Bidding wars in the suburbs

The news from NYC just keeps getting worse. Now the city wants to dismantle the crime stats program that was so critical to Giuliani to reduce crime.

https://nypost.com/2020/06/24/nypd-top-cop-suggests-axing-the-one-thing-that-made-nyc-safe/

Mrs George, a dyed-in-the-wool New Yorker, born and bred, who dreamed as a girl of nothing but owning a Classic 6, says she's excited to go on a house tour tomorrow well outside the city.

The real estate industry should be fighting like hell not to let the Giuliani and Bloomberg reforms be destroyed by a clueless moron playing hooky in a Brooklyn YMCA.

Am I the only one wondering to what location the Georges have decamped? I am worried about my imaginary friend "Mrs. George." I can handle moving to Columbus, OH because I am from Detroit FFS, but had I been born and bred in NYC, I think moving anywhere else would be really tough. Hoping the Georges keep us posted . . ..

Perhaps a pied a terre instead of a classic six?

I was never into dreaming about material things, so I have a hard time understanding. Why didn’t Mrs. George dreams involve something more grand than a Classic 6?

I was never into dreaming about material things, so I have a hard time understanding. Why didn’t Mrs. George dreams involve something more grand than a Classic 6?

I have some deja vu for.. W bottom, was it?

I've owned Classic 6s. Tell her it's not so exciting.

We did a house tour today. I found my nearly-perfect place, a Record House that has been in the same family since 1980, but it went into contract two days ago after a year on the market. Seller got motivated and chopped price 12%. The showing was in case the contingency falls through. I would have made the offer right at the showing. Mrs George wasn't so sure, but when we got back, we saw the headline that Blas thinks NY schools won't all open fully in the fall, and it raises the urgency of finding an alternative where better education / child care is available.

It's a very strong market in part from New Yorkers. One place has had 8 showings in the past two days, of which the seller's broker said several were NYers fleeing covid.

What is a Record House?

A house that was featured in the famed magazine.

https://www.architecturalrecord.com/articles/14541-record-houses-2020

I get the feeling that all this panick buying by "city people" is going to result in a "second wave" market crash. i.e. after city prices crash and the wave of city fleeing buyers subsides there won't be anyone left to buy in these places at these prices, especially as we see all sorts of taxes raised all across the country - if in part to make up for the overzealous tax cuts of the current administration.

Speaking of the Municipal Assistance Corporation, one of the biggest changes brought about in NYCs restructuring was banning this kind of borrowing:
https://www.politico.com/states/new-york/city-hall/story/2020/06/26/de-blasio-again-angling-for-borrowing-authority-from-albany-1295122

Although ironically the City wasn't barred from guaranteeing borrowing by others (like Related's Hudson Yard, which guarantee it seems increasingly likely it will have to make good on at a time where it doesn't have the money to do so. Of course the administration's solution is more guarantees and more borrowing. Sound familiar? The ghost of Abe Beame must be haunting Gracie Mansion).

no, wait, W61st! He ultimately went to Hawaii, didn't he?

I think you mean West 67th Street. My understanding was he had been in Hawaii the whole time he was posting. I think I heard that from aboutready?

I wasn’t sure if she meant W81sr or W67th, but I miss them both (except for W67th’s crudeness).

As for “Record Houses,” I have learned yet another new thing on SE: It seems that “Record House” denotes a house that is the best of those amazing houses that are featured in the Architectural Record. I have seen a few listings over the years where the listing highlights that a house was featured in the Architectural Record, but I have never actually seen a Record House.

30, whether there is a post-exodus crash depends on whether jobs follow people out. If (a) WFH remains a thing, or (b) companies set-up satellite offices in the exurbs or beyond, then the job movement and thus real estate price change may be permanent, or at least generational.

Consider the list of highest-earning zip codes. Only 5 of the top 50 are in the 5 boros. Many places were doing just fine before NYers fled.

https://www.bloomberg.com/news/articles/2019-03-04/nyc-s-trendy-neighborhood-leaps-into-top-five-richest-zip-codes

I meant W 67th. W 81st I check in with a couple times a year.

