State of the market

Comparing January 2020 is interesting. For one, this was the busiest single month The Burkhardt group ever experienced, if I remember correctly we put 16 deals into contract.

After seeing the market gradually slow, beginning in around 2017, I noted here that we were seeing things pick up in the fall of 2019, even though that would be met with skepticism by a few posters here. Later, the data from UrbanDigs would show that the market did indeed start to turn around at the end of 2019. Then COVID, and that changed everything ( understatement of the year). I think the rest of the story most of us know.

Some of the doom and gloomers on here used the initial disruption to the markets from COVID to validate their lengthy previous predictions of a market collapse.... Of course this didn't quite happen. That said, I think what is happening now with interest rates, inflation is the organic catalyst that will slow down and otherwise disrupt the New York City real estate market. COVID was a black swan event, in my opinion. What's happening now, in my very laymans understanding of the economy, is a natural part of the cyclical life of our 'bust and boom' market cycles. How much bust, is the question.

So anyway, to answer your question, where do we stand currently? We're busy working after few sluggish weeks, we have a couple of offers out a couple of contracts signed. I hung out with a banker friend of mine yesterday, who's one of the largest originators of mortgages in the country at a large US Bank, he asked me "how are you doing?" and before I could answer he said "it's a little bit slow right?"

Let's keep an eye on the data, and if predictions are your thing, have at it. As I always point out, I don't like to use my business as a proxy, we have a unique model with commission rebates and discounted listing fees and a rock solid referral base of people who believe in our business model. It's kept us busy through the lows of 2009 and everything in between up until now. In the present moment, it is a little too early to know exactly what the market's going to do. However, I think most of us would agree, higher interest rates don't typically lead to robust real estate markets.

One point I always bring up here, is there are certain people who are just buyers and not renters. And they buy through all sorts of markets, I've certainly seen that over the 30 plus years I've been doing this, certainly over the last 14 years with the Burkhardt Group. These buyers aren't making decisions based on spreadsheet calculations, comparable rentals or interest rate speculation.

Keith
The Burkhardt Group

*bonus dance*

I don't do too many things at any one time; I have significant family and volunteer commitments, so I can't really talk about differences in volume the way, say, Keith can.

I can say that from the handful of clients I work with (and I'm looking for more buyers if anyone's out there) that it's hot again.

I don't think interest rates have anything to do with it; I think it's 1) Covid numbers starting to decline so that people feel like it's safe to come out again and 2) rental prices having risen to the point where people want to jump into the pool and 3) bonus season.

But that's just my leg of the elephant.

ali r.
{upstairs realty}

Like Keith, I have a layman’s understanding of the economy.
That said I am under the impression that inflation is good for hard assets such as real estate and certain stocks. That’s what Jeremy Siegel says from the Wharton School of Economics. He also says the Fed has to be much more aggressive. It’s too much money chasing too few goods.
I remember the eighties when the market was hot and people bought co-ops with very high interest rates. I bought myself an apartment in 1987; my mortgage rate was 12% and I was happy.

What multiple of HH income did a typical apartment cost then? with current price of a typical Manhattan apartment being 1M+ (or about 9x average HH income), most people buying today would not be able to afford to pay 12% or 10% or 8% interest...

Maybe individual broker's business is not a great proxy (given capacity constraints and client selection filter brokers have). How about competitiveness of bidding situations? Are there still a lot of multiple offer situations going on?

On our Greenpoint new development, there were multiple bids. We went 50k over ask and were all cash. Overall, based on responses to showing requests, many agents replying, multiple bids going to best and final etc. Overall it does seem like a mixed bag . Tried to schedule an appointment for a 60 East 8th Street yesterday, on the market less than a week, multiple bids calling for best and highest. There were also multiple bids on a unit we just went into contract on at 20 West 64th Street . The most desirable apartments, and desirable neighborhoods are seeing good action still. Though there is no shortage of units that are sitting, and I'm starting to see emails from agents with price reductions more than I've seen over the last 6 months.

Let's go to the videotape, Urbandigs:

https://youtu.be/LHzZrT2VJKI

Long term trend. The real home price is quite stable with the exception of the great depression and the great recession. The real home price has been quite above 150 since 2000, it may go down to follow the historical trend or it becomes a new normal to fall between 150 and 250

https://inflationdata.com/articles/wp-content/uploads/2021/10/Inflation-Adjusted-Housing-Index-10-21.png

Note during the high inflation in 70s and 80s, the real home price did not change much, and the nominal home price went up with the inflation rate.

