An Insider's View of the Latest Trends in Luxury Residential Real Estate
Posted by Elizabeth Stribling — April 28, 2010
Spring has arrived with a new buoyancy in the New York City residential real estate world. Gone are the gloomy doldrums of one year ago. An active lively market has replaced the paralysis of the non-existent winter and spring markets of 2009. Today, open houses are jammed. Demand is high. Bidding wars are occurring again. All of this is due to a rapid fall in prices in our local marketplace in 2009 that has resulted in a correspondingly huge rise in the number of transactions. Recent industry reports of residential transactions in the first quarter of 2010 show a stabilizing residential real estate market with a slight rise in sales prices over the last quarter of 2009. Compared to a year ago, the statistics could not be more dramatic. Sales have doubled in volume in the first quarter of 2010 versus the same quarter of 2009. However, this apparent stunning turnabout can be misleading. Last year, volume in the first quarter was down to half of normal first quarter activity, and prices continued to drop, reflecting the devastating effects of the September 15, 2008 collapse of Lehman Brothers, the subsequent plunge in the stock market, and the consequences of the Madoff scandal. Today, we are back on course. The free fall in spiraling downward prices reached bottom in late summer of 2009 as pent-up demand began to scoop up bargain prices. Subsequently, a record surge in sales occurred in the final quarter of 2009; according to Jonathan Miller, CEO of the appraisal firm Miller Samuel, this last quarter reflected the largest number of transactions in any year-end quarter that his firm has recorded in 25 years of tracking New York City residential sales. New Yorkers are smart. Buyers demanded deals. Responding to dire economic times, many sellers lowered their expectations. Completely price driven and fueled by frustrated demand, sales activity surged in the last quarter of 2009.
Demand Surges for Well-Priced Residences
Today, we have an encouraging mixed message. According to the current Miller Samuel report, the average sale price fell 22% to $1,426,994 in the first quarter of 2010 from the same quarter a year ago, when it was $1,800,000. However, this report also states that today’s average sale price represents a 10% increase from the prior last quarter of 2009 when it was $1,300,000. Thus, a slow improvement appears underway. In addition, the backlog of unsold inventory from a high of over 10,000 units in the first quarter of 2009 dropped 23% over the course of the year as prices were lowered, and eager buyers pounced on deals. Today, we once again see inventory rising. As more transactions occur, many former sellers are re-listing their properties in hopes of a successful sale. The good news is that most of this property is more realistically priced, and demand continues to be high. In addition, the Miller Samuel report noted that the negotiability factor fell to just over 5% in the first quarter of 2010 compared to just over 12% one year earlier. At the same time, the average time on the market for a listing was down almost 27% versus the first quarter of 2009. In fact, for properly priced property, a listing can easily sell today within a month or even two weeks. For such properties, the market is experiencing a return of bidding wars. Buyers have never been so savvy. Armed with statistics, photos and floor plans from brokerage websites, and up to the minute transaction details from real estate blogs, they can spot well-priced property in a nanosecond. With a perceived lack of quality inventory, buyers are prepared to go to war for the well-priced apartment of their dreams. On the other hand, they merely pass by overpriced listings without even a comment.
Strange as it may seem, buyers and brokers bemoan a lack of quality, sought-after listings in today’s market. What does that mean? Buyers are avidly seeking old fashioned solid value: established neighborhoods, serviced buildings, prewar cooperatives, and condominium resales. If you are looking for a classic five or six room apartment on the Upper East or West Sides, the pickings are rare. Just try to find a sprawling four bedroom apartment on Park Avenue or Central Park West and your hopes will quickly be dashed. Equally hard to locate is anything in the cherished neighborhoods of the East and West Villages. TriBeCa is back in fashion, but there are few lofts to be had. Apartment and house hunting in Brooklyn offers more possibilities, but listings in prime locations and coveted buildings are being snapped up. However, all of these exceptional listings must be well priced in order to sell. That said, the competition is fierce for every such market-priced listing that comes up for sale. It is unusual today to find a buyer who has not already lost out on a property. Today, well priced property prompts multiple offers.
In 2009, first time buyers led the pack as they zeroed in on studio and one bedroom apartments, which could readily be financed with a conforming loan of up to $729,750. Buyers seeking larger units that required difficult to obtain jumbo mortgages were often frustrated in their attempts to secure financing; most large-size purchases were bought by all cash purchasers or those with high liquid assets and established private banking relationships. Although the first quarter 2010 statistics still show the majority of deals at less than a million dollars, the volume of larger more expensive transactions is increasing. This also accounts for the overall higher average price this quarter. The market is not rising, but more expensive apartments are selling and thus driving the average price upwards. Although much touted, Wall Street bonus money has yet to make a noticeable impact on the luxury market. However, as trophy properties have become more attractively priced, high-end sales are once again occurring. The two to ten million dollar market is coming back to life. With only a handful of transactions above $10,000,000 in 2009, the first quarter of 2010 has already seen 19 such deals. Everyone in every price range wants a deal. As luxury property begins to reflect discounted value, this rarified market should also rev up in 2010.
