Price prediction for ultra luxury

One of the reasons it is hard to say is that different developers have different amounts of air built into their pricings. As you have pointed out in the past when you get a reasonably first class development which is priced with no air, you get lots of sales at ask (21 east 12th st).

Is the pricing of 21 east 12th, which does not have a special view like Central Park but good light, the floor for ultra luxury? I actually was surprised that they were able to sell a chunk that fast for that price. Appx 3k to 3.5k per sq ft plus some premium for views of Central Park (say $1k per square ft). That would put clearing price for ultra-luxury (21 east 12th is not ultra luxury) at 4k per sq ft. Is that is right way to think about it or 21 east 12th supplied smaller apartments of which there are not enough being built recently?

Actually, rethinking my previous comment. Greenwich village is more desirable location due to limited supply and neighborhood feel than 57th steet, upper midtown, and Central Park south. Perhaps some of the view and high floor and ultra luxury is offset by poorer location. That would put worst case at $3.5k-4.5k sq ft average vs current ask of 4500-6500 per square ft. So potential upto 20-25 percent downside while still leaving some profit for the developers. I think this will happen in the next 2 years.

Not only do developers offer units at various profit levels, but each developer is in a different cycle with respect to selling out their remaining inventory. When a developer has sold 75-80% of their offerings, they have typically guaranteed a good profit no matter what the remaining units sell for. That I think is why Extel, for example, is willing to bulk sale their remaining units. It is possible, therefore, that unsold luxury inventory will decline rather quickly and market equilibrium will soon be restored. Other developers in the early stages of selling units have a different problem and may get hurt quite badly.

Makes sense. How much discount will Extel have to take from the last sale prices for bulk sale? I think 157 west 57th is only 50-60 percent sold even though they have made the money back already.

Hard to say what the bulk sale discount for 157W57 would be. Assuming there is anything left of the construction loan, Extel would need to sell for at least the minimum loan release prices. Also, whether Extel wants to roll these profits into another project.

For One57, he is listing the lower floor units at +/- $4,000 PSF compared to +/- $10,000 for the more exclusive upper floor units.

The article below says Extel failed to bulk sale these units as rentals last year at an average price of $6.6 million. I am guessing the discount offer was at least 40%.

Other options for developers stuck with inventory could be to convert units to rentals or perhaps subdivide large units if feasible.

https://therealdeal.com/2016/05/19/extell-offers-38-condos-at-one57-at-a-big-discount/

I think 40 percent discount is certainly possible for apartments priced at $5k+ per sq ft and over $15mm absolute price as that segment has 10 years worth of supply. Just look at 12 east 13th street penthouse, which after multiple price cuts is priced to move.

Here is the link. There is indeed a lot of wasted space but even if you deduct 1000 sq ft for that, it is prices really well but sitting on the market. Split into two apartments, it would have moves right away at higher price in my opinion.

https://streeteasy.com/building/12-east-13-street-new_york/ph

"According to filings, the “new tower units” include 21 one-bedrooms, 10 two-bedrooms, six three-bedrooms and one four-bedroom duplex."

If the one BR's were $4 million, the 2 BR's $7 million, the 3 BR's $9 million and the duplex $12 million, that would come out to $220 million, and I think that's at about zero discount.

I think you have to look at the fact that for the past 10 years there have been about 1200 units a year sold in this category, there are between 2 and 4 times this number in the pipeline of new construction, and that doesn't count any potential resales.

30, Ultra luxury is indeed significantly oversupplied. Very likely, some planned developments will change to smaller apartments, which are not over supplied, and lower the price closer to their cost basis which I believe is $2500-3000 per sq ft. I think there is a big demand if the ultra-luxury comes down to low $3k per sq ft which is nearly 15-50 percent discount from the current ask.

$3,000 PPSF is still insane. What would you say the difference is between "ultra luxury" and just "luxury?" The presence of a hamam? Seriously though. I'm curious what people think.

Also, it would seem to be that the best value is in finding a co-op that's a sponsor sale, no?