The apartment I bought in 1987 cost $340,000. But that was high end, and was over thirty years ago.
And yes people would not be able to afford to buy an apartment today with 12% interest rates.

But this inflation sounds scary and people like Jeremy Siegel and Larry Summers insist the Fed is behind the curve. And has to raise rates much more aggressively.
Jay Powell nominated by Trump to keep interest rates low and he is not an economist and for at least six months insisted inflation was transitory and therefore kept printing money until he made a 180 degree about face is very troubling.
The fact is no one saw the financial crisis of 2008 not even Alan Greenspan.
When I bought my apartment in 1987 the market was red hot. Then a few months later the stock market crashed. That changed the real estate market immediately and it crashed in 1991.

People on Wall St getting paid again for sure. Feels a bit like 2007.
Hearing at least a 10% baseline increase across the people I talk to, many in the 15% range.. and those hopping or in the right place/time seeing 25%.

Couple that with inflation at 7% but mortgage rates still under 4%..
Would expect to see some sort of RE pop off the back of that.
How much & how long - who knows.

No one knows.
Goldman Sachs today said the bull market is still in tact.

As a predictor of doom and gloom in early/mid 2020, I'm seeing that the Manhattan mid-tier/low-end luxury market has been more positive than I predicted. Seems that this has been because (a) sellers have adjusted expectations downward - I've seen several properties trading at prices that are inflation-adjusted losses or are close to 2005 prices in real terms = a miserable return on investment, (b) mortgage rates have been low, (c) the new mayor isn't a total disaster, (d) tax hikes mostly didn't happen, (e) there is a nationwide shortage of homes so everything is going up, (f) the rapidly rising prices in Nowhere make Manhattan look not so bad, (g) a lot of people got rich last year especially in tech.

I'm still happy to have bought in Nowhere. There are just 3 single family homes listed in the zip code where we own, out of just under 1000 that exist in total. The market is so tight - what with nothing for sale - that brokers have basically nothing to show prospective buyers and thus aren't making any $$ despite fast-rising prices.

Oh George, always looking at the the cup half empty. What's the point of cherry picking worst case/ best case scenarios to make a point?

Anyway, it comes down to where you want to live, where you and your your family are going to be happy. There are plenty of places to buy cheap real estate around the country. But there's only one New York City, and it's the dream of many to call it home.

Not too many songs or movies made about moving to Tulsa, Oklahoma. Not to knock Tulsa, it's a perfectly fine place, but I think you get what I mean.

I think the sales market here is going to continue being strong (as in activity, not big price increases) for certainly this quarter and probably the full year. Potential buyers seem to mentally commit well ahead of actual buying, making their financial sketches at that point. The themes of the last year have been cheap mortgages, increasing rents, no good ideas for investment, ZIRP-forever, YOLO, and NYC is not dead. I am guessing most are not aware of where mortgage rates are likely headed and/or it won’t derail their mentally-committed plans. What’s another $1K/mo per $1M borrowed?

I certainly wasn’t doom & gloom on Manhattan in 2020. In fact, I think I said the case for buying was the strongest it had been in 15+ years. For a lot of people, they could make sense of a 3% cap rate against 3% mortgage: a 3% immediate return on capital is better than 0%. That mentality is still intact. For me, it was more like a 1% cap rate against 3% mortgages, skepticism that money would be cheap forever (with ensuing implications), and a nagging need to only deploy capital in places that pencil in at 10%+ rates of return.

I don't have to go far to find a tarmac full of private jets of people from NY who are waiting till their kids finish Trinity to leave permanently.

"Not too many songs or movies made about moving to Tulsa, Oklahoma."

LOL! Who can forget the epic song and musical "Oklahoma!"? I am still working in OKC, so I hear this song regularly during college football season and 89er day celebrations. I do agree on the relative attractiveness of NYC vs OKC, though, which is why I own in Brooklyn and just rent in Oklahoma City.

"I don't have to go far to find a tarmac full of private jets of people from NY who are waiting till their kids finish Trinity to leave permanently."

Umm, okay... People who can afford multiple Trinity tuitions and a private jet will not be the ones leaving New York permanently. They may eventually use their NYC home as more of a pied a terre, but nothing screams Master of the Universe like a fabulous apartment with a Central Park view.

Nada, you're a completely different animal! You love New York, you just have some very good reasons for renting versus buying. In my business, I don't tell people whether renting or buying is better. I simply assist with the transaction after they've decided on their path. And of course, make it as seamless and transparent as possible along with adding tangible value$.