You know how I've said infrastructure costs are going to eat NYC's lunch because the City has been ignoring it's 100+ year old underground stuff? Well, check this shit out:
https://nypost.com/2020/06/28/parked-car-falls-into-massive-sinkhole-in-nyc/

If you are Jeff Bezos who bought $80 million of condos at 212 5th Ave or are considering buying one for $4.8 million to $11.6 million,

Or if you are debating whether you should close on your $3.85 million contract at 225 5th Ave:

https://streeteasy.com/building/the-grand-madison/6e

Or if you're thinking of dropping $25 million on JLo's Penthouse when it inevitably comes back on the market:

https://streeteasy.com/building/the-whitman/ph

Then I think you are definitely paying attention to this:

https://nypost.com/2020/06/26/two-people-injured-in-shooting-outside-madison-square-park/

30's identity has been revealed.... he is Barry Sternlicht of Starwood Capital!

https://www.bloomberg.com/news/articles/2020-06-25/sternlicht-says-virus-plus-riots-equals-nyc-real-estate-collapse

***

Quotes:

As Sternlicht sees it, this time is different. So long as there’s no Covid-19 vaccine and the virus is spreading, big city tourism, sports and events such as conventions will be largely on hold. The result may be the city’s biggest real estate slump in at least three decades.

And if jobs move elsewhere, the residential market will collapse too. Landlords are “desperate” to retain young tenants and increasingly willing to cut apartment rents by as much as 25%, Sternlicht said.

That’s where his “negative cycle” kicks in. As New York’s income base erodes and strains on social programs and infrastructure intensify, he predicted that quality of life will deteriorate, more wealthy residents will leave and tax rates will inevitably increase on those who remain.

These guys are all so far behind me! LOL.

Keith,

The reason people cheer for the RE market in NYC to drop is because apts go for $1,800/sq ft and up.

For even high level professionals, it becomes difficult to afford.

So we have a system now where unless you are a biz owner or high level exec at very profitable firm, you can barely survive.

I'm lucky bc I built multiple private practices and sold and am able to live in Manhattan BUT 90% of my MD friends cannot afford to live in Manhattan, the exceptions are when the spouse is a high powered attorney, banker, or biz owner.

If I'm planning to sell my co-op and move to the suburbs, when do people think is the best time to list -- now when there's panic selling and moving trucks double parked on every block in Manhattan, or next spring when hopefully things have calmed down a bit. We closed on the co-op in early 2017 so I'm taking a bath regardless. On the one hand I don't want to be rash, but our minds are 99% made up that we are leaving so am tempted to take the hit now and move on.

Curious to hear views from the usual suspects on here!

@jetsfan happy to talk to you privately (you can get me at my firm name @gmail) but the way I would think of it is -- what market niche are you in, and how much inventory is there in it?

The argument for listing now, generally, is that interest rates are low, which is really good for buyers, and that inventory overall is low, so serious buyers are pretty much going to get to your unit.

The argument against listing now is that in the next couple of days second quarter market reports are going to come out, and of course they're going to be horrible because nobody has been working except through a 2-D portal, and so buyers are going to read those reports and decide that they need twenty percent off. Yes, they'll come to your unit, but if your opinion of pricing and buyer opinion of pricing are far apart, then nothing trades and you get 2018 all over again.

The argument for listing in the spring is that by then renters will have come in from out of town to grab all those 25% off rental apartments that Sternlicht ... um ... hypothesizes will exist. (I watched the clip; how does he reconcile his preference for red-state growth with the fact that it was in Florida where he suffered a huge hotel shutdown?) Anyway, in Spring, you might well have a "New York is back" narrative, and even if you don't, there will probably have been more trades in the winter than there have been while we were on pause, so you'll probably have more confidence in pricing.