Ultra-luxury comes with unmatched views and possibly location which in most cases mean much higher construction cost due to a tall structure ($300-500 a sq ft extra). Interior costs are probably no more than $200 per sq ft extra - slab marble vs marble tiles etc. Appx $1500+ is the actual cost of construction with soft cost plus cost of land. A big chunk of new developments are ultra-luxury.

Most renovated coops with more than 1500 sq ft in good location are starting point of luxury.

Interesting, but that's nuts you're telling me of the $1500 ppsf of actual cost for ultra luxury, $500-700 of that is "ultra" cost?

I'm really skeptical. Especially the super high towers in Midtown (terrible location first of all). Who's going to save you from the 100th floor when you need to get out quickly?

https://streeteasy.com/building/plaza-hotel/ph-2009
Sold for $32mm. Appx 5k per sq ft. Basically unchanged from 2012 if you factor in the renovation and transaction cost. Is this the max per sq ft ultra luxury will trade at? 30?

I don't think you can put any ceiling on $/sf because there are always going to be apartments that trade at very high $/f numbers because they are unique. There's stuff out there now at over $7,000.

Any predictions for remaining units of 432 Park in terms of percentage decline from the last sale (rather than listing price; sales are 15-20% below the listing price)? I am thinking another 15-20% down.

https://streeteasy.com/building/432-park-avenue#tab_building_detail=1

It seems that floor has been established for 157 West 57th. Appx 30% of the original purchase. At $6k per sq ft. 79th Floor. I am sure there is a couple of million discount due to the foreclosure related hurdles.

30, What do you think?

http://nypost.com/2017/11/09/billionaires-row-penthouse-in-foreclosure-sells-for-36m/

You two know the market much better than I but it seems that a 30% discount to peak sales prices still would still provide a tidy profit for the developer, especially an upper floor unit which should have higher profitability than lower floors. And although a 90 story building is indeed quite expensive to build for the reasons stated, its still cheaper psf than if you built two 45 story buildings plus the ppf for the top 45 stories should be considerably higher than the bottom 45 stories, no?

So I think the floor in pricing may not have yet been reached.

Ximon, Only time will tell. They may be have to discount lower floors significantly - more than 30 percent below original ask - if there is no park view as there is nothing special about them. Say to 2500 per sq ft.

Also, one of the reasons Extel may not want to take a discount is the impact on their other comparable development prices. Eventually, they will be forced to blink as ultra wealthy know all about the excess inventory and comparable choices they have. Not sure when the equity investors will force them to blink.

Good point about Extel. Too much transparency that benefits those who do their homework. Banks of course pay attention to this data also and would penalize him if they don't trust his prices or absorption projections.

And a using bulk sale or auction strategy to sell remaining inventory allows developers to argue the resultant prices are below market. Also lets them clear out excess inventory quickly and start clean with another project. Although Extel just sold one of his assemblages to a Chinese investor.

If they bulk sale, I would think that they want to restrict the seller from selling below a certain price at x number of years. It may be a smart strategy which will take off inventory from the market. Someone with plans to rent as luxury rentals on a monthly basis may take it at 30-40% off the original asking price. Condo plan may need to be amended suitably to allow the short term rental.

Yes, 300. I wonder what restrictions are in new condo regs related to leasing. As sponsor, I guess Extel et al can do whatever they want at least as it applies to their remaining units?

Buyer of bulk apts. could lease short term and them sell when supply is reduced. Could be a quick buck with a huge return or a big mistake, take your pick.

I think if they have a short term rental marketing ability like “One fine Stay”, 40 percent down from the original ask may be a very good price. Say $3per sq ft for units without park view or high floors.

$3k

Yes, with that discount with such rental flexibility, assuming little additional downside in the super-luxury category, it would be a phenomenal deal. Lots of ifs, of course.

"It seems that floor has been established for 157 West 57th. Appx 30% of the original purchase. At $6k per sq ft. 79th Floor. I am sure there is a couple of million discount due to the foreclosure related hurdles.

30, What do you think?

http://nypost.com/2017/11/09/billionaires-row-penthouse-in-foreclosure-sells-for-36m/"

I think you have to look at the potential consequences for prices at 217 West 57th St, from the same developer, with prices that are supposed to be even higher than the starting prices at ONE57, and while the Offering Plan was approved 5 months ago they still don't appear to be coming on the market. I wonder why that is? You think Extell is hoping something will happen in the market before they even dip their toe in the water on that?