Yes, the average New Yorker has a private jet warming up on the tarmac.... Most people I know that have that kind of money have a presence in New York. And they use their jets to take them to to other places where they have a presence. Having the means to own a private jet, that's a whole different kind of wealthy. They don't live in nowhere, they vacation there.

I did think about that song! And I thought damn I know I'm going to get called out for using Tulsa as an example! Lol. Like I said, it's a perfectly fine place, but not too many people wake up in the morning and think" One of these days I'm going to make it to Tulsa!" : )

"I don't have to go far to find a tarmac full of private jets..."

And who wants to live next to the airport? (wasn't it John Travolta who had a garage adjacent to his house for parking the jet)

>> People who can afford multiple Trinity tuitions and a private jet will not be the ones leaving New York permanently.

It depends on what you mean by “afford”. For a lot of people, they earn money to spend money. This is what matters to them. No matter how much they earn, they spend most of it. Not in an irresponsible way — they still save/invest 20% after-tax or whatever they deem prudent — but most of it gets spent one way or another. I don’t say this judgementally — god bless them, this makes the world go ‘round.

At the end of the day, a couple of Trinity tuitions costs $120K. A private plane trip charter to Nowhere costs $10K a pop. This is not cheap, but there are ~20K households in Manhattan earning $1-2M/yr. If someone earning $1M/yr after-tax thinks a good life consists of spending $250K between tuition & private planes & trips, $200K on a place in NYC, $100K on a place in Nowhere, $100K on household staff, and $150K for splashing around, that still leaves $200K to save/invest. The $200K/yr on NYC housing buys/borrows them into maintenance + interest payments on a nice place ($6M?), but it’s not quite the place/scale/etc. they imagine themselves being. On a treadmill, earning $1M/yr after-tax but feeling squeezed nevertheless. So leaving NYC seems like an easy way to cut costs and instead spend it on what matters to them ($10K private plane trips or whatever).

When Warren Buffett bought his first private jet in 1986, he was already a billionaire and unlikely spending even 0.8% of his income. But that doesn’t make the world go around, it’s the relative “throngs” spending 80%.

Not to take us too far down a tangent, but I watch where the CEOs and Chairman are moving/going because that's where the Executive Vice Presidents (the ones making $1-2M/year per Nada's post above) will follow, and the secretaries and analysts follow them. I'm not cool enough to see that the hipsters are all gentrifying Brownsville or Mott Haven or wherever. Right now I'm not seeing a lot of the CEOs/EVPs people demonstrate enthusiasm for NYC, not like I saw in 2005 when everyone I met was excited for NYC. Ditto for SF by the way. I've been travelling a lot once again, and NYC is dead compared to most of the rest of the country (except SF) where covid is a distant memory.

$10k only to charter a plane for a trip with say 5-7 seats? Or 10k per seat in a shared charter?

I think ~$10K buys you a 4-6 seater for ~1500 miles. Cross-country for 8-9 is ~$30K.

https://www.aircharterserviceusa.com/about-us/news-features/blog/how-much-does-it-cost-to-charter-a-private-jet

https://www.bloomberg.com/opinion/articles/2022-01-20/new-york-city-beats-san-francisco-for-superstar-talent?sref=5WyK57cE

I mean for $280K you can buy your own Staten Island ferry..

Covid Update:
Conditions worsen in Southern and Western States
https://www.nytimes.com/interactive/2021/us/covid-cases.html

>>> I remember the eighties when the market was hot and people bought co-ops with very high interest rates. I bought myself an apartment in 1987; my mortgage rate was 12% and I was happy.<<<

Yeah, remember the realtor in the movie Wall Street tells the Charlie Sheen character "I know a guy who can getcha a 9% mortgage" ? :-D

Anyway, I thought we were talking owning a private jet.

It was 10%, not 9% ; ) This is a great clip, only GlenGarry Glennl Ross had better dialogue.

https://youtu.be/l1fKvyUSDg8

Cheaper than I would have thought. Basically 3-5x Business class if you are a family of 4.

I think ~$10K buys you a 4-6 seater for ~1500 miles. Cross-country for 8-9 is ~$30K.

@George so where are CEOs and Chairpersons going?

Depending on the size of the jet, about 5 to $6,000 an hour for midsize. About 2500 to 3,500 an hour for a turbo prop. Probably a little bit more if you're a real baller and flying on a G7. So about $70,000 round trip from JFK to LAX... That's significantly more than business class.

