What Will It Take For Co-ops To Sell Again?

>> I do not offer her a health insurance either.

We did offer her health insurance, she just didn’t need it — just like 50% of married professionals don’t need it.

>> Which means there are very few families that would be interested in childcare at that price

There are childcare options available at many prices. People are choosing one that provides superior service, even when it means defrauding taxes and promulgating “the system”. That makes them part of “the system”..

This is not a judgement, just an observation. It’s a bit like when I buy beef and proclaim I took no part in “the system” that raised and killed the cow: the cow was already dead whether or not I bought the beef! Except when I say it, I’m being tongue-in-cheek.

Krolik, LOL that you think freelancers with kids can get marketplace insurance for as little as $1500 a month. If anything would chase me back to corporate world, it's the quest for decent health insurance.

To go back to the topic, I've lost the idea of where Yentle's co-op is and how big it is, but the market for high-maintenance stuff on the East Side (though of course, for Fair Housing reasons, brokers are open to anything) seems split between families with older kids, who like the generally large rooms found in older buildings, and empty nesters who want the socialization and excitement of the city, and think NYC taxes all in ain't bad compared to the suburbs.

Yentle, All the best with your rental.

Ali, Indeed. More like $35k per year with Obamcare if you are not getting any govt subsidy and it is not very good insurance with plenty of deductibles. Almost any corporate insurance is much better quality but many wall streets firms do charge 25-30% cost of healthcare back to their employees.

Congrats Yentle, I’m glad you found a tenant. Does your coop allow sub tenants for longer-term, or are you restricted to two years? What is the age/family profile of your sub tenants?

>> I think our buyer is still the traditional older, affluent, cash buying pied a terre person/couple - and I think that pool of people is somewhat scared off right now by the City’s politics and bad publicity.

Meh, I don’t think that’s it. Suppose the profile of the people you’re thinking of rotates in at age ~50 and rotates out at age ~70. That puts the cohort of people rotating out as Baby Boomers and the cohort rotating in as Gen X. That means two problems:

1) 76M people were born into the Baby Boomer generation, versus 55M as Gen X. By the numbers, a bigger pool on the way out vs the way in.

2) Baby Boomers came of age at a time when the UES was exciting and the place to be. Think of The Jeffersons (“a deluxe apartment in the sky”), Wall Street, and American Psycho. Even Carrie Bradshaw lived on the UES, although the set location of her apartment on Perry St in the West Village is often nowadays mistaken as the neighborhood where Carrie “lived”. That illustrates volumes. Candace Bushnell is a Boomer, now aged 65, who wrote her column in 1994 based on semi-biographical experiences gathered during the tail end of “Peak UES”. But the show’s main Gen X audience (and Millenial and Gen Z) now simply associate it with the West Village. Put in “Carrie Bardshaw’s Apartment” into Google Maps, and there it sits in the West Village — right next to the Sarah Jessica Parker shoe store! To Gen X and later, the UES is a tired old neighborhood that was never a place to aspire to in their adult lives. It is a place to be tolerated, where you go because you’re forced because of schools, on a migration path that often leads to NJ or CT. I’m sure they’re out there, but there’s not much feeling of “Once the kids are out, I’m going to go back to my glorious days as a youngin in NYC — on the UES!” Chances are that if they want to come back, it’ll be somewhere (anywhere!) else.

"Also, staying at home 24/7 and giving up a career can be extremely boring."

I will take offense on behalf of my mother, her mother, my other grandmother, and my two aunts, 2 of whom had careers before their marriage, and all of whom stayed at home to raise children (3, 1, 3, 6, and 8, respectively) while also supporting their husbands careers and committing substantial time to volunteer with social, religious, and political organizations. Without the benefit of nannies
(there were occasional babysitters). In the unlikely event they found their lives boring, they certainly had the good grace not to say that in front of their immediate or extended family.

In Krolik’s defense, she said “can be” rather than “is”. Different strokes for different folks.

In the Reddit thread, someone asked “If you’re paying $140K for nursery school and a nanny, why does the $250K spouse bother working”?” The answer was (some version of) Krolik’s “boring” and the fact that it’s temporary — the $250K spouse would go back to working after this high-care age passes, so even though it doesn’t make short-term sense to work financially, it makes sense for other reasons.

I guess what I’m saying is that despite your family’s experiences, at least one family professes to what Krolik is saying.

