purchased the building in December 2000 for $41.2 million.

***

Last Friday, it was announced that Sloan Capital, a consortium of two Irish billionaires, agreed to pay approximately $79.5 million for the landmarked Rhinelander Mansion, a five story, 28,000-square-foot building at 867 Madison Ave. on the corner of 72nd Street. The seller is German fund operator TMW, which bought the property in 1997 for $36 million. It houses the Polo Ralph Lauren flagship store.

Also last week, Equity Office Properties formally announced that it had entered into an agreement to pay $505 million for a majority interest in the Verizon Building, a 41-story, 1.2-million-square-foot office tower at 1095 Avenue of the Americas. Equity Office will acquire 1.03 million square feet, or nearly 80% of the tower, including approximately 30,000 square feet of retail space, as well as the naming rights for the building. Verizon will retain ownership of approximately 200,000 square feet. As reported in my March 24 column, it is estimated that Equity will have to spend at least $200 million to renovate the tower.

***

A number of residential and commercial properties will come on the market during the second quarter. It is expected that New York Life Insurance Company will announce plans later this week to sell Manhattan House, a market-rate residential apartment building that occupies an entire city block between East 66th and East 67th streets and Second and Third avenues. The property is likely to fetch close to $600 million. Industry insiders believe that Metropolitan Life Insurance Company might be interested in selling Stuyvesant Town and Peter Cooper Village. A total of approximately 11,250 market rate apartments are in these complexes, which stretch from East 14th to East 23rd streets between First Avenue and Avenue C. The price could exceed $2 billion.

The president of The City Investment Fund, Thomas Lydon, said, "The demand and the scarcity of top investment properties will cause more sellers to take advantage of an exit at historically high prices. Some of the long-term family owners may decide it is the top of the market and will choose to exit selective properties."

Robert Ivanhoe, the chairman of the national real estate practice and cochairman of the national REIT practice at the law firm of Greenberg Traurig LP, said, "It is almost as if sellers feel that there is a momentary window of opportunity to achieve historic and once unattainable high prices, and if there was every going to be a time to sell, this is it."

The president of the Realty Board of New York, Stephen Spinola, said: "You can't get a better investment than in the City of New York. People are willing to invest in the city. I do not see a bubble in the market, perhaps a slowdown."

The threat of terrorism and the cost of insurance has had limited or no effect on investors' interest in purchasing properties in New York City. Nor has the significant increase in real estate taxes for commercial office buildings and rental apartment buildings. "Real estate taxes have increased by 63% in 2000 for office buildings," Mr. Spinola said. "The increase for residential apartment buildings has been 83% since 2000. There are limitations and we need some form of reduction in real estate taxes."

I agree with Mr. Ivanhoe when he says, "The lack of good alternative investments, weak stock and bond markets, improvement in the leasing market, the perceived safety of New York City real estate, and the sense that this may be the last hurrah for long-term interest rates being at historic lows have led to the insatiable demand, even at record pricing levels."

In New York, instead of the calm before the storm, Mr. Harmon asks, "Is this the absolute frenzy before the storm?"

I have to agree with Mr. Harmon, and with the thoughts of Mr. Ivanhoe. "The real question is for how long this window will stay open?" Mr. Ivanhoe said. "While many industry leaders have an opinion, no one really knows. So in the meantime, until something changes, fasten your seatbelts!"

Mr. Stoler is a television broadcaster and vice president of First American Title Insurance Company of New York. He can be reached at mstoler@nysun.com.

[TLOZ Link5]

Wow, racism is totally cool in Arizona? That's it, I'm packing my bags today. Thanks, REALESTATEGOLD.

In all seriousness, today is the first day I've ever wanted to see someone banned from these boards.

Agreed. Honestly, I was actually kind of sad to see TalB go. Almost, at least.

[alex ballard]

HOME STARTS FALL ALARMING 17.6%

By BRADEN KEIL
--------------------------------------------------------------------------------

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April 20, 2005 -- Construction of new homes in the U.S. plunged an unexpected 17.6 percent in March, the largest drop in more than 14 years and potentially a huge blow to the booming U.S. housing market.
The new Commerce Department figures also showed permits for future groundbreaking activity for both single-family and multi-family homes, an indicator of builder confidence, fell more than expected.

The 1.837 million-unit seasonally adjusted rate is down from an upwardly revised 2.229 million-unit pace in February, the Commerce Department said yesterday.

Prior to the release of the numbers, Wall Street analysts had forecast a much smaller slide of 4.8 percent in March.

Among the falling numbers, the sharpest drop of 29.3 percent came from the Midwest, followed by declines of 18 percent in the South, and 12.7 percent in the Western states. The Northeast, meanwhile, fell a relatively moderate 3.6 percent.

"This is a bit of a shocker," said David Seiders, chief economist for the National Association of Home Builders. "But I don't think this represents a fundamental downshift in the housing market. There were special factors behind it."

Those factors, according to shocked industry watchers, have included unusually wet weather in March, which caused a slowdown in construction activity in some parts of the country, and seasonal adjustment factors that had higher-than-normal activity in the previous two months of unseasonably mild weather in many parts of the country.



Other analysts believe the latest report could be signaling that the hot housing market has finally topped out — after four straight years of record sales figures — with declines expected in the months ahead as mortgage rates head even higher.

Merrill Lynch economist, Kathleen Bostjancic, noted that the drop in housing starts along with disappointing employment growth, retail sales and manufacturing, show a loss in momentum for the economy.

Analysts said all of these reports taken together implied the economy was losing some steam under the impact of higher interest rates and the recent surge in energy prices.

with Post Wires Services

I fouind it odd that the NE actually had stable rates while the "boom states" plunged. Is this the sign of NY/NE's strength in housing? Is this the beginning of a trend?


It seems our racist real estate broker has a problem...

Not that I take absolute joy in that:);).

[investor350]

I agree with Eugenius, I have no doubt that NYC will continue to be a favorable investment destination for overseas buyers with deep pockets and a stronger echange rate. I expect places such as Florida to experience a definite bubble within 18-24 months. Prices in Florida range at this time from $500.-$1,000 @sq. ft. Miami alone is purported to have 62,000 condo under construction at this time. As interest rates rise and tax rates are between 2.5-3% of purchase price as well as these properties have high maintenance one must also have deep pockets to close as well hold. When one whose intention does not come to fruition and prices drop and they cannot close this will be a major bust out. It will also be difficult to find a renter who will pay anyway near what that investor must have to cover their expenses sincetheir will be thousands of owners in the same sinking boat. NYC has had a resurgence in new construction and is a center for world commerce but in no way does it still have enough residential units to accommodate potential buyers who seek living in residences that have modern luxury features.

[asg]

Bubble still set to burst.

[TLOZ Link5]

Bubble still set to burst.

Ha ha. :D

[krulltime]

Boom builds for housing


By LORE CROGHAN
DAILY NEWS BUSINESS WRITER

It doesn't matter whether it's near the Empire State Building or Eastchester Bay in the Bronx. Wherever they build it, people will come.

The city's residential market has been going strong for so long - since a brief chill right after 9/11 - that buyers worry the bubble is about to burst, and their investments will lose value.

It hit record levels yet again in the first quarter of the year, with the average Manhattan apartment sale rising to $1.2 million, according to appraisal firm Miller Samuel.

But because of continuing low mortgage rates and a short supply of available apartments and houses, builders and brokers do not fear a market downturn this year.

"If people are thinking prices are going down, they're delusional," said developer Ran Korolik.

And he should know. At Lumiere, the condo project he's finishing at 350 W. 53rd St. near Ninth Avenue, he raised prices five times in the six weeks it took to sell 56 condos. He didn't even open a sales office. He started at $850 per square foot and ratcheted up to more than $1,000. That pushed the price of a two-bedroom apartment to $1.2 million.

The Bloomberg administration has sounded a rare note of pessimism about the residential market - by budgeting a drop in city tax revenue from residential sales and mortgages in the year starting July 1. The Office of Management and Budget bases its prediction in large part on a Mortgage Bankers Association forecast of a nationwide drop in mortgage refinancing and new-mortgage origination.

But experts said rates won't rise significantly and cause any slowdown until after January at the earliest.

And though the expected dip will lower tax revenues, they'll still be well above the levels for all but the last two years.

There is, however, one sign of moderation in the market. Among Manhattan's most expensive apartments, which cost more than $2 million, there's a slowdown in the pace of price increases, said Frederick Warburg Peters, president of brokerage Warburg Realty.