There are also optimistic signs on the new development horizon. This market came to an absolute dead halt in the troubled economic environment of last year. Even worse, many worried purchasers who were concerned about the economic downturn refused to close on already executed contracts of sale. Lawsuits proliferated as developers and buyers disputed deposits. Slowly, these lawsuits were settled or negotiated. Some developers won their suits. Others decided to negotiate and move on to another sale, albeit at a lower price. As the backlog of lawsuits in the development market cleared up, and spurred on by the impetus of an active resale market, a noticeable uptick in new condominium sales has recently occurred. Many new development offerings have reached, or are about to reach, the magic 51% sold threshold. This figure permits a waiver of Fannie Mae guidelines requiring 71% of units to be sold before the agency will back financing, as long as the project meets other Fannie Mae guidelines. With Fannie Mae approval, bank financing is much easier to obtain for buyers. In addition, a 51% sold building inspires buyer confidence that the building will eventually sell out. Slowly but steadily, the new development market, for completed and ready to move-in projects, appears on the way to attaining a successful absorption of current inventory. That said, there is an additional “shadow inventory” of approximately 6,500 units of new development that has yet to be listed. Hopefully, as the overall market stabilizes, there will be continued demand for new condominium product as it enters the market. With construction financing remaining at a standstill, there is hardly any new residential development in the pipeline which should in itself keep a lid on supply and thus promote absorption of this shadow inventory.
New Lending Rules Require Careful Choices
The greatest problem in today’s market continues to be tight bank financing. Guidelines are tough on both applicants and the buildings in which they wish to purchase. Borrowers must have excellent credit scores, generally over 700 with enough extra cash to cover six months of mortgage payments. For jumbo loans above $729,750, the credit score jumps to over 740. However, one month’s missed payment on a utility or credit card bill can easily jeopardize a credit score, even if it is due to an unfortunate mix-up. In addition, more and more, it is the buildings themselves that do not meet onerous new, or newly applied, Fannie Mae and Freddie Mac lending guidelines. In the previous boom market, banks could bypass these regulations by selling mortgage bundles to investors. Gone are those days. Today, for conforming loans, Fannie Mae and Freddie Mac are calling the shots. Rigorous regulations dictate the loans that they will buy from vendors, and these loans will be denied in any building that is considered a risk. Today, buildings must carry adequate insurance including fidelity bond insurance which protects the building against employee and management theft, as well as hazard insurance including flood insurance in designated flood zone areas. Yes, flood insurance in New York City. Cooperatives and condominiums must have 10% replacement reserves in their budgets for deferred maintenance costs. Any building that has one individual owning more than 10% of the units or commercial space that exceeds 20% of the building square footage will automatically be red flagged, and a loan denied. Faced with all these obstacles, most buyers who require mortgage financing are insisting on a mortgage contingency clause which allows them to receive their contract deposit back if they cannot obtain a loan. Sellers are readily agreeing; a deal with a contingency is better than no deal at all. However, if faced with multiple offers, many sellers play it safe and choose to accept a lower offer if it is all cash. The choice is tough. Potentially, a seller could lose out by accepting the highest offer if it comes with a mortgage contingency. In a worse case scenario, if the loan is denied, a seller might be forced to accept a much lower offer at a later date if the market goes down. Thus, tight financing creates a difficult scenario for both buyers and sellers in which the deal remains uncertain until the contingent loan is secured. Yet, despite strident new regulations, deals are being struck all over town, albeit at lower prices than before the financial crisis.