Schools, of course, are a huge question mark for certain buyers and sellers, and they could flip either way; it's a long time from now till March and in some niches, buyers' willingness to stay/trade up is going to depend on what school accessibility/performance has been.

ali r.
upstairs realty (member, Real Estate Board of New York)

There is very little reason to believe that prices will be better in a year than they are today. Maybe jumbo interest rate spreads will come down a bit. Maybe De Blasio will mercifully resign. Biden will win, and maybe he'll restore the SALT giveaway to the wealthy. All these things could happen. Or Covid could roar again and the city gets shut down in the fall and you're left to turn off the lights next spring.

If you've decided to leave, list when you're sure of your decision, or maybe at Labor Day. July and Aug could be quiet as people await word on how the fall develops for schools, their offices, etc.

FWIW, in the market where Mrs George and I are looking (well outside NY, where showings have been unrestricted since May), we saw a furious burst of activity in June that seems to have tapered off last week as buyers turn their attention to July 4th.

https://youtu.be/4cia_v4vxfE

@jetsfan a lot also depends on what exactly it is that you're selling and where it's located.

So where are the Riker's inmates going to be placed? The streets?

https://www.boweryboogie.com/2020/07/mayors-borough-based-jail-plan-defunded-473m-and-now-on-hold/

People in NY real estate should be hopping mad about Blas's failure to reopen schools in full. This will greatly diminish whatever post-Covid "pent-up demand" may have been expected in NYC, at least in the sub-$4 million market.

https://nypost.com/2020/07/08/new-yorks-school-decision-a-slap-in-the-face-to-parents/

yes, George, I'm hopping mad about the failure of schools to return full-time in September, and I demand to speak to the Coronavirus' manager about it.

Seriously, what else are we supposed to do? We have to take reasonable steps to protect our teachers.

Of course, teachers... not students. Teachers unions, not parents. As if this staggered schedule will really make teachers any better protected from the virus.

I get it. Unions control the city for their own benefit - police, teachers, every other municipal worker. This is why you can't fire bad teachers or killer cops.

It's basically the reason that I chose private school despite having been in public school myself.

As for what to do, REBNY is a huge donor and lobbyist. This needs to be an issue on their lobbying agenda if they want to be selling property in NYC.

I have heard a lot of reasons for choosing private schools over public, but "because the teachers are non-union" is basically a first.

Campaign Donations from Real Estate Lobby Drop Dramatically as Democrats Decline Them
https://www.gothamgazette.com/state/9565-campaign-donations-real-estate-lobby-drop-dramatically-democrats-decline-new-york

https://www.usnews.com/news/politics/articles/2020-07-08/trump-pushes-state-local-leaders-to-reopen-schools-in-fall

When I was in high school, I realized that the worst teachers with the worst attitudes and the least time for kids were the union representatives. It was apparent that they joined the union and sought leadership positions to protect themselves, just as the most brutal and racist cops try to run the police union. I disliked teachers unions from then onwards.

This is one reason I loved Bloomy as mayor: he once declared in a speech I attended that "it's time for schools to be run for the benefit of the students, not the teachers." And that was my experience working in an NYC public school for a principal who eventually left to run a charter school that was later featured on 60 Minutes -- everything positive that the man wanted to do in the public schools was blocked by the union.

I also remember the head of the CSA giving a speech where she went on and on about due process and how hard it is to be a principal. Some naive young liberal in the Q&A asked, "what exactly do you do?" The response: "we look out for the interests of our members." She was mugged by reality.

Our non-union private school declared that they would reopen in full in June. The school exists to serve the students and parents, not themselves. Huge difference.

@george, I have a client who is high-up at a prestigious Downtown private -- that client has been planning/war-gaming re-opening scenarios for months. But it's not about the lead time, or the will to re-open: the private schools can re-open in full because they have the space/real estate to do so.

Even if classes were held in the gym and the cafeteria, the average Manhattan elementary can't pack all the kids into the building in a socially distanced way. But let's not claim that that's the free market at work; private schools have been the beneficiaries of favorable tax and real estate policies for a long time.