Last year, high-end sellers could charge 5% more than the last comparable sale and get their price - even if the prior deal was done only a week before, he said. This spring, they can get 1% more.

Still, bidding wars continue to occur. Broker Toni Haber of Prudential Douglas Elliman recently handled one for an apartment at W. 92nd St. and Riverside Drive that went for more than its asking price.

"There's a lot of frenzy, unless an apartment shows badly because it's really dark, or is in terrible shape, or if it's priced badly," she said.

New construction moves particularly fast. In five weeks, half the apartments at 250-unit 325 Fifth Ave. have been sold, and prices have been raised twice, said Steven Charno of Douglaston Development. So, available one-bedroom apartments now start at $800,000 instead of $660,000.

Developers Jeffrey Levine and Steven Fisch are just pouring the foundation of the 50-story skyscraper. The site's on the opposite corner of 33rd St. from the Empire State Building, in an untried nabe for condos - but buyers aren't deterred.

In three weeks, 20 of the 66 condos at Outlook Point Estates on Eastchester Bay in the Bronx have been sold, said project manager Sam Larca - from $525,000 two-bedroom units to a three-bedroom for $690,000.

"Every developer I see has a smile on his face," said Joshua Muss of Muss Development, who works in Brooklyn, Queens and Staten Island. Sales are moving swiftly at two new buildings at his Oceana complex on the boardwalk in Brighton Beach. A three-bedroom duplex at 125 Oceana Drive East sold for $2.7 million, the highest price to date among the 14 buildings in the gated community.

In the first week of marketing the apartments at Beacon Tower at 85 Adams St. in Dumbo, Corcoran broker Peter Noonan sold a penthouse for $2.4 million, or $1,344 per square foot - a record price for the Brooklyn neighborhood.

"I see no bubble in the real estate market," Noonan said.


Originally published on May 16, 2005

All contents © 2005 Daily News, L.P.

[krulltime]

Neighborhood Values
How vulnerable are you? A risk analysis.

By S.Jhoanna Robledo

No, we don’t have a crystal ball. And yes, real estate is a great investment in the long run. But in the interim, here’s what may happen to your home if—when?—the bubble pops. (For risk assessment ratings, 1 is the safest risk and 10 is the shakiest.)


The Financial District

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We hate to be the bearer of bad news, especially for an area most everyone wants to champion, but if this economy goes south, the financial district’s residents may wish they’d shorted their properties. Yes, it has cobblestone streets, turn-of-the-century façades, impressive views, and great transit. But it remains stubbornly in need of services (even though, as brokers and buyers endlessly point out, FreshDirect does deliver there), and it’s mighty quiet after its pin-striped daytimers head home. As many brokers will say off the record, if you have to compromise on where to eat and shop, it’s fringe. And in downturns, fringe neighborhoods almost always see dizzying drops. Moreover, though the area has attracted families, brokers say much of the new building is aimed at entry-level buyers. If they lose their jobs (and people starting their careers are more vulnerable) or elevated interest rates make a mortgage less attractive, they may decide to sell or just stick to renting. In recent years, new construction and commercial-to-residential conversions have added hundreds of units to the area; with inventory at an all-time low right now, those apartments are being snapped up by buyers willing to compromise on location. But in a recession, the same money they’re sinking into a luxurious one-bedroom way downtown, say $600,000, could potentially buy a similarly appointed pad on the Upper East Side close to restaurants and Central Park. Residents could wind up ditching this area for their first-choice neighborhood, and buyers who could take their place may give it the brush-off as well.

Risk Factor: 8.0


Loftland: Soho, Tribeca, and The Flatiron District

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If you’re reading this in your downtown loft, you’re in luck: You own one of the most coveted properties in town, better protected from a downturn than almost any other. Take recent history as your guide: In the nineties, when Manhattan real estate reached a nadir, Soho and Tribeca lofts recovered way before the rest of the city, says Michael Martin of real-estate-appraisal firm Mitchell, Maxwell & Jackson. “The average sale price downtown turned the corner in 1994,” he says, “while it wasn’t until 1996 that the rest of the market began to rise.” The same thing happened after 9/11, says Corcoran’s Linda Gertler, who sold a $9 million loft right after the attacks to a celebrity couple who paid the full asking price. Of the areas with the highest concentration of lofts, the Flatiron district, with a pleasant mix of commerce and residential life plus lots of subway lines, is probably best shielded from a market dip. Tribeca’s solid, too, having been taken over by families so devoted to P.S. 234 that they won’t think about leaving till it’s time for junior high. (Corcoran’s MiMi Murphy notes that “they’re not buying for buzz or because celebrities love the area.”) The best of the newer conversions, in buildings like the Chelsea Mercantile and the Loft Residences at 116 Hudson, are unlikely to feel a downturn: “They’re so in demand, because they can’t be re-created,” explains Shaun Osher of the Newcastle Realty Group. Surprisingly, the grande dame of loftland, Soho, may feel more of a pinch, because its cachet has been eroded by the tourist mobs. Overall advice: Take cover, and wait for the worst to pass.

Risk Factor: 3.5


The Lower East Side and The East Village

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The neighborhoods south of East 14th Street have changed a whole lot since the last downturn, but they retain one thing in common with their Rent-era past: youth. The buyers here are largely middle-income first-timers, just the crowd that could find itself defaulting en masse if interest rates spike. If that happens, those kids won’t be able to sell the $1 million condos in the new towers clustered around Houston Street for the $850 per square foot they paid. Moreover, trust-funded strivers have been flooding Alphabet City’s walk-ups—and then moving out just as fast. That transience brings instability. “NYU students will graduate, newlyweds will move when they have their first child, entry-level workers will get a job in California—which means more apartments on the market at any given time,” says Newcastle Realty’s Shaun Osher. One broker quietly admits that it’s “susceptible to being hit hardest if there is a recession,” Whole Foods notwithstanding. (The lack of subway access, long rationalized by residents trudging in from Avenue C, may become a factor again.) Two saving graces: One, its buyers are uncommonly passionate about the area, and are unlikely to flee to the Upper West Side or Soho. (Even if they get rich, they just move to the Carl Fischer building or the new Charles Gwathmey tower on Cooper Square.) And two, the neighborhood is still dense with rentals. That, Osher says, could allow future buyers to wait out the market’s lull in a floor-through overlooking Tompkins Square Park. A neighborhood filled with tenants may not be ideal, but it’s better than a ghost town of FOR SALE signs.

Risk Factor: 7.5


The West Village and The Meatpacking District

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Buzz may have helped build the far West Village, but an economic downturn will prove that it lives up to its hype. Though it’s now one of the most popular and expensive places to live, thanks in part to high-profile projects such as the Richard Meier towers, prices will slip but not slide, and may even hold steady. For starters, like the rest of the West Village, it’s got a healthy mix of housing stock (from gleaming new condos to loft conversions) and residents (singles to families, celebrities to old homesteaders). This combination keeps it insulated from a mass exodus and extreme price fluctuations. Plus, like residents of Park and Fifth Avenues, newcomers here have paid staggering sums. “When people make that kind of investment, especially when there are a lot of them, the area’s protected,” explains downtown expert Shaun Osher of the Newcastle Realty Group. For the most part, the entire Village is a safe bet, and historically, this has proven true. Residential prices here fell 10 percent—annoying but not deadly—in the early to mid-nineties, according to the appraisal firm Miller Samuel; they actually rose 5 percent, sometimes even more, after 9/11. As is usual in Manhattan, condos are generally safer than co-ops, but not much more, as West Village boards are known to be persnickety about finances. The chanciest investments may be studios and one-bedrooms, many of which house NYU students and recent graduates with overstretched budgets. Another worry? The million-dollar marquee studios, which two power brokers simply describe as “insane.”