30, I do not think they can get more than $6-7k per sq ft for apts with Central Park view barring a few top floor properties for 217 West.

I should have said, "Current market price has been discovered" rather than the "Floor". I am sure Extel or rather investors of Extel are not sweating yet as even at this price level they seem to be profitable.

What is your take on the pricing floor for units similar to the one which sold for $6k per sq ft in foreclosure?

A developer which adjusts the prices quickly in my opinion is Toll Brother due to them being a public company which puts additional pressure to move. Some of the prices on 100 Barrow were reduced 20% as their initial pricing was off.

6th straight week of 20+ contracts signed over $4 million according to the Olshan Luxury Market Report, with half of them being in New projects.

30 - curious as to whether this is because of price drops or increased demand.

https://www.bloomberg.com/news/articles/2017-11-14/one57-foreclosure-shatters-price-dreams-at-billionaires-tower

https://www.bloomberg.com/news/articles/2017-11-14/one57-foreclosure-shatters-price-dreams-at-billionaires-tower

I feel that market pricing has indeed been discovered with the foreclosure sale at $6k per sq ft for ultra-luxury with high floor central park view. Lower floors (there are no low floors) which still have a nice view but not of central park are probably at $3-3.5k per sq ft market price which is still below $4k/per sq ft asking.

Isn't this what I've been saying for a while now? It's the same thing that happened in the 1990's: you get a couple of low sales in a building because of distress (foreclosures, bankruptcies, whatever) and it sets the tone/pricing scale. All the sellers will say "oh that doesn't count because it was a foreclosure", but the market doesn't give a shit about that. The sale number was the sale number and no purchaser is going to come in and say "oh, I'll pay more for this same unit because it's not a foreclosure". And I know I keep repeating this but I don't see any way that these sales in 157 are not going to reflect what purchasers are going to be willing to pay at Central Park Tower whenever it is that it eventually comes to Market.

Foreclosure in top condition count. It is not that the apartment had copper ripped out of it. Naturally, there should be a couple of million discount for the process and infamy. Price discovery is very good for the market.

I did not think they would sell it for $36mm. My estimate was down another 10 percent. This is a positive sign.

The example of 157W57 shows how much of our market today is build on a foundation of sand. But I guess that's true of any asset in a consumer-oriented society so flush with cash. I have always felt that this market could be one or two more subtle signs away from a crash. The trigger could be pretty much anything. One scared buyer becomes two, then three, etc. and then eventually panic ensues.

This is the reason why one never sees Rolex watches or Gucci handbags on sale. They are valuable simply because we believe it.

The main reason why the auction at 157W57 represents something akin to market value is that 1) there were five bidders, 2) the product was well known, 3) there were many other comps to compare, 4) although the seller may have been under some duress, the market was not.

What will determine the "real value" of these luxury units is what comes next but there is certainly a little blood in the water.

It will be interesting to see what the buyer tries to do with it once they close. Will they try to flip it for a short term profit? Will they rent it (and if they do what will their return be? ).

I'm going to just throw this out there: the guy who many think is the smartest investor out there - Warren Buffet - is sitting on $100 billion in cash that he's supposed to be investing:
https://www.bloomberg.com/news/articles/2017-08-07/buffett-nears-a-milestone-he-doesn-t-want-100-billion-in-cash
To me that says he thinks assets as a whole are overpriced.

Ximon
I'll add another factor to your argument: many times foreclosures - especially one's that are sold at the foreclosure auctions - go for less money is that very few people are aware of the sale. Here there was so much publicity for such a long time that wasn't a factor. And look - as far as I know it was asking $39 million as the last asking price before the foreclosure. So if anything you might consider the foreclosure sale price to be a high one not a low one.

30, I agree with that possibility. Auctions can often generate some irrational exuberance. Only when an auction is the common method of selling an asset can the results be deemed "market" value. Foreclosure auctions in particular, are commonly used as a way for lenders to get title at a price equal or less than their mortgage but in the case of 157W57, the results do tell us something about the market IMO at the very least that there are still plenty of buyers. Lets see how long that lasts.