Sorry Krolik, this went totally off the trail.

The Falcon 8X is also pretty impressive. The trijet gives it great performance.

Haven't been on a Global but some people swear by them.

$70k for NY to LA R/T is a good price. I'm getting quoted at $80-100k on a Citation X. Prices for private aviation have soared like everything else rich people buy.

I take the subway!! Faster.

>> Right now I'm not seeing a lot of the CEOs/EVPs people demonstrate enthusiasm for NYC

Given the trajectory of rental prices and inventory in 2021, it sure doesn’t feel that way. At the high end, inventory went down 4x and prices got as high as I’d ever seen it. It is cooling down somewhat in January (~20% more inventory than December), but the trajectory certainly seemed plenty enthusiastic nevertheless.

Perhaps what you are seeing is more prevalent to the corporate Fortune 500 CEO / EVP crowd? As CEO, you head a company of 100K people and likely have an ego to match. Ditto for the team of executives. Being top-dog in such a vast hierarchy probably rubs off into your personal life. If you head a team of X people, of course you should live in the best home, have Y people in your household staff, and fly private jets. If not you, then who?

NYC, for better or worse, shatters that ego. Median pay for Fortune 500 CEOs is $10-$15M. Median pay for the 5-10 executives below them is ~$5M. That’s good money, but any of dozens of financial firms or law firms or other such firms pay that on average to hundreds of partners each. So here you are, head of a division with 10K people at a corporation everybody knows, “competing against” nobodies at firms you’ve never heard of. Even worse, they probably only head a team of 10 people, so they haven’t built up a taste for all the accoutrements, so they just have more money too.

OMG, where in the U.S on 1/22/22 is Covid a "distant memory"?

I mean, I'm happy NYC is coming off peak, and that we're not London -- I am so anxious for my London clients -- but where in the U.S. could one be so callous?

Chicago, where they only re-opened the schools two weeks ago? Miami-Dade, where they cook the numbers and even still they're reporting 240 cases per 100K, with one out of every four tests coming back positive? Or are you in Lousiana, where deaths have tripled in a week? Santa Fe, where they're down to two available ICU beds? Idaho, where's there's a more than 40% positive test rate, or Salt Lake City, or even Park City, which are only a half-step behind?

Looking at the data maps, Maine is probably the best case in the U.S., and they just had to deploy the National Guard to help out the hospitals.

*smh*

ali r.

I've spent a lot of time travelling lately. There are several places I visited in January where there is essentially no regard for COVID. Restaurants and bars are jammed, nobody has to show a vax card, and people are in their offices. Everyone is going to get omicron, so there's no point in going crazy to avoid it.

Ali, I think and do hope that things will be much better before the end of Feb. Real estate prices in most place benefited from Covid as people wanted larger homes and higher income people made a lot of money if Banking and law bonuses are anything to go by.

For the most part, Palm Beach County is out and about and not too worried about COVID. Most people that are down here right now are from out of town, certainly a lot from New York City.

Was in Miami recently, more of the same. Just spent 2 weeks skiing in Zermatt, every place pretty busy, you can't get into any restaurants, etc. unless you show your Swiss health pass app along with ID. Zurich was the same. We ate inside in a few restaurants, if we felt they were big and airy enough. Unfortunately, all the great restaurants scattered around the ski area are warm and incredibly cozy, We avoided eating in those( they were all packed), opted for the outdoor seating, especially if it was facing south!

As long as you had all the proper paperwork, traveling was pretty seamless. We were pretty active, out and about quite a bit, traveling on buses, trains, gondolas and funiculars... Everyone had a mask on, but in some cases it was pretty tight! We were all triple vaccinated except for my youngest daughter who's got two shots.

I know this may sound selfish, but we missed our holiday trip last year and we weren't going to let that happen again this year. We took all the precautions, made sure our masks were on, And we made it there and back! We had a couple of 'scares' youngest daughter had a fever one night, and then wife was feeling extremely fatigued. Both tested negative. Also, the testing centers in Zurich operated just like the Swiss railway, we had appointments at 5:00 p.m. for four of us and we were out by 5:20. 1 hour later we were emailed our negative test results.

Anyway, just sharing our travel experience. Certainly a little bit more inconvenient, traveling business class certainly makes it a little less of a hassle. Pretty seamless experience leaving United States and then leaving Switzerland. We flew twice last year, and this was our third trip.