Risk Factor: 3.0


Gramercy Park, Murray Hill, and Midtown East

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Say what you will about this area—it’s boring, it’s achingly unhip—but if the market takes a dive, its residents may have the last laugh. Sutton Place attracts older, richer buyers (often Park Avenue overflow) who are generally unaffected by recessions, and co-op boards here are tough, so there aren’t many defaults. Ditto for Gramercy Park, especially for apartments with those magic keys to the private greenery. (Warburg’s Judith Thorn, who’s specialized in the area for fifteen years, says every apartment she’s sold and resold there has gone for a higher price, “no matter what’s going on.”) Eternal underdog Murray Hill is surprisingly steady because it’s still undervalued. Families, often a stabilizing force, have discovered the area, lured by good deals and the excellent P.S. 116, says Bellmarcj’s Julie Friedman. But beware: New developments in the area, and in Gramercy, have tried to push the price ceiling past $1,000 per square foot, and if you bought into one of them pre-construction to get in on the ground floor, take a hard look at what you have. Though most recent projects are well built, some are Trojan horses that one broker calls “tiny boxes with cheap finishes.” (One 1,100-square-foot unit built in 2002 has been sitting on the market for five months, its asking price cut from $1.29 million to scarcely over a million. Its owners will barely break even—and this in a sizzling market.) If you had to rationalize your purchase —“it’s a bad layout but it has a big terrace,” or “it’s small and dark but it’s got marble baths”—then get ready for a dousing.

Risk Factor: 4.0


Chelsea, Clinton, and Hell’s Kitchen

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In the mid-nineties, New York real estate’s unofficial Dark Ages, mortgage broker Paul Cole and his wife, Kelly, bought a one-bedroom in a full-service building in the West Thirties for $72,000. Its owners had paid more than $110,000 many years before but couldn’t afford to wait for prices to bounce back. And it’s likely that the Coles weren’t the only ones who found a fire sale: From 1989 to 1993, prices here fell a shocking 43 percent. But it was a different neighborhood then. The area’s no longer fringe, for which you can thank the gentrification gods (or demons) and even perhaps the glow of Time Warner Center, which bootstrapped prices in the West Fifties. Chelsea’s the most luxurious pocket, and the most stable. Even its heavily industrial western edge will likely ride out a recession: “It’s embraced by the river and is in the middle of an established market,” says veteran Elliman broker Leonard Steinberg. And with all types of housing, from tenements to townhouses, “that market’s exposed to a wider swath of owners,” says Jonathan Miller, president of Miller Samuel, an appraisal firm. In other words, the diversified portfolio of residents and businesses—restaurants and grocery stores, schools and churches, art and commerce, and a whole lot of committed gentrifiers who paid top dollar—add stability. The biggest question mark is the new “luxury” towers that have sprouted all over the West Forties, one with lovely views of the Port Authority Bus Terminal. Though they’re larded with condo goodies (gym, screening room), the area’s a long way from being established, which could mean a big dip.

Risk Factor: 6.0


Old Luxe: The Gold Coast

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In 2004, the most expensive co-ops on Fifth and Park Avenues sold for $25 million apiece; on Central Park West, they topped out at $20 million, according to Stribling & Associates’ Luxury Residential Report. And you think you’re going to pick up a sweet bargain there next year? Guess again. Today’s Gold Coast buyers are wealthy enough to be virtually impervious to what happens in the market, barring something ugly and public—a tabloid divorce, a scandal, a TV-show cancellation. Many of these buildings, don’t forget, require applicants to have a staggering amount in liquid assets to pass the board, and “one of the upsides of co-op-board financial stringency is that people don’t run into as much trouble,” says Frederick Peters, president of Warburg Realty. (The Dakota, among others, is known for requiring an all-cash purchase—no mortgages allowed.) Besides, notes Gumley Haft Kleier’s Michelle Kleier, these buildings’ boards know perfectly well that they have extraordinary, coveted spaces, magnificently carved and shaped by architects like Rosario Candela or Emery Roth. These apartments so rarely hit the market that once they do, they almost always find a rich admirer all too willing to pony up. At worst, this market segment will pause for breath, as it did after 9/11, before going right back into its standard climb. Will anyone actually buy the 19,000-square-foot Duke-Semans Mansion at 1009 Fifth Avenue—one of the last grand private homes on the Park, just put on the market by the descendants of the family that built it in 1901—for $50 million, even with all this talk of a bubble? We wouldn’t be surprised.

Risk Factor: 1.5


Townhouses below 96th Street

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According to the Stribling Luxury Residential Report, the townhouse business has been phenomenal. Total sales increased in 2004 by 118.7 percent. (One 32-foot-wide house in the East Sixties sold for $9.5 million and was flipped the same day for $11.5 million.) Expect that ardor to cool off if the market nose-dives. It’s a niche business as it is, representing only about 1,000 properties, and these unique creatures often stay on the market for a long time. Of late, the market’s been propped up by nontraditional customers—foreign buyers, mostly—who, frustrated by the shortage of big co-ops or worried about board turndowns, bought houses instead, explains Stribling’s Kirk Henckels. It’s not so much that prices will free-fall if things go sour—they’ll simply grind to a halt, as owners stay put until business picks up. If you live in Greenwich Village, NYU has your back; the university’s demand is endless as it gobbles up townhouses like Pac-Man. Houses between Fifth and Madison are similarly protected, as are ones off Central Park West. And if your mansion’s in Murray Hill, where the undervalued brownstones haven’t peaked yet, you’re in the catbird seat. One spoiler: If the slump lasts and crime becomes an issue, expect a townhouse’s value to lose 25 to 50 percent more than a comparable apartment would. “No one wants to have vagrants sleeping on their doorsteps,” explains Jeffrey Jackson of appraisal firm Mitchell, Maxwell & Jackson. Still, a brownstone is never going to be a truly poor bet. “Even if things are bad, there’s always someone willing to step in and pay to live in one,” says townhouse broker Jed Garfield.

Risk Factor: 3.0


New Luxe

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The past two years have seen a parade of trophy penthouses hit the market, their prices escalating as sky-high as the apartments themselves: the $27 million penthouse at One Beacon Court, a.k.a. the new Bloomberg tower across from Bloomingdale’s; the $30 million duplex atop Trump Park Avenue; the $42 million raw space capping Time Warner. The mega-million sales generate tons of buzz, but will these apartments still be worth the same if the much-contemplated bubble pops? Probably not. The prices have run up too fast for properties that, unlike their prewar equivalents, are not a finite resource. “There’s a certain sexiness in owning a $20 million [new] property that may not be so sexy when the market falls,” says Jeff Jackson, of leading residential real-estate appraisal firm Mitchell, Maxwell & Jackson. Every new marquee building gets a marquee penthouse, and there’s a very limited pool of buyers for these things, all of whom can easily decide to buy something else, like a townhouse. There’s a mitigating factor, of course—they’re rich enough not to care about market downturns—and for now, they’re still shopping. Douglas Elliman dynamo Dolly Lenz says she recently sold a $25 million apartment to a client who “barely batted an eyelash.” When asked how he felt about such a commitment, he told her, “I just bought a $19 million painting. To buy a $25 million apartment is not such a big deal.” Then again, a Renoir will still be a Renoir no matter what; an overpriced Trump apartment is, well, that.

Risk Factor: 6.0


Upper East and West Side Family Apartments

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If you’re looking for shelter in a real-estate storm, hide out in a classic six. In general, family-size apartments—essentially those with two or more bedrooms—on either side of Central Park are fairly bubble-proof simply because they’re so in demand. “The more square footage you have, the better, because space is rare,” says Corcoran’s Emilie O’Sullivan. During the nineties, when the market was in a tailspin, two- and three-bedroom co-ops and condos in these neighborhoods depreciated just like everything else, but managed to avoid crashing. Nowadays, as fewer couples desert the city when they have children, they’re powerfully in demand. “Good schools and families make an area more stable,” says Susan Abrams of Warburg Realty, and the Upper East and West Sides certainly have plenty of both—not that they were exactly rough turf to begin with. Still, some properties will hold value better than others. On the West Side, the prime pockets are the West Seventies and Eighties, and West End Avenue, Riverside Drive, and Central Park West; on the East, you can’t go wrong with Carnegie Hill, East End Avenue, or anything west of Lexington. Though for years prewars were universally considered better investments than postwars, that’s no longer the case, says appraiser Jeff Jackson. Today, better space wins out. If you live in a postwar three-bedroom with a gracious layout and drop-dead views off York Avenue, your property won’t depreciate as much as will a light-deprived maisonette with a claustrophobic plan off Madison. And a full-service high-rise with a gym and a concierge trumps one without the perks.