There are always plenty of buyers for $10 bills at $9, and never too many at $11.

The issue is: Is this the market now? I think there is some reasonable expectation that it is. And if that's the case, buckle your seat belt. How many sales do you think have to occur at 30% below 2014 prices before no one will buy unless they are getting that same kind of discount on whatever property they are thinking of buying? And if Extell can't sell anything at 217 West 57th or 1 Manhattan Sq, what else is going to get sucked into the crater when they implode?

I think Extell will blink soon on those 2 projects.

I don't think it's so easy for a Extel to do that.

If they blink on 1 Manhattan Square, what do they do with 138 Willoughby? I think blinking on 1 Manhattan Square prices will have people thinking they should get the same percentage discount in the Brooklyn project, where the target audience probably has a lot of overlap.

As far as 217 West 57th, what would you even consider blinking to be? Simply putting the units on the market? I don't know. Now if you look at the pricing that they thought they were going to come out at, from what I read the average price per square foot is over $7,100, and 26 units are priced at

Over $9,000 per SF. Meanwhile we saw that 79th floor "penthouse" at 157 trade at under $6,000 a SF. How much can they drop those prices (and how much do they have to drop the prices to actually start selling them. I think this is the reason they're not coming on the market yet).

But they have another problem as well. They have been jumping through hoops lately to secure construction financing. If the start chopping prices now, what is it going to do to those deals? They already had issues in the Israel bond market where they had been getting construction financing before. If cutting prices leads to being unable to secure construction loans then they are really screwed because they won't even be finishing the buildings.

I think Extel will be forced to blink as their projects are complete and not enough has been sold. I do not have enough info on loans maturity etc to predict the timing. My best guess is that the completion is still one year away and nothing substantial will happen till then.

And while we're on the subject of 1 Manhattan Square, I got a sales brochure from them in the mail this weekend. Now this wasn't as a real estate professional at my office. It was just as a random tenant in Peter Cooper Village. It makes me wonder how many people they are "randomly" (I hate how much that word is being overused lately so I apologize for throwing it in here, especially because I'm quite sure it wasn't random - but you do have to wonder exactly how wide a net they are trying to cast now and how much money they are spending on these mailings, as well, of course, of what kind of desperation level can be discerned from the action).

While 1 manhattan square is not in the ultra-luxury segment, it clearly seems overpriced for the neighborhood and building cost. Perhaps this is one where they may do a bulk sale at a discount (25-30 percent or fully loaded cost plus 10 percent) to some Asian investor with a two year lock up. That way every gets their money back and Extel makes their development fee.

On the positive side of 1 Manhattan square, the apartment are smaller square footage for the number of bedrooms which makes them for affordable if you look at them per bedroom cost. They are truly HK size apartments.

I think it's a little too early for a bulk sale. What will they do? Bulk sale 200 units? That will still leave them with over half the building unsold and the taint of both the discount and inability to do individual sales. A bulk sale of more than that? They might as well cancel the condo play on and try and sell the building to someone as a rental property.

Looks like there could be a lot of condos entering the rental supply in the next few years. Not good for condo investors hoping for 2-3% cash on cash returns.

Decline in sales inventory sounds good for absorption of new construction but what are the implications for the resale market? How far and when does softness in the luxury sub-market filter down to the cheaper sub-markets?

As if those condos do enter the Rental Supply Market they will be competing with thousands of newly constructed rental units. Ten-X predicted that by the end of 2018 the vacancy rate in New York will Top 11%. https://therealdeal.com/2017/08/02/new-yorks-apartment-vacancy-rates-are-about-to-explode-report/
Even if the actual number is half that it will still be about double what the vacancy rate has been for as long as anyone can remember. What impact is that going to have on rental prices? And if rental prices crash can sales prices remain stable?

I would love to see the date source of 40000 rental unit being added in 2017/ 2018 from ten-x report. It just does not add up including Brooklyn and Queens. Does any have detailed data on supply.

The rental market historically operates separately from the sales market although the two are somewhat correlated and perhaps very correlated in the luxury market. Does anyone have a good handle on what % of new condo sales are sold to investors?