New Development Springs to Life by The High Line in Chelsea
Spring, and a tentative emerging economy, has brought a more confident step to the New York City residential marketplace. One area of the city that is seeing a changing and exhilarating skyline is far west Chelsea around the High Line. An amazing new bucolic urban park offers a springtime promenade par excellence. Thirty feet above the street, the High Line Park is built on a section of elevated rail tracks that were abandoned thirty years ago. Conceived as a retreat from city life, the first phase of the park stretches from Gansevoort Street to West 20th Street between 10th and 11th Avenues. The gritty abandoned track bed is now punctuated by low gardens, prairie grass sprouting by the tracks, lounge areas, and even a small amphitheater spanning 17th Street where walkers can look through an enormous window up 10th Avenue; taxis and cars rush ahead in a dramatic whirl of city life. This meandering newly green rail bed offers fresh perspectives of the Hudson River, low lying neighboring buildings, and converted former manufacturing factories that were once serviced by the railroad. As expected, the High Line Park has prompted much new adjacent development. Starchitects such as Frank Gehry, Annabelle Selldorf, Renzo Piano, and Jean Nouvel have designed nearby condominium and office buildings as well as a new hotel. Directly opposite the High Line Park at 10th Avenue and 19th Street, architect and developer Cary Tamarkin has built a new condo building at 456 West 19th Street. Inspired by West Chelsea’s classic modern industrial architecture, this building features 22 duplex residences, all with soaring double-height ceilings. With High Line Park and cityscape views from expansive multi-paned steel windows, these new condominiums offer a sense of light, space, sky and the pulse of urban Chelsea life. The four duplex penthouses are wrapped by curving windows that also offer views of the Hudson River beyond the High Line Park as well as the Manhattan cityscape. With six-foot wide fireplaces, private terraces and gracefully curved balconies, these penthouses are private aeries floating above the High Line Park. Asking prices range from $1,450,000 for a 1,129 square foot one-bedroom duplex, to $2,450,000 to $2,975,000 for two-bedroom 1,718 square foot units, to three-bedroom 2,069 square foot apartments from $2,980,000 to $3,300,000. The 2,359 to 2,926 interior square foot penthouses, with 1,129 to 1,811 square foot exterior terraces, are priced between $6,250,000 and $7,900,000. A whole new High Line Park perspective awaits the future owners of these special condominiums.
Nearby on 19th Street and 11th Avenue, overlooking Chelsea Piers and the Hudson River, celebrity architect Jean Nouvel has designed a 72-unit 23-story glamorous curved condominium building with a glittering glass faceted façade facing the West Side Highway. Across 19th Street from the round billowing glass ship-like IAC office building designed by Frank Gehry, this new condominium named 100 11th brings out all the stops. Seen from the Hudson River, hundreds of different shaped windows tilt at odd angles to create a glittery façade. The back of the building (which overlooks the High Line Park) is built of black bricks and scattered sporadically with different size windows. Whereas the west and south exposures feature views over, and up and down, the Hudson River, the back and north windows are placed at different height levels to dramatically frame a specific exposure. These windows resemble picture frames capturing a snapshot of arresting cityscape views such as the Metropolitan Life Tower, the Empire State Building, the Chelsea London Terrace complex, or the High Line Park. On the lower floors, glass-enclosed terraces will overlook an outdoor suspended garden with huge planters containing trees that appear to hover in mid-air. With an indoor-outdoor swimming pool, and a future proposed garden level restaurant, this is clearly a destination residence that brings an artistic pedigree with it. The 23rd floor trophy penthouse sports 13 to 16-foot ceilings, a humongous 70-foot living room, a 33-foot master suite, four additional bedrooms, two wood-burning fireplaces, plus an upstairs 3,715 square foot roof terrace. Views stretch to every horizon. Lady Liberty beckons majestically and the High Line Park is but a green ribbon far below. Residences by Ateliers Jean Nouvel come with luxury price tags ranging from approximately $1,925,000 to $2,460,000 for one-bedroom units of 890 to 1,110 square feet, to two-bedroom 1,760 square foot apartments priced at approximately $3,600,000 to three-bedroom units of 1,950 to 3,076 square feet offered between approximately $4,335,000 and $7,520,000. The one-of-a-kind penthouse is asking $22,000,000. Each of these residences has been conceived as an actual work of art within which to dwell. With Chelsea’s myriad cutting edge art galleries just a stone’s throw away, it shouldn’t be hard to find a contemporary masterpiece to adorn the walls of 100 11th.