Antarctica on Crystal Endeavor, with fairly strict Covid protocols , and still 3 people tested positive before getting on ship and so were quarantined in Ushuaia. Tested 2 days later and 5 people tested negative positive and were quarantined on board. All passengers had tracking devices worn on board, and there was masking and social distancing in public spaces. These precautions all paid off as we were allowed to disembark in Ushuaia to get home, while 6 other ships were held at dock or at anchor in quarantine in Ushuaia.

Sorry , 5 people tested positive. Those in contact but texted negative we’re out i their own group and were able to zodiac off on expeditions

And now RIP Crystal

And now RIP Crystal

Sorry to hear about your aborted vacation, ph41.

The fatalism of "everyone's going to get it, whatcha gonna do?" makes me crazy when it leads to a reduction of safeguards. My friend the doctor went skiing out West and said the lifts were enclosed and no one was masked while on them; that's just nuts. I do hope everyone gets their respites in, and I do think things will be much better (in the Northeast anyway) in February and March.

Opposite experience skiing in Switzerland, everybody had their mask on. The gondolas are enclosed but the windows were always open. I'm currently in Florida, play golf which translates into being friends with quite a few doctors. Two of my daughters best friends parents are also doctors, one a pediatric surgeon, with kids in school. Their kids are vaccinated, like ours, And feel safe sending their kids to school without a mask. Generally, they also feel as long as you're fully vaccinated, you're fine. Recent tests of sewage in N. Palm Beach County also showed that COVID was declining significantly. Seems like we're heading towards this being an endemic disease.

I've never had an issue wearing a mask, continue to wear mine when shopping, at least 90% of the time. The restaurant at the club I belong to was full with boomers drinking and dancing like COVID was over. I think I saw one person out of maybe a hundred that had a mask on. And these are not local Floridians, these are affluent snowbirds with a majority from the New York City area, and other parts of the US.

https://www.palmbeachpost.com/story/news/2022/01/21/covid-19-omicron-surge-nearly-over-palm-beach-county-jupiter-sewage-testing-shows/6593887001/

Also just to bring this back 180° to the original post. We've been absolutely slammed this weekend, our open house in Bushwick is oversubscribed! We have an accepted offer on a listing in Kip's Bay that was giving us some problems. And we're currently having to send about half a dozen clients out into the wild without us accompanying them this weekend, as we're fully booked. And just to reiterate, it hasn't been gangbusters contract signings over the last few weeks, but it's encouraging to see all this activity.

NYC remains below 2016/17 peak and the pace of new development coming on the market has declined substantially. What we may be seeing at the lower end in terms of price per square foot is the start of a 7-10 percent up move on top of up 5 percent move from the bottom early last year.

People just need to look at rents for basic doorman 2 and 3 bedrooms in $6-10k segment.

>nada, thanks but we actually had a great time on board the ship in Antarctica.

Glad you made it ph41! That's a trip that's on our short list!

Ah, good — had misread your original post ph41.

Ah, good — had misread your original post ph41.

What do people make of the (potential) loss of the baller crowd on NYC RE? FTR, I have never flown in a private jet, much less gotten a quote. I just figured it cannot cost as much as people were imagining, well within reach of the baller crowd, so I looked up the website. Thinking it through, however, made me think that the baller crowd may have spent themselves out of a future in NYC.

Imagine a working stiff who started 20 years ago earning a “measly” $200K/yr that has grown to “only” $2M/yr. The inonada version would have (say) spent half and invested half in the S&P 500. At this point the investment portfolio would have grown to $14M, adding $550K/yr in new money. Rent on a $12M place would have been locked in last year at $22.5K/mo (why not if it’s so cheap?) and there’d be another $22.5K/mo to splash around. To me, that’s a very nice life. And at that size of portfolio, income, and savings rate, totally sustainable and then some through a long retirement. Hence, no angst about how NYC is over / not worth it.

The baller version, on the other hand, would have (say) spent 3/4ths and invested 1/4th in the S&P 500. A dozen years in, they would have (say) put $1M down on a $4M apt: ballers don’t rent. That would have taken a good chunk of investment capital and put it into home equity, but even after principal payments, new savings would replenish the investments over time. All-in-all at the end of the 20 years, they’d have ended up with something like $1.5M in home equity and $3M in investments. That’s a healthy amount, but not comfortably sustainable if you are spending $825K/yr and saving $275K/yr. Hence the angst and the desire for a reset of some sort.