Seen yesterday on Twitter:

"Am I understanding this correctly? covid-19 is so deadly that Paul Manafort and Michael Cohen had to be released from prison early, but it's also so benign that we need to be packing the nation's children back into their schools pronto? ok cool, that checks out"

Any one with kids in school knows it's a petri dish of various bugs. Sending kids back is accepting the fact that there will be increased transmission, in cities and suburbs.

https://www.nytimes.com/2020/07/09/realestate/westchester-home-sales-drop-to-recession-era-lows.html seems to suggest that there isn't a big surge in demand in NY suburbs and exurbs and that any June uptick is more due to city dwellers realizing they want a vacation home to escape to rather than mass relocation. Honestly, I think the demographic slice of NYC residents with the wealth to walk away from their city homes and bid up prices in the suburbs yet who don't already have a vacation home and who send their children to public schools has to be pretty small, George notwithstanding. And farther afield, the NY metro area went from worst to first in coronavirus control, so there's no guarantee that school districts across the country won't walk back any current plans to reopen full time.

Agree, and my money is that George will remain in the city despite what his spreadsheet might advise.

No idea about the rest of the country but the pandemic slowed Columbus, OH real estate market such that we just went into contract on a unit that was 15% higher last fall. It was interesting that the young assistant if the agent showing it to us noted that she thought it was great that people our age were looking at such an urban environment since their fear was that after BLM protests at the end of May, everybody would flee to suburbs. Her boss shot her quite the look. Too funny.

>MCR - I am sincerely interested in trying to understand the charms of Columbus OH which have enticed you to own multiple properties there. Would you please explain?

MCR, how many pieces of RE will you now own?

@ph41 - family and politics.
@nada - too many, but we do get serious use out of all of them. My in-laws have moved in to the first Columbus condo, which was HUGE. They are in their late 80’s and we had to trick them out of their single family home by asking them to look after “our” condo. :)

To be clear, condo is/was not HUGE; getting the in-laws into it was.

But on the charms of Columbus, it cannot compare to NY. The only upside is that I am considered small there (whereas whenever I go shopping at any cool boutique in NY, the sales personnel look at me as if I am crazy to think they would ever carry a size 10 in anything). Apparently all the cool boutique designers send their “plus” sizes to the midwest.

@mcr, apologies for the Italian subtitles on the clip, but you reminded me of this Amy Schumer interview with Letterman in 2014:

https://www.youtube.com/watch?v=P4nd6P38Psg

@fp - Amy Schumer nails it there.

In my next life, I’m going to invent a way for people to have multiple bodies. That way, I can charge rich people a boatload so they can use all their homes simultaneously, have several fancy dinners every night, etc.

Can one of my multiple bodies be a size 4 please?

I’d happily settle for a size 6!

@ph41 - lol. However, I am like nada to the extent that if I am going to dream, I am going to dream BIG (or in this case small). Seriously, it is complete BS that in NYC there are apparently quite a few women of my height who are a size 4.

May I suggest the rotating subscription plan? We start the bodies off as a size 4 for your beach house. Then after a year of fancy dinners, we move that body to the next house and replace it with a new size 4. After the new body has rotated through all of your houses and out of the winter ski house, we decommission it.

@nada - brilliant. We don’t have a ski house, but if I could take the body on our skiing vacations (my personal favorites), it would still be useful because nobody cares on ski vacations if the size 4 has grown into a size 10.

PS - We also don’t have a beach house and don’t even do beach vacations, but I would still pay a premium for the size 4 for the NYC stints.

@mcr what an excellent idea / plan regarding the in-laws. It was painful removing my grandparents from their home of 50 years and relocating them into a townhouse.

@keith - We never succeeded with any of our grandparents and it was rough so we had to get creative. My husband gets all the credit because I did not think it would work. Great to see them happy and relaxed in a new community.