@nada - I agree and I do pass judgement! Some people close to me with a better memory of what it is like to be very, very poor and a new immigrant trying to survive are reminding me that at a micro level, some of these people are really struggling within the system, which effectively promotes underemployment. Harsher judgement is obviously on employers that do have more choices in life, but the main issue is with the system is that punishes working people and working families who all get inadequate support and are penalized in various ways despite fulfilling an important role in society.

Also i think the 50% married worker situation applies less to the nanny market. In this socioeconomic class men are often working as truck drivers, small business/restaurant employees etc and often cannot find a job that provides an insurance either.

>> There are childcare options available at many prices.
Yes and no. I naively thought I could stick the kid into a daycare near home at 3m old. Then I realized (from observing what it takes to feed him, and from hearing from others whose kids did not gain weight at that age in daycare and had to be pulled out due to concerns from pediatricians) that more attention is needed basically until he learns to eat regular food, between 12 and 18 months, at which point he will definitely be in a daycare (costing 3k per month plus or minus few hundred dollars in manhattan). I will still need a part time nanny then because I don't have stable hours or any time for housework, but i think there is no problem with finding and paying legally for part time help (as the system promotes underemployment).
If i couldn't afford a legal nanny in NYC today, could I move to NJ for two years and get an au pair? I guess that is another option, but also very hard to execute given i own my coop apartment, work long hours in manhattan, etc

@30 I am sure there are some bad apples, but majority of nannies are kind, caring, hardworking people. Who watched the kids while your mom worked part time?
From what I hear from my parents, the standard of care back then was a lot lower, so have mercy please on today’s parents that are meeting a higher bar while paying a lot more in rent and mortgage relative to their income. See, we are back to real estate :)

@yentle makes sense. I suspect NYC real estate is bottoming and might get revived a bit when rates drop. Although doesn’t seem like your buyer needs a mortgage…

"Who watched the kids while your mom worked part time?"
Generally speaking:
No one

>>> committing substantial time to volunteer with social, religious, and political organizations.

Sounds like work outside the home to me.

@Aaron2 also i might have access to more interesting careers than your mom and grandma did. Thanks to efforts of those who came before me.

>>> In the unlikely event they found their lives boring, they certainly had the good grace not to say that in front of their immediate or extended family.

So what you are saying, they might have been bored, but you wouldn’t know. I am also saying this stuff anonymously in front of a bunch of strangers. Not to be repeated to my kid when he/she grows up.

I tend to agree that with inflation data softer we will see lower rates. Lower mortgage spreads (30y mortgage rate - 10y Treasury) may help bring it down as well.

> Krolik: I suspect NYC real estate is bottoming and might get revived a bit when rates drop.

transaction volume may be revived, but are you saying that prices would increase?

@Rinette depends on segment/location in my opinion. Some segments are more out of whack with fundamentals than others. Nearly nothing in the city is undervalued.

@nada shocking knowledge of Sex and the City, I did not expect.

There are a couple of posters in this board in the “rotating in” cohort actively looking for a studio or 1br on UES. Not sure that the area is that unpopular, it seems a good place to be to me personally, and a walking distance to Central Park is still the holy grail.

To me it seems the issue is primarily about the fundamentals, taxes/maintenance, and the chance to get approved. Less about who would enjoy the location, and more about who can afford it.

I agree with @krolik regarding the desirability of UES. Within the city it seems like it would be a nice part of town to raise a family, but unfortunately, it is prohibitively expensive for most families and has become the province of a moneyed group of owners who appear largely impervious to market pressure, as evidenced by @Yentle's ability to keep the apartment and see what the world looks like in a few years. Yentle's decisions to rent her apartment rather than sell it means that the capital she has already sunk into the apartment is not essential to her ability to keep a roof over her head.

@Yentle - Good for you; it will be interesting to see what the market looks like in a few years. I am rooting for it and for you!

Krolik & MCR, I’m not saying the UES has become some unlivable hellhole. I’m comparing it to how it was, and how it was perceived, 10/20/30/40 years ago. It’s just changed, no longer the “it” place. Stated another way, how else would you describe the discrepancy between the UES market currently and Keith’s accounts of brownstone Brooklyn neighborhoods?

MCR>> unfortunately, it is prohibitively expensive for most families and has become the province of a moneyed group of owners who appear largely impervious to market pressure

MCR>> it will be interesting to see what the market looks like in a few years. I am rooting for it

Well, which is it? I am sure I say all sorts of contradictory crap in my life, but I usually try to space them further than adjacent paragraphs in the same post.