This story is probably as old as NYC, but I wonder if recent history has sharpened the otherwise typical features.

Since people are talking about doctors they know, my brother is chairman of the ethics committee of a major hospital. He is also a full professor of medicine and the list can go on and on. He is board certified in pulmonary medicine among other certifications. He is in fantastic shape. One of his kids won an Olympic gold medal.
I wouldn’t send my kid to school without a mask, especially in Florida. I don’t even want to go there, unless the governor is voted out.
And don’t believe what you read in the papers.

https://www.nytimes.com/interactive/2021/us/palm-beach-florida-covid-cases.html

As someone who's living here, in Palm Beach, things are pretty okay. I mean if I didn't go to every state/country because I didn't like the governor/president, that would greatly diminish my travel plans.

"And don’t believe what you read in the papers." Should I believe your link?? : )

@nada be careful how you use the company. Jet : )

https://www.wsj.com/articles/empty-private-jet-flights-hastened-credit-suisse-chairman-antonio-horta-osorios-downfall-11642887752

That Trayvon Martin case was frightening.
That said the governor in my opinion is a fascist, and lies like Trump.

My link is from The NY Times, but do believe science.

Should we be expecting a flood of conversions? How do costs of conversions compare to costs of new builds?

https://www.fastcompany.com/90713800/how-1-million-square-feet-of-new-york-office-space-was-turned-into-apartments?

It’s funny how so many politicians from states like NY and CA that are supportive of strict COVID restrictions in their home states don’t have any issues visiting Florida, in many cases going maskless and even bringing their young children. Is there any scientific evidence that NewYork and California are doing so much better than Florida in terms of COVID cases? And while Desantis is far from perfect, I’ll take him any day of the week and twice on Sunday over Cuomo, Newsome, Whitmer, etc…

I saw that this morning too, Keith. No company jet, and I haven’t flown for work in like a decade so I should be safe.

Last week Manhattan New Dev 20 contracts signed / sales volume $84,982,000 down from Fall peak W.E. 10/23 70 contracts signed / sales volume $371,406,990.

nada, sometimes the baller lifestyle is fuelled by cocaine, and cocaine is expensive.

The direct costs of a cocaine addition are well within reach of the baller lifestyle. This website quotes it at $55K/yr, less than a single roundtrip flight to LA. The indirect costs are another matter.

https://www.aspenridgerecoverycenters.com/cost-to-maintain-an-addiction/

Do 'ballers' still do? Cocaine???? I thought they were more into intermittent fasting.

Steering this back in the direction of the state of the market... What a weekend!

We bid on three townhouses, one in the West Village, Carroll gardens and Fort Greene. We're battling to get the West Village done, Carroll gardens had nine offers, we were 200k over ask, We were told the accepted offer was still significantly higher than our bid. Fort Greene has a best and highest tomorrow after just 5 days on the market.

We also have an accepted offer on a three bedroom, three bath in Bushwick.

The Brooklyn Brownstone Market remains very hot. At least from our perspective.

Steering this back in the direction of the state of the market... What a weekend!

We bid on three townhouses, one in the West Village, Carroll gardens and Fort Greene. We're battling to get the West Village done, Carroll gardens had nine offers, we were 200k over ask, We were told the accepted offer was still significantly higher than our bid. Fort Greene has a best and highest tomorrow after just 5 days on the market.

We also have an accepted offer on a three bedroom, three bath in Bushwick.

The Brooklyn Brownstone Market remains very hot. At least from our perspective.

I think time for 30 to add some bearish commentary on Brooklyn. We all seems to be too bullish.

My comments are just providing a little insight into what an actual broker working in the market is experiencing. I would tune into Urbandigs for actual market data.

Here's a little snapshot into the higher end of the market:

The New York Times: Another Resale at 220 Central Park South Lands in the Record Book.
https://www.nytimes.com/2022/01/28/realestate/top-nyc-real-estate-sales.html

broker data is more real time than urban digs market data. thanks for the color.

Stick to data , not the shilling of the same old song and dance

https://streeteasy.com/building/1399-park/19b

Big discount - did not realize one could negotiate this much with a developer!

The deals you find in East Harlem, you won't find in the Village or Chelsea etc...

I have not checked in in months, but am inspired to as I listen to a discussion of NFTs that is making me angry. Poll - Respond with Agree or Disagree: There are no “deals” in ultra prime Manhattan (West Village, Greenwich Village, Tribeca, CPW, Fifth Avenue, Lenox Hill, Carnegie Hill, Lincoln Center). High end Manhattan real estate market parallels Fine Art market.