Risk Factor: 2.5


Entry-Level Apartments

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You can blame everything on these little guys. “The small apartment has been the little engine that could,” says Frederick Peters, president of Warburg Realty. If the market tanks, though, expect the locomotive to stall. For starters, says Bellmarc Realty president Neil Binder, the low end is particularly vulnerable when there’s a downturn. (The average sales price for a studio dipped from $134,783 in 1993 to $108,830 in 1995.) Plus, entry-level apartments attract more first-time buyers who capitalize on low interest rates and claim a small piece of turf. To “shoehorn themselves into the best apartment they can afford,” Binder explains, many take on adjustable-rate mortgages. “But if there’s an earthquake in the economy”—and interest rates spike—“they’re putting themselves in a perilous position.” Agrees appraiser Jonathan Miller, “If you had to pick buyers who’d be more mortgage-rate sensitive, it’s them.” Besides, “jobs drive the values,” says fellow appraiser Jeff Jackson—and young people are more likely to get fired and sell off their single major asset. Get enough of them selling and there’ll be a glut; as it stands, studios and one-bedrooms already make up the lion’s share of the market. If you have a condo, you always have the option of renting it out, as many investors do, but this safety hatch only works if you can find tenants. “I know someone who got caught in the downswing in the 1990s, and she couldn’t rent her studio out because there were too many available,” says co-op lawyer Steve Wagner. “She finally had to sell it at a loss, because she had to go to California.”

Risk Factor: 8.0


Harlem

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There are really two markets in Harlem—new condos and old houses—and they have radically different prospects. Of late, developers have swarmed over upper Manhattan’s vacant lots and parking garages, and most have found buyers. But that oh-so-alluring bang for your buck could quickly turn into a clunk if this market stalls. (We can already hear cackles from the anti-gentrification crowd.) No matter what a lot of new buyers say—“I’d rather be here than in the Village!”—many would’ve settled elsewhere if they could. Add the potential for oversupply (it’s said that a third of Manhattan’s residential construction is slated for Harlem), and you have a recipe for trouble. That said, West Harlem is better situated than its eastern counterpart, where Harlem master broker Willie Kathryn Suggs says the market “will just grind to a stop and go nowhere until the next run-up.” The northward march of Columbia University will also keep prices up nearby, adds Bellmarc’s Neil Binder. Better-located new stuff, in central Harlem from 125th Street down to the park, won’t be hit so hard either. As for the brownstone market, recent buyers can consider themselves wise. Though houses here have appreciated 100 percent in the past year, they still cost half what they would 40 blocks to the south, so a large-scale correction isn’t in the works. Once here, buyers tend to stay, keeping inventory low. Best bets: Those near Mount Morris Park and in Hamilton Heights (where one has topped $2 million) and on Strivers Row. The finest houses—25-footers, those with meticulous renovations—will do best. As for East Harlem . . . look out below.

Risk Factor: 6.0


Established Brooklyn

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Yes, that much-discussed $20 million house for sale in Brooklyn Heights is an anomaly. But in the established markets of Brooklyn—for our purposes here, the Heights, Boerum Hill, Carroll Gardens, Cobble Hill, Park Slope, and Fort Greene—most owners are sitting on safe ground. There’s a reason, after all, that all of Brooklyn Heights is landmarked: a large stock of graceful, irreplaceable, coveted townhouses. Those facing the Promenade are the top prizes, of course. Park Slope isn’t quite as refined, but it’s utterly beloved by its families looking for a stroller-friendly vibe and good schools. It’s doubtful that these owners will cash out in a downturn. The Slope is also insulated because it’s multifaceted, with many ethnicities working in varied industries living in all sorts of apartments, from brownstones to new condos, says Peggy Aguayo of Aguayo & Huebener. Skeptics may wonder about the stability of newly prime Fort Greene, but the area’s poised to ride out a bumpy market. In fact, says Elliman broker Marilyn Donahue, it may actually be as steady as Brooklyn Heights, thanks to its superlative housing stock and refurbished Fort Greene Park. Prices here also haven’t peaked—a Queen Anne one-family with intact mahogany wainscoting and a dumbwaiter was recently listed for a relatively modest $1.099 million. Proceed with caution, though, if you’re abutting Bed-Stuy, which may be rockier terrain. Another caveat: Brokers and developers try to extend the boundaries of prime neighborhoods to spread out the buzz. If your house is at, say, the bottom of the Slope toward the Gowanus Canal, you’re less protected from a fall.

Risk Factor: 3.5


Edgy Brooklyn

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Two kinds of buyers choose the less bourgeois stretches of Brooklyn: the arty crowd in Williamsburg, Greenpoint, and (at the wealthy end) Dumbo; and the families that have made a go of areas like Bedford-Stuyvesant, Red Hook, and Crown Heights. Few will do great in a downturn, but the hipsters will be better off than the rest, who are likely to find themselves with no buyers to cover those renovation loans. That’s especially true in Bed-Stuy, with too few newcomers to offset stubborn crime and weak schools. Paying $750,000 for a house here puts you well into a danger zone. Crown Heights is better off, because of better subway access and proximity to Park Slope, but its houses still seem overvalued. A far stronger bet is Red Hook: Though there’s no subway and a huge housing project, it has the critical mass to handle a downturn. Water access, plans for Ikea and Fairway, and a continuing shortage of good properties suggest a real future. Williamsburg will remain a destination for those attracted to expensive vintage clothing and Thai food set to techno, and Greenpoint, next door, is a leafy family neighborhood with loads of owner-occupied three- and four-story townhouses that many brokers believe are still a little underpriced. The first casualties will be apartments around the Lorimer L stop, which lack the nightlife draw. Anyone overpaying for a condo in the Gretsch Building should watch out, given that 10,000 new apartments with waterfront views will be on the market in a few years. As for Dumbo, it’s small enough to keep demand high: “It’s there to stay,” says appraiser Jeffrey Jackson.

Risk Factor: 7.0


Queens: Long Island City and Jackson Heights

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Lots of potential, lots of speculation, not enough people—yet. This is the story in Long Island City. While the neighborhood is solidly an artists’ haven—anchored by P.S. 1 and whatever’s left of MoMA QNS—there’s still not a strong enough residential core to insulate the area from a market crash. “Lots of speculation has driven prices up, but it hasn’t evolved enough as a neighborhood,” says Jeffrey Jackson, co-founder of the Mitchell, Maxwell & Jackson appraisal firm. “Isolated” and “windy” is how even enthusiastic residents describe the place, which still lacks a major supermarket. (FreshDirect doesn’t deliver, even though its headquarters is here.) The only luxury high-rise co-op in “Queens West,” Citylights, may even face competition from the planned Olympic Village next door, and a 400-unit condo complex rising nearby. The views of Manhattan from all these new developments are unparalleled, and the ability to commute to Midtown East in fifteen minutes will keep it attractive to some. But first, Vernon Boulevard will need more than a few cute cafés and bars to draw actual residents—not just speculators—to the neighborhood. Jackson Heights, an entirely different beast, is still what one appraiser called a “vanilla neighborhood” without the hipster vitality of Astoria to the northwest. Corcoran’s Megan Hoffman likens it to Brooklyn Heights, suggesting that gardens, fireplaces, and historical designations there will keep it attractive—even though it’s twelve local stops from Grand Central.

Risk Factor: 5.0


The Suburbs

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If nothing else, life in the cul-de-sac is a fairly secure investment these days. Though home prices foundered in the crash of the late eighties (when the number of homes for sale in Nassau County increased by one-fourth in a single year), suburbanites have less to fear this time around. Greenwich, the de facto hedge-fund capital of the world, is teeming with ladder-climbers in an industry that barely existed fifteen years ago. They work and spend locally, and benefit from a tax structure that encourages ever-larger McMansions. Geographic moves are helping New Jersey and Long Island, too. “There’s been a shift westward of the central business districts in midtown,” says MM&J appraiser Jeffrey Jackson. That’s increased the appeal of Penn Station over Grand Central, which in turn favors New Jersey Transit and LIRR commutes. And as Long Island has witnessed double-digit percentage increases every year for the past three, MM&J’s Jean-Pierre Blaise says suburban homes are secured by something immeasurable: emotional value. You’re unlikely to cut and run “if you’re buying your primary residence to raise your two-point-five kids,” says Blaise. (Mortgage data suggest that Long Island’s single-family homes turn over every seven years, compared with four to five years for condos and co-ops.) Perhaps most fascinating is the urbanization of the ’burbs, as young buyers mimic a Real World existence in Metro-North country. “The ‘city living’ trend—we’re now seeing it in White Plains, in Norwalk, even Yonkers,” says Jackson. “There’s loft-building conversions in New Rochelle. These areas that were kind of blighted are being reborn.”