This recent article reports that luxury condo rentals are down 10-30% which may correlate to the softness in luxury condo sales although cash-on-cash returns appear to be declining suggesting that the rental market is softer. However, many buyers of luxury investment condos are looking to park money in "safe" assets and are less concerned with yields. Conversion to rentals is no panacea in a market with so much oversupply and given the higher cost basis, unlikely to be profitable.

https://therealdeal.com/2017/11/07/rent-over-backwards-condo-owners-struggle-to-lease-out-pricey-pads/

"I would love to see the date source of 40000 rental unit being added in 2017/ 2018"
This talks about 26,739 being added in 2017
https://ny.curbed.com/2017/7/11/15953058/nyc-most-new-rental-construction-study

This talks about 17000 units added in 2016 and 27000 in 2017:
https://www.rentcafe.com/blog/rental-market/us-apartment-construction-at-a-20-year-high-in-2017/

The DOB green lit 4,300 new units in just the first 2 months of 2017:
https://therealdeal.com/2017/03/13/building-permits-up-to-start-the-year-but-the-data-warrants-a-closer-look/

I realize none of that is the definitive citation you're looking for, but it does lean more towards supporting their claim than contradicting it.

And I just noticed in the article Ximon posted just above:
"Citi Habitats estimates that 21,793 new rental units will be added to the market across the three boroughs by the end of this year. And another 21,434 units are expected to become available next year"

" Does anyone have a good handle on what % of new condo sales are sold to investors?"

The last number I remember hearing was 40% but I don't have a citation (and that might have been to "foreign investors", not all investors).

I know 432 Park Avenue has been selling at a discount for a while now but I believe this is a new high (in terms of percentage discount off list)
https://www.bisnow.com/new-york/news/multifamily/432-park-condos-discount-91m-package-deal-china-82955

I agree. It is 25% discount vs 15-20% discount for the previous sales. I am surprised that it still sold for $7500 per sq ft.

https://therealdeal.com/2018/01/15/manhattans-resi-market-had-another-icy-week-olshan/

First cut in half and then discounted by 26%

https://streeteasy.com/sale/1247642

https://streeteasy.com/sale/1380798

Thank you. So 26 percent below original aspirational ask. Nothing in this building traded less than 18-20 percent discount on high floors. At more than $7500 per sq ft, it sold more expensive than I thought it would.

Thank you. So 26 percent below original aspirational ask. Nothing in this building traded less than 18-20 percent discount on high floors. At more than $7500 per sq ft, it sold more expensive than I thought it would.

It seems that the ultra-luxury and near ultra-luxury and new development segments are the ones really suffering. From Jonathan Miller. I posted this in another thread as well but this is a better thread for ultra-luxury.

https://www.millersamuel.com/charts/one57-same-unit-sales-analysis-fall-2020/

Eye opening chart by Miller Samuel. I guess on average there is a 35% premium on being the first person to live in a brand new luxury apartment. Conclude, like with cars, if you are looking for "value" you should aim to be the second owner of a recently produced unit. But then if you are looking for "value" you are probably not buying in such a building...

I looked up Million Dollar Listings after reading about it on the other thread. They market quite a few new luxury developments on the show.

For example, 250 Bowery, where prices seem to have gone up over time, not down like at One57.

Also, I am shocked how small some of the units are. This unit, for example, is tiny for a 1br, I see many studios in the city larger than this.
https://streeteasy.com/building/250-bowery-new_york/6d
Low-ish taxes and common charges and a washer dryer a plus. But only one closet?

Selling for 2,300 per Sq Ft today, 20% higher than in 2012 when it sold for 1,926 per foot.

PS
Just realized this is the exact apartment that was featured on the show and called "too expensive" by one of the cast members..

Housing units are depreciating assets, just like cars. They get old over time and eventually need to be restored, overhauled, or demolished. The value of a depreciating asset rises only if there is a shortage, the asset becomes a collector's item (old = good), or the cost of ownership declines (e.g. low financing rates). True for fancy condos and fancy cars too.

I think in case of 157 west 57th, people just overpaid and there were really no established comps. And that end of market is flooded with supply. Most of the decline has nothing to do with “new car premium”.

BTW, do people buying ultra luxury really just send their brokers and purchase without seeing the apartments?