Welcome back, MCR. No idea on fine art or NFTs: neither do much for me, so I don’t pay attention.

On high-end Manhattan RE, the best “deals” I ever saw over the ~20 years in the rental market were last winter. Now, it’s done a 180: as tight as I’ve ever seen it for finding a “deal”, not that it can’t be done because the rental market is so idiosyncratic on pricing. But it’s become difficult.

The sales market’s about the same as it’s ever been — pretty even-keeled across time and product. There’s always an “it building” against which other things look cheap, and a former “it building” whose dropped pricing looks cheap relative to before, but I don’t really look to those as benchmarks for a “deal”. If what you care about is living in a nice place and attribute even a modicum of value to capital, the best “deals” remain in the rental market IMO (the higher end, the better).

Hi Nada - Agree there are great deals in high end rentals. I have never seen a deal on any apt I’ve watched for purchase. I hadn’t looked at all the little gems I was watching in quite some time, but when I did, I saw that all of them had traded at prices well above what I (or any other person who was looking for a deal) would have paid.

Hijack: is anyone else having trouble starting a new thread? I had a loft I wanted to talk about the decoration of, but every time I try to "start a discussion" it asks me to sign in (which I clearly already am).

ali r.

>> Big discount - did not realize one could negotiate this much with a developer!

I don’t think that involved negotiation. The original 2017 ask was $3M but the listing went away in 2018. Then in Dec 2020 it came back asking $2M. Buyers hit that ask in July 2021.

I started one for you, FP:

https://streeteasy.com/talk/discussion/47145-fps-decoration-discussion

Circling back to the topic of “deals” in prime neighborhoods, they are certainly there. If a big discount on original developer pricing after years on the market is your notion of a “deal”, here is a building full of them in the Village (lifted from 30yrs on UD, with a nod to 300 for bringing the building to my attention years ago).

$33M => $15.5M
https://streeteasy.com/building/37-east-12-street-new_york/ph

$17.75M => $9M
https://streeteasy.com/building/37-east-12-street-new_york/th

If you think developer prices are made up and aren’t indicators of a “deal”, this Village townhouse did $16M=>$13M between 2013 and mid 2021 (same close date as the East Harlem apt):

https://streeteasy.com/building/122-waverly-place-new_york/house

If gorging on “cheap” debt is your thing, the financing was a “deal” too. Old buyer financed fixed at ~4%. New buyer financed ARM at ~2%.

There's no law preventing you from asking anything you want for an apartment. So I don't consider these deals, just big discounts from delusional pricing ( More than aspirational).

If you don’t consider townhouses indicative of “deals”, because maybe some random buyer overpaid in 2013, here’s a ~100 apt new dev in the Village with plenty of people lining up go into contract in 2013 and close in 2016. This 2022 sale price likely going to end up 10-15% lower:

https://streeteasy.com/building/150-charles-street-new_york/7bn

And if renting is your thing, here’s you picking up that $4000 ppsf plus $40ppsf/yr monthlies apt for $120ppsf/yr (pre-pandemic) or $80ppsf/ye (post-pandemic):

https://streeteasy.com/rental/1716746
https://streeteasy.com/rental/3090693

Meanwhile, as owner was simply using your rent to cover monthlies & interest, their $1650ppsf downpayment ($5.5M) became $825ppsf ($2.75M) after loss & transaction costs.

Your $5.5M, on the other hand, either stayed at $5.5M (in cash) or $10.5M (in VBAIX) or $14.3M (in SPY).

I got a “deal” for each and every person in the Village! (Did I miss any archetype???)

Nada, Ha on 37 East 12. I know the building too well. Very experienced developer make several mistakes -
Most of these apartments have no view. Small building with full time doorman making CC very high. And most importantly, initial pricing was just off even though the area has very little supply. 66 East 11th made the same mistakes. And of course, NYC did its part with high taxes.

I think high-end real estate pricing is reflective of arbitrary market pricing in some other financial assets as in meme stocks, crypto etc. Then I see 220 CPS being able to get stupid high prices relative to other building comps.

I've posted a few wins up here, and it was absolutely crickets : )

Kelly Slater, probably one of the greatest athletes of all time is about to surf big pipeline in the semi-final of the Billabong pipeline pro.