Risk Factor: 3.5


The Hamptons and The Catskills

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Here’s the bitter pill: When the “correction” comes, the second-home market will see it first. “If you’re on the financial ropes, the place you fight for is the place you live in,” says Paul Cole, a mortgage broker at Trachtman & Bach. (Statistics show that second-home buyers default more often than primary owners.) Ron Guichard, who’s been selling in the Catskills for more than two decades, says that “everything flattened from 1992 to 1997.” The area’s poised to feel some pain, but brokers voice the plaintive hope that it’ll be better this time. At least it’ll do better than the Hamptons, which is poised for a hard fall. The run-up has been dizzying—instant doublings in value, millions made by spec builders. (One developer bought a house for $2.2 million last year, tore it down immediately, and sold its unfinished replacement four months later for $5.9 million.) A negative turn in the city’s fortunes almost immediately translates into problems out here, confirms Lori Barbaria of Prudential Douglas Elliman Bridgehampton. And Hamptonites can’t just lease their places out to survive a bear market. (Who rents a second home year-round for $10,000 a month?) Owners, then, may be forced to sell. All the same, such nastiness may be rare south of the highway in Southampton and East Hampton, where many residents are rich enough to wait it out. Besides, says Barbaria, “there are always people who’ll buy in down markets. They’re like crows sitting on a fence—they wait, they’ve got cash, they swoop in and get a deal.” Unless, in a Glengarry Glen Ross moment, Shelley Levene just sold you eight units of Mountain View. Then you’re really stuck.

Risk Factor: 9.0


With Kate Pickert and Will Doig

Copyright © 2004 , New York Metro,

[alex ballard]

Do you guys think that the bubble burstign would be a good thing for NYC? Think about it for a second, all of the sudden, middle-class families can now afford many of the city's neighborhoods due to the fall in prices. This builds a soild base and helps to attract more companies seeking lower costs places to relocate. The cost of living index drops, making the city that much more desireable. This atracts families and immigrants to the city. And then, the frenzy starts all over again.


Do you see this happening>

[TomAuch]

Depends on how badly the bubble bursts. If prices go down enough, then some people who were priced out over the last 5-10 years may return, but if the bubble simply lets some air out and prices remain flat instead of dropping, then the status quo may prevail instead.

[microserf]

I agree with Eugenius, I have no doubt that NYC will continue to be a favorable investment destination for overseas buyers with deep pockets and a stronger echange rate. I expect places such as Florida to experience a definite bubble within 18-24 months. Prices in Florida range at this time from $500.-$1,000 @sq. ft. Miami alone is purported to have 62,000 condo under construction at this time. As interest rates rise and tax rates are between 2.5-3% of purchase price as well as these properties have high maintenance one must also have deep pockets to close as well hold. When one whose intention does not come to fruition and prices drop and they cannot close this will be a major bust out. It will also be difficult to find a renter who will pay anyway near what that investor must have to cover their expenses sincetheir will be thousands of owners in the same sinking boat. NYC has had a resurgence in new construction and is a center for world commerce but in no way does it still have enough residential units to accommodate potential buyers who seek living in residences that have modern luxury features.

OH HAPPY DAY when the bubble bursts here in Florida. We'll be cracking the champagne, and rubbing our hands in glee for the serendipitous event. To us, the Savings & Loan scandals of the late 80's/early 90's were a cash flow generating event for which we thought we'd never see again. Guess it took about 20 yrs to forget, but WE do NOT forget. I want to see foreclosures, bankruptcies and carpetbagging opportunities for pennies on the dollar. DEFAULT! DEFAULT! DEFAULT! I expect just before October 2005 (when the new more strict bankruptcy laws take into effect) a flurry of Chapter 7 filing activity.. the banks will then tumble on down like a row of dominos, and properties will be flailing about at firesale prices in order to recover the capital. May be a blip, may be a bluster, but as always w. chaos, is opportunity.

Here are some very interesting facts about banrkuptcy: http://www.firstam.com/faf/html/cust/jm-bankfacts.html

[krulltime]

An Iron Bubble: Housing Market Isn’t Deflating


by Michael Calderone

Russian-born finance billionaire Leonard Blavatnik isn’t used to being rejected.

So when the board at 927 Fifth Avenue told him that he couldn’t buy Mary Tyler Moore’s 5,740-square-foot prewar co-op on the eighth floor, even with $18.5 million in hand, it must have smarted.

Soon insult was added to injury, when the board of Central Park West’s San Remo co-op board told Mr. Blavatnik that he couldn’t buy and combine three units into a massive aerie overlooking the park.

It’s just one way the real-estate market in Manhattan is different from the rest of the country. Elsewhere, who would turn away an investor with money to burn?

These days, though, the real-estate talk in Manhattan is the same as everywhere else: It’s all about the Real-Estate Bubble.

The chatter reached a summit when, on May 25, The New York Times ran a front-page news story about the bubble, followed two days later by Op-Ed columnist Paul Krugman’s gloomy economic forecast. The Princeton professor jumped right into the current real-estate fray, the "final, feverish stages of a speculative bubble."

As in many other "bubble" articles, Mr. Krugman focused primarily on nationwide housing statistics.

But what plays in Peoria, Miami or Syracuse may not play here. And when it comes to watching real estate, there are only three factors to consider: location, location and location.

That, at any rate, is the story the Manhattan real-estate world is eager to tell.

They say the tendency of co-op boards—a major force in the Manhattan market as nowhere else in the country—to weed out speculative investors is a major factor. So, too, are the city’s low crime rate; steady increases in population and immigration; and mounting construction costs. These factors, they say—and not the kind of speculative distance from real value—are what have been driving Manhattan’s real-estate values to dizzying heights. And while it won’t last forever, neither, they say, will it come crashing down on our heads like it did in the late 1980’s.


The Co-op Board

One study, conducted in September 2004 by Business 360, an economic-research firm regularly hired to issue assessments for corporations and investors, confirmed something New Yorkers have long believed: that Manhattan real estate operates on a fundamentally different economy from the industry in the rest of the country.

Training its focus on Manhattan, the study found that over 80 percent of co-ops in the United States are located in New York; what’s more, co-op apartments make up about 80 percent of New York’s residential real-estate market.

"One thing that makes the New York market different is co-op boards," said Frederick Peters, president of Warburg Realty Partnership. "There’s built-in protection in the co-op market against the kind of panic selling which is one of the byproducts of a bursting bubble."

Co-op boards don’t like financial "adventurers"; prospective buyers’ long-term financial security is as important as their bank balance at the time of purchase.

And the boards like it even less when investors come in to rent out or "flip" apartments—meaning they have no plans to occupy the place themselves, only to turn around and resell the place at a higher price than they paid themselves.

"The situation in New York is different in the sense that we don’t have the rampant speculation, the property-flipping," said Jonathan Miller, president and chief executive of Miller Samuel, a real-estate appraisal and consulting firm. "It pales in comparison to what is going on nationally."

Unlike in other hot markets, New Yorkers are primarily buying property for personal ownership rather than to turn a quick profit.

In the heavily investor-driven South Florida market, which has been a major focus of recent coverage, Mr. Miller believes that roughly 60 to 70 percent of sales are speculative purchases.

"I know Miami is a highly speculative market," said Pamela Liebman, president and C.E.O. of the Corcoran Group. "This is not Miami. This is people who want to be here. It’s not a flipper mentality in New York."

Indeed, in Manhattan, investors represent less than a quarter of apartment buyers, and most homeowners will ride the ebbs and flows of the market from the safety of their living room.

"People feel secure; they’re willing to invest their money," said Michele Kleier, president of Gumley Haft Kleier. "You’re buying something that, worse comes to worst, you’re going to live in."

The activism of New York’s co-op boards is one reason the Manhattan real-estate market seems to correlate so poorly to the stock market.

"[T]here has always been a propensity to correlate the housing market to the stock market, and they’re fundamentally different," said Mr. Miller.

For one thing, real-estate transactions take significantly longer than stock transactions. Co-op boards present difficulties regardless of capital that no stockbroker would present. And devalued stocks cannot provide a roof and four walls in the event of an economic downturn.

"Real estate has intrinsic value," said Mr. Peters. "Unlike tech stocks, there is always a there there."

But the more speculative the purchases—the greater the proportion of investing in real estate to actual home buying—the more the resemblance holds up.

"Up until 2000, it was the conventional wisdom that real estate followed the market," said Mr. Peters. "Real estate really is functioning as a separate asset class which doesn’t parallel the stock market."

In the past few years, many records have been shattered, especially in the high-end market, with Rupert Murdoch’s $44 million purchase of Laurance Rockefeller’s penthouse triplex at 834 Fifth Avenue being just the latest example.