Apartments in Gloriously Restored Palazzo Tornabuoni in Florence
However, if your taste in art harkens back to the Italian Renaissance, Stribling has just the dwelling for you. In a continuing and growing expansion of our international residential property offerings, we are proud to be the New York City exclusive broker for the Palazzo Tornabuoni in Florence, Italy. Conceived as a Private Residence Club, the Palazzo Tornabuoni will offer a choice of 38 elegant apartments, from studio, one-bedroom, and two/three-bedroom membership options, with an array of fabulous amenities. Words cannot describe the luxurious lifestyle that the Palazzo offers; I was recently pampered beyond perfection during a three-day stay there this spring. With restored frescos, moldings, soaring 25-foot ceilings and mosaic floors, life at the Palazzo Tornabuoni is evocative of another time and place, but with today’s every comfort of up-to-the-minute baths, kitchens, audio-visual systems, and air conditioning. Originally the 15th century Florentine palace and home of the Medici family, the Palazzo Tornabuoni is located in the historic center of Florence on the chic shopping street of Via Tornabuoni, just across from the Palazzo Strozzi museum, and just steps from the Duomo and Ponte Vecchio. The Palazzo and its residences contain eye-popping examples of Renaissance artistic masterpieces such as a central courtyard by the architect Michelozzo, original 16th century frescos by Ciampelli, a baroque statue of Diana the Huntress (at the foot of the Palazzo’s monumental pietra serena staircase) by architect and sculptor Gherardo Silvani, and a later era exquisite fireplace adorned with micro mosaics by the miniaturist Rafaelli, which alone has been appraised at over $1,500,000. After a five-year restoration with the collaboration of acclaimed Tuscan designer Michele Bonan, the Palazzo today offers a seamless blend of antique splendor and elegant modern design and furnishings. The more contemporary apartments on the top floors have sweeping views of the cupolas and bell towers of Florence as well as the lovely surrounding hills, whereas apartments on the piano nobile offer an array of frescoed and stucco ceilings. In addition to the beautiful apartments, the ne plus ultra Attaché Service offers an entrée into a very secret Florentine world of custom tailors, visits to private art collections not open to the public, Chianti winery weekends, horseback riding excursions, and even wild boar hunting or white truffle gourmet events in the Tuscan countryside. The Palazzo will be managed by the Four Seasons Hotels & Resorts group; members of the Palazzo Tornabuoni will have full spa and swimming pool privileges at the Four Seasons Florence. In addition, members of the Palazzo Tornabuoni will have access to leading Tuscan golf, tennis and rowing clubs. Members can use the residences on an unlimited basis, subject to the club’s reservation procedures. As of January 2010, the membership fees for the studio apartments are €245,000, and the one-bedrooms are offered at €364,000, with the two/three-bedrooms priced at €575,000. Club costs are covered by annual member fees which are priced at €8,200 for a studio, €13,200 for a one-bedroom, and €21,100 for a two/three-bedroom residence. Housekeeping costs are based on actual occupancy. In addition, 18 of the total residences can be bought as whole ownership, and are priced between €1,600,000 to €5,000,000, plus the annual membership fees. For a completely effortless lifestyle in the enchanting city of Florence, this might be heaven for many fortunate cosmopolitan globetrotters.
Elegant Parisian Residence on the Isle Saint Louis
However, for those who dream of a breathtaking view over the Seine in Paris rather than a stroll along the Arno in Florence, Stribling is pleased to offer as the New York City co-exclusive agent, together with a Parisian broker, an elegant apartment located on the chic and sought-after Isle Saint Louis. With 18th century boiserie, and hand-carved doors from a hotel particulier, this Parisian home is perfection. An enfilade of three entertaining rooms includes the formal dining room, the salon, and the library, all with views over the Seine from gorgeous French windows, Juliette balconies, and a terrace. There are two wood-burning fireplaces. In addition, there are three bedrooms, an eat-in kitchen, and enough closets for a French couture wardrobe. With coveted private parking at a premium in Paris, this apartment comes with not one but two parking places in the underground garage of the building. In addition, there is a double staff room apartment with private bath on an upper floor. This rare offering is found in one of Isle Saint Louis’ most prestigious cooperative buildings. Originally built in the 17th century with a magnificent carved wooden entry door on the Quai de Bethune, the building was bought and transformed by the legendary cosmetic doyenne Helena Rubinstein. A sweeping magnificent art deco stone staircase leads to grand foyers on each floor, all with huge windows overlooking a landscaped entrance courtyard. In addition, there is an elevator, and in old fashioned French tradition, a concierge on the ground level supervises all activity. The steeple of the nearby 17th century church of Saint Louis en L’Isle can be glimpsed above the beautiful courtyard and occasional bells and music from this historic church add a romantic melody to this charming property. The asking price is €5,400,000. If you fantasize about a perch in Paris, this exceptional apartment floating over the Seine could be a dream come true.
Is Now the Time to Buy?
If your life is firmly grounded in the Big Apple, what are my predictions for the New York City residential marketplace? For the immediate future, I believe that the market will remain active, but that prices will remain flat. Global economic uncertainty, continuing unemployment, and the specter of rising interest rates will all combine to keep the lid on over-exuberant real estate spending. That said, New York City itself figures mightily in any local residential market analysis. While many may bemoan it, the government bail-out of Wall Street financial institutions has brought about a quicker than hoped for turnaround for these very institutions. New York remains a Wall Street town. As the financial and legal industries begin to do better, so follow local restaurants, boutiques, and yes, residential real estate. New York City entered this last recession in a relatively good state, cleaner and safer than in previous decades. It remains the financial and cultural capital of America and the world. With a still relatively low dollar, tourists abound. Dual income families with children are not fleeing to the suburbs. More and more seniors are retiring here. The price of residential real estate has fallen, and opportunities for deals are to be had in all price categories. Some sellers have decided to move on with their lives, even if it means taking a hit on a recent residential real estate purchase; with a rising stock market, many sellers believe that cash in hand has the potential to earn more. If unemployment continues to decrease, and banks begin to lend more readily, New York City residential prices will slowly begin to rebound. If I were a buyer, I would purchase now.