Log-in to YouTube for some excitement, to see the 49- year old tear up pipeline! Should be pretty exciting even for you non-surfers. And should be exponentially more exciting than this discussion ; )

220 CPS is just the current “it building”. I don’t think it is reflective of the high-end market. It’s like quoting 15 CPW or 157 W 57 or Walker Tower at the heights of their insanity. How did those fare afterwards relative to the market?

For every 220 CPS, there are dozens upon dozens of developments at $3000+ ppsf that are struggling to get a decent return on equity. See Extell and how they are publicly admitting that most of their current developments won’t be profitable. If these prices were “arbitrary”, rather than based on costs and profit margin, they wouldn’t be in these predicaments. If you think you can build it cheaper, you should give it a go ;).

With insane high prices, how can these developments not be profitable? What component of the costs is too high? Did they overpay for land? Or is there some other factor?

Nada, You are exactly right about people moving on from "it" buildings and the market being flooded with $3k plus new developments.

Not sure I have the skillset, risk-taking balls or $s to be in high-roller development business. I focus on affordable luxury small re-development segment.

Krolik, Carry is what is killing these high-end new developments if half your inventory is unsold for 3+ years. Cost of capital (blended debt and equity) is appx 9-10% even for the big boys. On top of that CC+Taxes need to be paid.

Krolik, here’s a blog that goes over it in more detail:

https://buildingtheskyline.org/manhattan-profits-2-roi

For 220 CPS, Roth said Vornado spent $1500 ppsf on land/air rights and $3500 ppsf for everything else, so $5000 ppsf total. The high land/air costs are driven by location, and the high “everything else” comes from a difficult super-skinny structure, lavish finishes, and a large amount amenity space per sold sq ft. Land/air assembly takes forever because of irregular availability, and construction takes forever because of the super-skinny structure.

They priced at 1.66x cost (~$8300 ppsf) so that when all goes well they get 1.6x (~$8000 ppsf) after paying Keith & FP for bringing in the clients. But it takes 5 years of time on the capital, giving an ROI of 10%. If it’s 70% financed at 6% (say), then that adds $1000 ppsf to costs over the 5 years. That makes it $2000 ppsf profit on $1500 capital if all goes right, an ROI of 17%. Seems like a reasonable best-case scenario to green light the risk, IMO.

So in a nutshell, if all goes right they put up $1500 ppsf of capital and hope to profit from the spread of $8000 ppsf sales and $6000 ppsf costs. If they misjudge the market by 25% and can only sell for $6000 ppsf, there is no profit. But it usually takes a few extra years for them to reach that point, during which they pay another (say) $500 ppsf in carry costs, eating into the $1500 ppsf capital.

300, how much do you think the developer spent on construction for 37 E 12th, ~$1000 ppsf?

(I guess I should say renovation, not construction, as the structure was already there?)

$500-600 max as the facade was very nicely redone and there were changes made to the back facade and penthouse level. Plus carry for 2 years.

So:

$27M for building
$15M for construction
$4M to carry taxes & monthlies (by my calcs).
===
$46M costs

$52M sales
$3M comm
===
$49M revenue

Thats $3M profit on $46M capital, so 1.06x return over an average of ~6 years on capital deployed. So 1% ROI. That’s probably ~$20M short from how they pencilled it in, at $70M revenue on $44M of costs (1.6x) over 4 years (ROI ~12% unlevered).

In my opinion they paid $200 per sq ft too much for raw space at $1300 or so. And then the ground floor would have been better as a commercial space or duplexed after splitting into two with second floor (front duplex and back duplex).

I didn’t want to put in the full effort of tracing through the financing, but it seems closer to 70% financed than equity-based. So let’s say the plan was $30M financing at 6%, $15M equity. Cost of interest over 4 years should have been $7M, pencilling out at a $16M profit on $15M of equity (ROI ~20%).

Reality was probably ~$10M of interest. That turned the ~$3M net profit into a ~$7M net loss on ~$15M of equity. Not to mention the 8 years of effort end-to-end.

300, I don’t think $200ppsf => $5M would have even begun to cover the profitability issues on this one. (FWIW, I calculate it as $26.6M / 24K sellable sq ft => $1100 ppsf for land+structure.)

Note, I am not picking on the developer here. I’m sure they are a big boy / big girl, this goes with the territory. Just trying to illustrate how a project with “insane” target prices at $3000 ppsf can get derailed if it ends up at a mere $2000 ppsf.

Really, based on what the market was willing to pay, this needed to get developed at $10-15M cheaper than it did for it to make sense (from a capitalist perspective, anyways).