But high demand—as long as it’s coupled with a limited inventory— can create a hot market without inflating a bubble.

Indeed, one of the downsides of this booming market has been the response time granted to potential buyers, who are forced into bidding over the asking prices, in many instances without time for careful consideration. There is some speculation that this could lead to an increase in shoot-from-the-hip stock-market-style speculation in real estate.

"In a normal market, it takes four to five months to sell an apartment in New York City," said Jacky Teplitzky, executive vice president at Prudential Douglas Elliman. "In the first quarter, it used to take 24 hours. Or 48 hours."

"It’s not just buying a few shares in G.E.—for the vast majority of us, it’s the most significant investment you are going to make in a lifetime. Now more than ever, in this turbo-charged market, people believe they have to bid instantly," said Sylvia Shapiro, author of The New York Co-op Bible.

But even then, the feverish sell-offs that characterize a stock-market crash seem unlikely.

"It’s an asset that takes, at a minimum, 60 to 90 days to trade," Ms. Liebman said. "The cycle of selling it doesn’t lend itself even to be spoken of as a bubble. You don’t have thousands of houses crowding the market because, one night, someone said the market crashed."


I Am an Island

Full-scale housing busts have occurred here before. But the bust of the late 1980’s happened under very different circumstances.

That crash was catalyzed by excessive condominium conversions during the Koch years. When the stock market dropped by a quarter (over 500 points) in October 1987, the supply of condominiums far outweighed the demand.

In today’s market, however, there is still a constrained supply.

"One of the factors that stimulates the market is supply and demand," said Daniel Douglas of the Corcoran Group. "Nobody told me about Manhattan getting enlarged. It’s a limited landmass. There’s a limit to the amount of things you can do."

Donald Trump’s theory is a bit different.

"That was driven by tax deductions," he said of the 80’s real-estate bubble. "This is driven by a market which is much safer. The late 80’s was driven by tax deals, and when they ended the tax deals rather abruptly, the market came to a screeching halt. The government actually made a big mistake, because it took down a lot of banks—a lot of people went down the tubes."

But he agrees with everyone else on at least one important factor that separates Manhattan from the rest of the nation: water.

"It’s a small little island surrounded by water," he said. "Anything on this island is going to become more and more valuable over time. In other places, you have stretches of land that go thousands of miles. Here, you have just a very small little island."

Unlike the housing market in Omaha, Neb., expansion must be vertical rather than horizontal. There are some areas slated for redevelopment—former factories becoming shabby-chic artists’ lofts—but Manhattan doesn’t offer developers miles of untapped land to build a few thousand McMansions.

"I think New York is a very unique marketplace," said Ms. Liebman. "We like to think of it as the capital of the world. It is an island. And it does not suffer from overdevelopment. We feel the demand in Manhattan is very strong and is still far outweighing the supply, which is causing the market to have a 23 percent increase in prices this year. Our company has had a record-setting sales month in March, April and now in May. All this talk of the bubble is purely fueled by the press."

But how long can the party really last? Will inventory always be in such short supply in Manhattan?

Some point to the fact that, last year, 25,208 new residential units were approved for construction granted—the most in over 30 years. Just 10 years earlier, only 4,010 were permitted. This is one area where there could be a substantial glut of new residences in the next few years, with the downtown condominium market viewed by some in the industry as a place to watch closely.

"There might be some concern down the road just because [downtown] has been the focus of development over the last five years," said Mr. Miller.

Indeed, most industry insiders agree that boutique condos, costing upwards of $2 million to $3 million, could be in jeopardy if supply begins to outweigh demand.

Recently, there has been property flipping in several new luxury-condominium developments (where savvy investors purchased sponsor units from floor plans), but that marks the exception rather than the rule.

"Because there is less financial scrutiny, [condo] buyers may have financial issues down the line," said Ms. Shapiro. "Co-ops are definitely better-protected than condos."


Slowdown Imminent

"There is no bubble! What has happened is, the incredible price escalation is a result of property being tremendously undervalued for a long period of time," said Leonard Steinberg of Prudential Douglas Elliman, a luxury property broker.

O.K., that might sound a bit crazy. But the Business 360 study concluded that the price of housing—still recovering from the early 1990’s decline—is indeed undervalued. The authors of the report predict that prices will rise about 10 percent per year through 2007, followed by a 5 to 8 percent annual gain through 2010.

There’s no question about it: That’s a slow-down.

"The experience we are currently having is a decrease in the rate of increase. The reason that leads to price reductions [is that] sellers invariably price ahead of the marketplace," said Mr. Peters.

While brokers may have obvious reasons to dismiss the rumors of an impending housing bust, many are willing to admit that the market has slowed down, which is admittedly not such a bad thing. Continuous double-digit gains, quarter after quarter, are a strong indicator that prices are inflated, and the market could then drop significantly. And although the percentage gain may drop a few points, it must be noted that there is still a net gain: Prices may rise, albeit not as quickly as in the previous quarter.

Another broker agrees that a slight slowdown isn’t the end of the world and should be expected in any market—but that, in such a case, properties would not be losing any value, only increasing in value at a slower rate.

"The market has slowed down, but what said has it slowed down from?" said Mr. Steinberg. "Has it slowed from a Ferrari to a Mercedes? Yes. It’s still going pretty quickly, it’s still going pretty actively, but it cannot be at full-throttle acceleration forever."



COPYRIGHT © 2005 THE NEW YORK OBSERVER

[Weehawken webcam]

"If you're paying more than 1 1/4%, you're paying too much!"


so long as there are "suicide notes," excuse me, I meant "freedom loans," for the marginal buyer to get into the market, the market will continue to go up. Alas, when those floating rate loans start floating up (as they have been doing the past 12 months, and may well continue to do) then the overstretched buyers who know that "real estate never goes down" and "you have to live somewhere" may be forced to return their condo keys to the bank. Oh well.

[Ninjahedge]

"If you're paying more than 1 1/4%, you're paying too much!"


so long as there are "suicide notes," excuse me, I meant "freedom loans," for the marginal buyer to get into the market, the market will continue to go up. Alas, when those floating rate loans start floating up (as they have been doing the past 12 months, and may well continue to do) then the overstretched buyers who know that "real estate never goes down" and "you have to live somewhere" may be forced to return their condo keys to the bank. Oh well.

Foreclosure rates have been climbing, but I do not think interests rates will grow too dramatically for risk of placing us all in jeopardy......

They will, however, rise back to a self sustainable balaned rate. I just hope that there is enough damping on this that the banks do not swing it past that point in their efforts to balance any self-imagined financial burden....

[investor350]

NY Times (8/21) discusses approximately 4,000 new condos on the Eastside. At least 10,000 additional units are in the planning and/or construction stages about within the city. It appears that astute developers as well as financial institutions don't seem to feel that there is a bubble about to burst in NYC?

What are your thoughts on this?

[lofter1]

As if they really know.

The game is to get in, build and sell before the bubble bursts -- which it will. It always has.

This is like asking those financial wizards on Wall Street in 1989 and 2000 if they thought the bubble was going to burst. No one had a clue -- and investors / advisors were caught completely by surprise.

[londonlawyer]

Prices are definitely overinflated, but NYC still has a desparate housing shortage and needs more units. The same holds true for rentals. Every rental tower fills up quickly -- even if it's expensive and ugly -- like 2 Gold Street.

[pianoman11686]

Londonlawyer: Have you heard that 2 Gold Street is planning a second tower next door? I've seen two renderings, one of which might be even worse than the original. I shudder when I think of which option they'll choose.

Back to the Orion and the bubble talk: As interest rates have gone up, the bubble has already started to burst. Or, as others like to put it, the froth is starting to evaporate. So-called secondary markets like Denver are already seeing significant devaluation in real estate. Australia, which functions similarly to the United States in real estate, is already a year into its nationwide real estate decline. And the prices there went up even more than in the US. I read an interesting article about it in the Times a while ago. If I can find it, I'll post it.