Or is this one of the fictional things about the Million Dollar Listings show?

Curbed: It Looks Like the Rich Aren’t Abandoning New York After All.
https://www.curbed.com/2021/01/wealthy-new-yorkers-are-returning-to-the-city.html

From the Curbed article: "The idea that wealthy households would never return to the city was always a little suspect — mostly the fever dream of anti-urban conservatives who grabbed on to temporary post-pandemic migration trends in support of their biases against city life."

Anyone I know?

@Krolik -- The truly wealthy have business managers who do most of the leg work. Mrs. Gotrocks thinks it would be nice to have a new place to live, has seen her friends' places in a few nice buildings, says to her factotum "look into it". Depending on how busy/bored she is, she may not set foot into the place until the decoration and furnishing is in place and dusted. And they're also not going to permit the place to be yapped about on something as vulgar as television.

Re 250 Bowery 6d: It's like what happened when bigger pre-war apartments were broken up. This could have been the butler's pantry and servant's room. Seems like an awful lot for an EIK.

@Krolik, the rich would never just buy an asset for the hell of it. They got rich by doing their diligence, examining documents, and making astute calls on markets. This article should allay any fears that rich condo buyers in NYC are idiots.

https://www.vanityfair.com/style/2019/06/the-plaza-book-excerpt

"They got rich by doing their diligence, examining documents, and making astute calls on markets."

What about those who are rich by inheritance or sophisticated crime (e.g., descendants of oligarchs or oligarchs themselves?) Don't you think they employ a different thought process when purchasing NYC condos?

Oh, I just read the article and now realize that George's post was tongue-in-cheek. Never mind . . ..

The frumpy car dealer from Ohio and his wife outfoxed them all. People who assess wealth based on what another person wears are idiots.

OMG someone paid $51.5M for a one bedroom at the Plaza!!!
Thanks for sharing the article. Very entertaining.

Suze Orman made the list; must be another case of "do as I say, not as I do".

Harry and Linda Macklowes home at the plaza is 14,000 f2.. it's not a one bedroom. That said I'm not sure if they still own it or got sold during the divorce.

Suze is fine with people buying things if they can afford it. In "Can I Afford It?" she approved the most ridiculous expenditures if people had enough money.

The mid-2000s were one hell of a time.

I watched this a little differently after seeing Size bought in the Plaza...

https://www.facebook.com/suzeorman/videos/581114452628871/

The biggest problem I have with that, she's overpaying for a 2013 Cayman S, even in 2018...

Yeah, can't you get brand new Cayman S for less than that? I know Porsche options are expensive, but even if the first owner ordered every last bit of custom embroidery it's hard to imagine that outweighing 5yr of depreciation.

George, Great pick. I wouldn't want to see that physician. Perhaps it is all fake callers for reality show and script writer screwed up the model.

The wisdom of the purchase price is for physician to decide. No one is buying a car for value as an asset. Medium town doctor pay, where they pay the rent quoted, is known to be well higher than in cities. Not to mention lower taxes. The monthly extra cost of the porsche is almost certainly less than the extra cost of living in NYC. And lots of people don't get knocked for that luxury.

Pier45, You missed the point. Cayman S just does not cost that much.

So it is much more about the show being a set up and fact checking mistake by the producer for a fake script.

Maybe that episode aired in 2012 and just wasn't put on Facebook until recently.

Very likely but cayman s never cost that much.

Actually it is possible for fully loaded to be $87k with all costs if it were to be new.
https://www.porsche.com/usa/models/718/718-models/718-cayman-s/

So can be an old show and real person calling.

I'm reminded of Jim Harrison's comment about the 37 course lunch he had with friends:

"Never before have the American people had their noses so deeply in one another's business. If I announce that I and eleven other diners shared a thirty-seven-course lunch that likely cost as much as a new Volvo station wagon, those of a critical nature will let their minds run in tiny, aghast circles of condemnation. My response to them is that none of us twelve disciples of gourmandise wanted a new Volvo. We wanted only lunch and since lunch lasted approximately eleven hours we saved money by not having to buy dinner. The defense rests."

Aaron, Well said. How other people decide to spend their hard earned money should be their decision.