All the older people will come back to NY - with great hospitals, health care, transportation, and, eventually,

Restaurants, theater, culture.
And hopefully younger people as well

Not everyone sees life on a golf course as Xanadu

The latest article from TRD suggests that people are leaving NYC by first renting, then buying a second home, then making that second home the main home.

https://therealdeal.com/2020/07/14/new-yorkers-reckon-with-the-suburbs-and-agents-rejoice/

That's pretty much what we're doing. Rental units of any decent quality are completely gone for the rest of the summer. We're looking to buy a place that we can rent out to others while keeping a primary residence in NYC (renting) and move into if covid gets worse. The challenge in buying is that places are going into contract within days of landing on the market, especially single-family homes under $5 million. I talked to a construction manager yesterday whose company built two spec properties in the $15-20M range that both sold last month, and they're jammed with people calling to do teardowns. The private schools and nurseries are also completely full.

BTW, this ^^^ is the answer to Fritz Frigan's question "where are the buyers?"

George, Can't help but ask how does one do ROE calculation for call it 25% down-payment for these properties assuming no price change or what is the cap rate if you can find a comp rental? Usually there are very few nice long term rentals in burbs. I know you have a spreadsheet to address this.

George

Remember when a bunch predicted that as soon as showings commenced we would see a ferocious rush of buyers come in, buy up everything that was available and the ensuing shortage would lead to prices rising? I called bullshit then, and I call bullshit now that people are pretending that they meant something else - like it's still going to happen, but we have to wait until this Fall or next Spring or whatever. What they are ignoring is that we actually do have a huge rush of properties coming on the market because they were held off for the usually busy Spring selling season, but the buyer's just aren't there to absorb anywhere near the volume.

And now that the BS suspension of "days on market" is over, by the time we get to the Fall season everything that was on the market before, or is coming on now will be aged to the point where they will require price reductions or some magical apartment number changes of some other hocus pocus (which I'm confident we will see new versions invented soon) to try and pretend they are new listings. And of course still ignoring that the law of supply and demand does apply to Real Estate on the way down just like it applied on the way up. Prices may be sticky downwards, but the curve is not plastic.

I agree generally with the idea that there hasn't been a huge rush of demand, but there has been some -- renters who realized they want to trade up a little bit and see that money is cheap. To balance that, we have the widely chattered-about outflow. But wouldn't a lot of those people have left the city anyway? George, with your concern for politics and taxes, were you really a candidate to buy here?

Let me point out that there's traditionally a spring/summer exodus driven by school placements. My favorite mom's board just died, but usually there's a seasonal cri de coeur when everyone who moved to Brooklyn in the past couple of years realizes just how few spots there are at St Ann's/BC/Poly/Packer.

My spreadsheet says the cap rate on a single family in this place outside NYC is in the 2-3% range if we do short-term rentals managed by a professional and around 0 if we do a long-term rental, assuming no covid restrictions and no capital gains. There is no transfer tax or any other closing costs except title (which is cheaper here), and property taxes are only about 0.3% of market value, so the risk is lower.

But the point is to have an actual home with an office, yard, and trees to bug-out to, and maybe become a permanent residence if covid gets worse or Blas goes even crazier. The big change is that Mrs George has found a place that she really likes, and she's despairing at how Blas is letting NYC go to seed. Mailing a giant tax cheque to NY today didn't help matters.

As for whether we were/are candidates to buy, we did put in a serious offer as recently as the early days of covid. It was accepted, but when it became apparent that covid would crush NYC, we pulled the offer.

Thanks George. 0.3 percent of property value!! Where? Hampton’s?

My guess would be sunbelt.

That's low even for the Sunbelt! But please let us know, low property taxes is something I love!

I saw a UES single-family townhouse come on the market today advertising taxes of "only" $40,000. Most of the rest of the country thinks this is ridiculous. California did something about it with Prop 13, and you can now find older properties in exclusive areas of California with taxes at 0.3% of market value.