>>>Stated another way, how else would you describe the discrepancy between the UES market currently and Keith’s accounts of brownstone Brooklyn neighborhoods?

1) I would describe it as unfair distribution of tax burden, and
2) lower price per square foot in a pleasant neighborhood within comfortable commuting distance/ more space for your buck

@nada about 20 years ago i dated an investment banker that lived on UES, spent a lot of time there… i really did not think it was a vibrant and hip neighborhood then. I thought it was stuffy and restaurants were too expensive. Good location though

Sure, but what has changed in the last 10-40 years? Why are these UES coops underperforming the rest of Manhattan? Yentle could not sell at a 25% discount to purchase price from less than 10 years ago. Perhaps a 30-35% off would do the trick, I don’t know. That’s not really what’s happening elsewhere in the market, I don’t think.

>> @nada about 20 years ago i dated an investment banker that lived on UES, spent a lot of time there… i really did not think it was a vibrant and hip neighborhood then. I thought it was stuffy and restaurants were too expensive. Good location though

That’s exactly my point. How old were you back then, and did the experience strike you as “I gotta live here if I get a chance!” 20 years prior to that, I am guessing it did.

Are they? My slightly cheaper midtown neighborhood is about 15% off right now. I do think monthly costs there have increased more in UES than those in murray hill and other areas. The very high monthly costs might have priced out more buyers.

The discounts might be most closely correlated with price. For example, new condos at obscene prices —> biggest cut, overpriced stuffy coops with high monthlies —> big cut, cheaper inventory for the working middle class —> smallest cut, tax arbitrage in Brooklyn —> no cut or even gain

My thoughts 20y ago were that UES was very nice and convenient, but too expensive for me

My thoughts now are that it is very nice and convenient and has great schools, and i can afford some of the product there

Brooklyn had to gentrify a bit and get some critical mass of families before it attracted more people.

I believe Yentle’s apt is not what one would consider “overpriced stuffy coop”. It was asking $1000 ppsf, down from a purchase price at $1333 ppsf. Monthlies haven’t really increased an unusual amount either — from $2.75/mo/sqft to $3.60 and totally in line with inflation (and below income per capita). Downpayment requirements decreased too, from 50% to 30%.

One bedroom or two?

I think BK brownstone is just a different market in terms or low maintenance/CC vs UES door man serviced buildings. There is no doorman and elevator. Young families have gotten used to that lifestyle as BK has gentrified.

Low Taxes is just a legal scam allowed by NYC tax system due to tax increase caps on 1-3 family.

2br / 2ba

Nada, Yentle's issue is the extra space at the lobby level with very high maintenance per sq ft which is not in the listing headline but is in the body of the text at the bottom. So you need some one who runs some type of business from that as in Therapy etc for that space to be useful.

BTW, I ended up meeting a friend for dinner around 3rd ave and 62nd last night. Much cleaner than downtown Union Square/Village and no homeless in sight. Restaurants are a litte higher priced than downtown but not by much. Crowd is 10 year older as there aren't NYU kids and 20 somethings.

FWIW, 4 out of 6 apartments on the market in my coop went into contract since I last checked a couple of weeks ago. Standard non-fancy east side coop with pretty average maintenance & trajectory of maintenance over past few years. The pattern of the past few months has been that apartments are moving after a couple to a few months on market but, as in previous comments, prices have been flattish for a *long* time.

@300mercer i am confused. Is Yentle selling a bundle of residential + commercial space? Or does the commercial space belong to all shareholders?

From what I can tell, there is a small appx 110 sq ft space (maintenance $6 per sq ft) without toilet or kitchen at the lobby level which belongs to the apartment. I don't know the allowed use of space. But seems pretty good if you have business visitors.

@nada - ha! I felt the internal struggle as I was writing the post.

I had likewise noted the extra space with the extra maintenance it carriers in a post on a separate thread and advised @Yentle to shop that space within the building. These are what are referred to in the Proprietary Lease as "Servant Rooms" and typically carry restrictions against using them for any commercial purpose. In our building they trade between apartments regularly, typically when a seller thinks they might be the reason for their apartment's sitting on the market.

What we have found is that the apartments still sit after the offloading of the SR, but at least the seller has mitigated the loss on their larger apartment by getting an odd chunk of change on the SR, and when the larger apartment does eventually trade, nobody has any idea whether that made a difference. However, if it turns out that the buyer would have actually factored the presence of the SR into their purchase decision and the decide they want one, they just join the waitlist to bid on the sale of the next one that comes up within the building when the cycle repeats itself.