New York's bubble-bursting, if it truly happens, will be much later, and much less severe, than the majority of other markets. It's not only because New York is so desireable, but also because of the shortage. We built about 25,000 units last year, which seemed like a whole lot more than usual. It was the most since the early 70's. But analysts are saying New York has to continue on that path for at least the next ten years to accommodate new residents. I don't see prices going down (okay, maybe a little) anytime soon. The best method of determining which markets and sub-markets will retain the greatest value is by looking at well-established, "traditionally wealthy" neighborhoods. These would be the best of New York's suburbs, places like Park Avenue, Upper West Side, and Tribeca. Downtown and newer residential neighborhoods like the Far West Side (attention Orion buyers!) are more likely to experience a bigger devaluation. But then again, that's what I've heard from the people who are supposed to know about these things. And what do they know? - I dunno. http://www.wirednewyork.com/forum/images/icons/icon7.gif

[investor350]

thank you for your replies;)

[BrooklynRider]

Define "bubble burst". For some it might mean prices do not rise 50% a year. For others, it might mean prices actually decline.

[zabi]

NY Times had an interesting article today about betting on the housing bubble and a long article on Sunday interviewing Yale Professor of Economics Robert Schiller (the Casandra of the Internet bubble and now the housing bubble). Although I agree with much of Pianoman's comments, I don't share all of them. Interest rates are lower now than last year (the 10-Year Treasury is at 4.25 today, last year it was closer to 5%) and there are indications that the price of oil may soften the economy thereby keeping interest rates low in the near term. Your analogy to Australia and the U.K. is similarly misplaced. Both markets cooled off in 2005 (Australia actually cooled off in 2004) but according to the June Economist both Australia and England reflect no downturn in prices (just slower price appreciation and some parts of Western Australia even show significant price gains recently). More importantly, the central banks in both countries increased interest rates over the past two years without causing housing prices to crash (interest rates are actually coming back down in England) . I think the bottom line is that the US housing market will follow interest rates and because interest rates globally are at historic lows with few catalysts for them to increase significantly in the near term, housing will stay stable and trade sideways. There are also signs that rental rates are rising (especially in NYC) which will provide further support to housing prices. That being said, I agree that there is an enormous amount of speculation with real estate today by novice investors who cannot appreciate the risks or costs involved in real estate investing. I would recommend everyone read the August 19th, 2005 NYTimes article on the fallacy that real estate is a good long-term investment. In the end, though, I still think the Orion, at the price per foot offered and the world class amenities provided, is a good bet for a place to live/invest.

P.S. Barron's this week had a great cartoon about Mr. Housing Bubble. I hope this posts.

http://online.barrons.com/public/resources/images/b-wallstreet_illo08192005144632.jpg

[asg]

Don’t draw conclusions from comparison of real estate market performance to the stock market - definitely apples to oranges here with a completely different set of variables in effect. This long-term study (below) uses a much more relevant index by comparing real estate prices to personal income gains – you may be surprised by their conclusion.

Also, the Manhattan real estate market shouldn’t be compared directly to other markets because it simply behaves differently – not to say its immune from cycles, though. Remember that 70% of New Yorkers rent while about the same number of Americans own.



http://www.millersamuel.com/pdf-tank/1096034424rIMRe.pdf

This review extends back some 25 years and gives an historical perspective on valuations of both condos and co-ops.

Using economic data on personal income and interest rates, along with real estate prices, Business360 examined the market on a range of core metrics including price to personal income and affordability. The research company concludes that the Manhattan mass-market is not overvalued and that valuations today are at the low end of historical norms

Business360 point out that since the early 1980s, Manhattan real estate prices have lagged personal income gains and that had real estate prices kept pace with personal income increases, real estate prices would be over double current levels. Further, the decline in interest rates over this period now makes real estate much more affordable.

[Ninjahedge]

ASG, the only thing I would ask is what are they using as the standards for income evaluation? Are they usina a mean or some sort of weighted average.

Salaries for the upper eschelon, especially in areas liek real estate development, have soared recently, and the salary comparison might not be entirely accurate.

NYC does not follow the rules, like you said, and when the place and its surrounding areas get too expensive for all the service people to live there, you will see a shift in the ammount of available income that is present for the buyers.

(When you can't get people to work for minimum wage because they cant find an apartment with a commute that is cheap enough to afford, a McBurger might cost you a wee bit more)

I think that NYC is at an advantage in one thing though, availability. SO many people wanted to live here that there is a HUGE demand for a limited supply.

Hopefully a decline in the demand will still not leave areas in a vaccume.

[ZippyTheChimp]

New York in Building Boom of Historic Scale

BY DAVID LOMBINO - Staff Reporter of the Sun
December 30, 2005
URL: http://www.nysun.com/article/25157

Buoyed by low interest rates and a decline in crime, New York City is in the midst of a historic construction boom on par only with the real estate rush that defined the early 1960s and the late 1920s, eras that gave birth to iconic city structures such as the Met Life Building and the Chrysler Building.

The trend is visible in city data and confirmed by the construction cranes planted at sites across the five boroughs. Mayor Bloomberg, who is being sworn in for a second term Sunday, will be able to count the widespread development as a key part of his legacy, analysts said.

The number of permits issued for new private residential building units issued citywide in 2005 is on pace to hit nearly 28,000, surpassing last year's total by more than 10% and more than five times the amount issued a decade ago, according to the city's Department of Buildings. Some city officials say that all told, the final tally of new residential units may reach as high as 35,000 this year. In 1999 there were 12,421 new units and in 2000 there were 15,050.

At this rate, the buildings department is set to issue more permits in 2005 for all types of construction citywide than at any time in its history, according to one buildings official, although the department can track data only since 1992.

The deputy mayor for development, Daniel Doctoroff, told The New York Sun yesterday, "I think we are in the midst of, arguably, the greatest building boom in probably the period since World War II. It's important to note that it touches every sector of the economy and it's also, I think, in its very early stages."

While some complain that many of the new units are luxury condominiums for rich Manhattanites, administration officials and real estate analysts insist that the construction is booming across all five boroughs.

The executive director of the city's Planning Commission, Richard Barth, said: "It has been an incredible year housing-wise in the city. What is unique is in the past it has been driven primarily by housing in Manhattan. But in the past few years, it has been across the city - Brooklyn, Queens, and the Bronx."

Mr. Barth noted that the city has gained more than 160,000 residents since 2000, bringing its total to more than 8.2 million, a record high. He also cited low interest rates, a healthy economy, improving quality of life, and a decreasing crime rate as factors contributing to the building boom.

Mr. Barth said the trend in housing growth is likely to continue due to zoning changes enacted and infrastructure investments made by the city in the last few years. He named the changes to the Williamsburg/Greenpoint section of Brooklyn, downtown Brooklyn, and the Hudson Yards area on the West Side of Manhattan as examples.

Mr. Doctoroff listed a series of highly touted future projects he hopes will make headway in 2006, including the westward extension of the no. 7 subway line, $9.9 billion of new construction near ground zero in Lower Manhattan, a mega-mall at the site of the Bronx Terminal Market, $5 billion to $6 billion worth of development projects in Flushing, commercial development in downtown Brooklyn, and new stadiums for the Yankees and the Mets. He said he hoped the 22-acre Atlantic Yards project slated for Brooklyn, which includes a basketball arena for the Nets and more than a dozen office and residential towers, would break ground before the end of 2006.

Many of the projects cited by Mr. Doctoroff and supported publicly by Mayor Bloomberg have angered local residents, who among other complaints, feel the administration's strategy favors big developers over the desires of the local neighborhoods.

But Mr. Doctoroff said the city's aggressive development strategy, along with a strong economy, is behind the housing boom.

"The economy is providing a favorable wind behind our backs. It's an approach to growth that is giving confidence to people who are willing to make an investment. The administration's approach is for the public sector to set the table, to create the conditions that enable the private sector to do what it does best," he said.

More than half of this year's residential construction activity in Manhattan was clustered south of 14th Street, according to the president of a real estate publishing and information company, Yale Robbins.

"You have to go back to the early 1960s to see the last time there was really substantially higher numbers than we are seeing today," Mr. Robbins said.

But Mr. Robbins said the housing boom is not limited to Manhattan, or the neighborhoods below 96th Street that Mr. Robbins terms "the luxury housing market."

"The biggest change in these numbers is the projection of tens of thousands of units in the outer boroughs. The prices have reached the point where the market justified building substantial new, unsubsidized apartments in the outer boroughs," Mr. Robbins said.

A senior fellow at the Manhattan Institute who specializes in development, Julia Vitullo-Martin, said that the size of the current building boom is probably rivaled only by the early 1960s, when zoning changes were enacted that spurred developers to build to avoid stricter rules, and 1928, at the peak of the Roaring 20s.