Here's a ranking of states by property taxes as a percent of market value. Remember that within states, there can be wide variation by type of property, taxing district (city vs. unincorporated area), quality of local schools, services included in property tax vs billed separately (trash, water, sewage, ambulance, professional fire department), homestead credits, and statutory limits like Prop 13.

https://wallethub.com/edu/states-with-the-highest-and-lowest-property-taxes/11585/

BTW, also keep in mind that there are properties in NYC that have taxes of 0.3% of market value or less.

Example: https://streeteasy.com/sale/1381937

Property taxes tend to be regressive - the higher the market value, the lower the percentage property tax. This is part of structural racism in the US, but that's a topic for another thread.

California Prop 13 helps if you do not move. Taxes are reset to market values upon a sale. This means two identical adjacent houses could be paying wildly different taxes.

There are two relevant parts to Prop 13: a 2% cap on annual absolute tax increases and a 1% of value cap (cf 0.3% discussed above). Older homes are more likely to be assessed for lower values even when sold and the 2% resets, so old homes can still be taxed at less than 1% of true market value. And remember that once you buy, the 2% cap kicks in till you sell or die.

The Florida homestead exemption reduces taxable value of your home up to $50,000. It's based on your home's assessed value and offers exemptions within certain value limits.

Certainly more impactful for lower value houses.

WSJ:

"Three major shocks now threaten to upend the urban renaissance: The coronavirus is preying on densely packed places; anger over policing is producing social unrest reminiscent of earlier eras; and strained city and state budgets could prolong their economic pain.

"Extended lockdowns have drained cities of the energy, charm and financial promise that drew so many in the first place, and underlined the weaknesses, inconveniences and risks. With remote technology facilitating work from home for many, some New Yorkers have already decamped to suburbs.

"Cities aren’t likely to come out of the tumult the same. The road to recovery stands to be difficult and long, and will need to address, among other things, housing affordability and homelessness—problems that had been threatening the urban resurgence even before current crises. The end result could be that growth shifts from big cities toward smaller ones and suburbs."

Or it could involve big home price declines that make NYC and places like it affordable again. That would really be something.

https://www.wsj.com/articles/american-cities-covid-coronavirus-reopen-lockdown-housing-new-york-boston-los-angeles-11595182903

https://www.politico.com/states/new-york/city-hall/story/2020/07/20/prominent-business-group-paints-grim-outlook-for-city-economy-1302258

https://pfnyc.org/research/a-call-for-action-and-collaboration/
For info on tax income shortfall projections check out Exhibit 1 on page 11.

https://www.wsj.com/articles/for-wealthy-west-coasters-working-remotely-means-home-can-be-anywhere-11594917988

From the article:

Real-estate agents say that over the past few months, wealthy West Coasters have been flooding resort areas, from Pebble Beach to Telluride, from Napa Valley to Jackson Hole.

“I’ve been in business for 25 years and it’s never been this busy,” said Chris Cortazzo, an agent with Compass in Malibu. He currently has 12 properties in escrow and is doing two to three showings a week for a $125 million listing. “We’re on full fire.”

Buyers are looking for second homes where they can comfortably camp out for months, and in some cases, forever. They are not just driven by fear of an extended pandemic. As many firms—especially tech companies—embrace remote working, people are taking the opportunity to untether from astronomically priced cities and get more space, scenery, and quiet.

“I think what you’re seeing in the Bay Area is a lot of people are tied to it because of work,” said Mr. Cooley, 40, who works in software. “You can work from anywhere right now, and I don’t think that’s going to change.”

According to Realtor.com, in June, views of luxury properties in Aspen and Telluride were up 53% and 82% over last year, respectively. But luxury listing prices in both areas fell slightly. Lake Tahoe, about a three-hour drive from San Francisco, has seen a big pandemic boost. In January, views for luxury homes in South Lake Tahoe were down 16% over the same period in 2019. By June, views were up 84% year-over-year. The starting list price for the top 5% of homes rose 79.4% year-over-year.

Closing this thread and starting Part 2:

https://streeteasy.com/talk/discussion/45865-bidding-wars-in-the-suburbs-part-2