"The vulnerable, more fragile areas in the outer boroughs that haven't seen investment in decades are now getting it," Ms. Vitullo-Martin said, noting Bushwick, East New York, and parts of the Bronx. "The term 'inner city' sounds old-fashioned. We don't even have that idea in New York anymore."

Ms. Vitullo-Martin added: "Manhattanization is usually a pejorative term, but I regard it as a good term because it means investment and vitality and density, and that's good."

In November, the New York Building Congress, a construction and real estate trade group, predicted that construction spending in New York City would reach a record $18.4 billion in 2005. Yesterday, the president of that organization, Richard Anderson, put that number in context. "In terms of dollar volume, the next year and beyond will be the largest in the history of the city of New York," Mr. Anderson said. "In terms of actual number of square feet being built, it's hard to compare, but it is certainly way up there."

Mr. Anderson added that the building boom has put upward pricing pressure on some commodities, like concrete and steel. "There is escalation involved, but we are not sure how much. When you have a very high demand, and the supply of certain things are limited, the cost will go up," he said. "So far, there are enough cranes to go around."

[TonyO]

http://www.nysun.com/edition/2005-12-30_large.jpg

[MrSpice]

http://www.iht.com/articles/2006/01/09/business/bxshake.php

[kliq6]

Bubble bursts tommorow

[kliq6]

Bubble is not going to burst, just deflat a bit and then pick up, 2007 recession is possible but Soros and his motives of saying this have to be questioned

[ZippyTheChimp]

Spotting Glut, Mayor Deflates Condo Cushion

By: Matthew Schuerman
Date: 3/6/2006

Real-estate developers love Michael Bloomberg. He’s one of them, after all: It was he who finally built a huge skyscraper in the languishing pit that for so many years was the former Alex-ander’s department-store site. His ambitions to host the 2012 Summer Olympics may have gone unrealized, but in the effort he made the West Side safe for big-budget developers. And though he never laid a paw on the federal-funds rate, he oversaw an unprecedented boom in the city’s market that seemed to make everyone, including his city’s treasury, awfully rich. Not to mention: skyscrapers in Brooklyn?

So when he recently—and rather suddenly— inserted a big pin into the oxygen-deprived real-estate bubble, developers shuddered.

“The real-estate market is slowing down dramatically, and we’re going to have a real problem down the road,” he said in a weekly WABC radio interview a little over a month ago. “If people who want to sell their houses have to wait a longer time before someone comes along and buys it, it would be a miracle if prices didn’t start to go down.”

Reuters swiftly picked up the pronouncement and carried it as an item, which resounded rather predictably within a certain real-estate-market echo chamber.

But that was only the beginning. On Feb. 23, in the market-leveraged precincts of a Harlem co-op apartment building, Mr. Bloomberg announced the establishment of a task force to overhaul a Lindsay-era program (the term of art is the 421a program) established back when there was little hope of attracting new construction in the city.

In recent years, hundreds—if not thousands—of market-rate condominiums have sprouted up across the city on the public’s dollar under the program. It had been a Band-Aid, really, and Mr. Bloomberg was ripping it off.

And then, just this week, on Feb. 28, he traveled down to Washington, D.C., and exhorted a lobbying group called the National Low-Income Housing Coalition to stick it to the (real) Republicans and “reject the proposed short-sighted cuts to H.U.D.’s budget.”

He had talked a lot about the affordability crisis during his campaign, after all. Had he suddenly become a housing activist?

Showdown on Wooster Street

On Wooster Street in Soho, Douglass Street in Boerum Hill, West 23rd Street in Chelsea, these tax abatements were exploiting, if not fueling, the city’s condo boom.

The way Mr. Bloomberg introduced the changes was innocuous enough. “Because our population is growing, demand for housing has outstripped the supply, and for many New Yorkers, incomes are not keeping pace with increasing rents,” he said. “The problem before us is no longer abandonment but affordability.”

In a follow-up interview, Rafael Cestero, deputy commissioner of development for the city’s Department of Housing Preservation and Development, made it clear that the Mayor had no intention of gutting the program in a top-to-bottom rehab, and also that he was not trying to cool down the housing market by tightening loopholes on new construction.

“Our belief is that the 421a program has been successful in stimulating housing starts and that we do not want to undo that,” Mr. Cestero told The Observer. “If we go too far, we will have a destructive effect on the housing market. We right now have about a 3 percent vacancy rate, and we need to maintain the right balance.”

But anybody who understands how ingrained the abatement program has become in the lives of developers knows how heated, and important, that task force’s doings will be in the coming months.

When the 421a abatement program began in 1971, it reduced property taxes on new multifamily construction—rental or condo—anywhere in the city, so desperate was Mayor John Lindsay to get anybody to build anything anywhere. By the mid-1980’s, Mayor Ed Koch excluded central Manhattan—south of 96th Street to Houston on the West Side and 14th Street on the East Side—from automatic abatements unless the developer agreed to provide housing for low-income families as well. But as gentrification has advanced, housing advocates—and, according to one source, the Mayor’s budget aides—believe that those old boundaries make a mockery of the old program. Subsidized housing in Soho? The Lower East Side? Wall Street?

“When it came along in the dog days of the 70’s, it made some sense to give tax breaks for residential development,” said Brad Lander, director of the Pratt Institute Center for Community and Environmental Development. “Now it has become a $300 million tax giveaway for luxury housing.”

One of the recently certified buildings in the 421a program—195 Bowery, at the foot of Spring Street—offers a pretty good example of what the abatements have subsidized. There, the developers added 11 stories on top of an existing five-story building to create a hybrid commercial-residential tower. The condos on top have high ceilings (10 1¼2 feet), good views (of the Empire State Building), and a balcony or terrace for every unit. It’s due to open in May, and all but one of the units have sold—at prices averaging $800 a square foot. (The duplex penthouse is still available, if you have $3.995 million to spare.)

Charles Blaichman, one of the developers of the building, said that it’s difficult to build a condo even at that price, given the high land prices, and that Mr. Bloomberg should be ready for a construction slowdown if he acts too rashly. “I think that between recording taxes and other fees developers pay to the city, the 421a does not make that much difference to the city—and if it was eliminated, it would hurt the city,” he said. “A few years down the road, perhaps you could change the boundaries, but this area, it was not as active as it is now. I still think that it is on the edge.”

The wariness to change is apparent even in independent voices, like that of Preston Niblack, the deputy director of the Independent Budget Office. “This is deeply imbedded in the housing market now,” he told The Observer. “When you start talking about making changes, it makes people nervous about the overall housing market.”

In other words, will we go back to the 1970’s?

The task force, which includes advocates (Mr. Lander) as well as developers (Jeff Blau, president of the Related Companies), is supposed to figure out how to shape the abatements to apply only to buildings that would not get built without them, rather than icing projects that could stand on their own. In so doing—by expanding the area where abatements come only if low-income housing is provided—the reforms are also supposed to stimulate more affordable housing.

Developer v. Developer

Developers will not just be fighting housing advocates, though. They will also be fighting one another. Rental developers, which include some pretty big names, argue that they are getting shortchanged because as long as they are receiving 421a rent abatements, they’re required to keep rent increases within the 2 to 4 percent determined each year by the Rent Guidelines Board.

“I would argue that rentals are at an equilibrium, while condos are out of control,” said Jed Walentas, a principal of Two Trees Management, which has lately moved into rentals from condo conversions. “The property you are going to develop is not owned by the developer; it is owned by someone who is looking to sell the parcel, and they are looking at pricing from a condo perspective. They’ll look and say, ‘The guy can build 100,000 square feet here and get $1,000 a square foot. What can you afford to buy that land for?’ Condos are so far ahead of rentals. The economics for a rental just don’t work.”

The new 421a units are rent-stabilized even if they come onto the market above $2,000 a month, a point at which older units would normally be deregulated. Two Gold Street, Rockrose’s 51-story bet on the Battery, starts at $2,200 for a one-bedroom, even as it saved $5 million on taxes last year because of the abatement, according to city Department of Finance records online. But even at that price, luxury rentals deserve city subsidies, Rockrose president K. Thomas Elghanayan argued.

“Today’s market rent will be tomorrow’s below-market rent,” Mr. Elghanayan told The Observer. “That’s what’s happened in the past. We built 421a’s in the past and rented them for $1,000, and now those are below market value. Having rent-regulated apartments is extremely important for the future.”

Though only to an extent: The rent regulation will wear off once the abatement does.

The program, which has underwritten 110,000 units since 1971, has spurred its own set of dynamics, some of them vicious cycles. Developers know that they can sell condos with abatements