One more note on the SRs, these are typically in a portion of the building that is structured like a dorm. There are multiple bedrooms on a hall with a few shared full bathrooms. Our building has the dorm-like wing on both the lobby level and on the second level.

Brokers have to be a little bit careful talking about schools, but I think that ... thirty-five years ago, maybe?... the UES was more desirable than the UWS, and also Brooklyn, because the schools were so clearly superior... PS 6 was probably the best public elementary in the city, on par with the private schools, while the UWS had a couple of good elementary schools, but not many, and in Brooklyn, you just went private.

And then the flood of money into the UWS and Brooklyn raised the quality of those schools overall.

More recently, when my kid started K on the UWS, a PTA parent (very typical PTA parent, wife of an i-banker) took me aside and said, "enjoy elementary, because middle school is where it all falls apart."

And then by the time we applied to middle school, which had several solid choices.

TL:DR I don't think the UES has lost a step -- if anything, as chain retail has spread throughout the city, the UES neighborhood shops and restaurants make it more vibrant -- but it has, over time, lost its giant competitive advantage in education as schools have gotten better in other neighborhoods awash in money.

I have a question for MCR, 300, etc. who think Yentle might be saved by lower rates in two years when the sublet is over. How exactly does this work out?

1) Using current rent, cap rate sits at 2.5% compared to Yentle’s purchase price. And 3.3% compared to last ask.

2) 30yr mortgage rates are at 6.5%.

3) 10yr Treasury rates off which 30yr mortgage rates spread, and forwards on 10yr rates, all sit at 4.2% or higher. While forward rates will invariably be wrong, they do represent an average of what market participants expect and are willing to wager billions, if not trillions, of dollars on. So maybe rates do drop by 3%, but market is roughly saying that rates increasing by 3% is similarly likely.

So do you have any reason to believe things will be better in expectation based on analysis, or is this simply hope and faith?

@nada

Is the rent in this analysis actual or asking?
What in your expectation is happening to rents in the next few years?

@nada - I do not think Yentle will be saved. I think two years down the road Yentle will have had a few years to adjust to the reality and just absorb the loss if she really no longer has a use for the apartment, OR she will just keep the apartment until she finds that one buyer to whom it is worth as much as it is to her.

So, while I think that were Yentle to take whatever cash she could yield today at current market price after transaction cost and redeploy that elsewhere, she would be better off in terms of dollar outcome two years down the road, there are soft costs that only she can quantify such that even if that turns out to be the case ultimately, she may conclude that she was happy she gave it another two years before pulling the plug on a space that is special to her.

Gentle will have

Yentle will have 2 years to hotbox with Kubler and Ross.

Nada,
1. I am looking more at the front-end. 10y has supply issues. If inflation data is benign, one can see fed going to 2-3% over the next two years. Buyers will feel differently with 1-2% lower interest rate on 5/1 ARM.
2. On a relative value basis, UES coops are now looking attractive having suffered significant declines relative to say BK, FL and TX etc. There just aren't much high-quality good sized rentals available in UES west of Lex/3rd (trust me I looked hard <$12k).
3. I am not predicting a boom, just bottoming with potential for upside.
4. If the boards increase their transparency, I can see upside but I don't think that is happening that easily.
5. While it may be wishful thinking, we may see reduction in resources spent by the city in taking care of the immigrants with those resources going to QOL improvements.

in <12k segment

3. Perhaps a change in slowly coming in the attitude of Coop boards with easier approvals as they see unsold apartments.
4. I am not predicting a boom on UES, just bottoming and perhaps some upside from the current prices.

@30yrs - Ha! I see I am not the only one who misses the color w67th brought to SE discussions. Yes, that is another way of putting it . . ..

Regarding quality rentals on UES, if all recall that when I came to SE Discussion in earnest at the end of 2010, that is exactly what I was looking for. What 300Mercer describes above regarding the rental situation today describes what we encountered 14 years ago. I do not know whether that has fluctuated over the past fourteen years or whether that is simply the perpetual stasis in the UES. With that said, had @Yentle's apartment been available for rent at the time at the rent it just asked, I would have pounced on it.

>> Is the rent in this analysis actual or asking?
I used asking rent. It wasn’t on the market that long (a month), so I figured to give it the benefit of the doubt.

>> What in your expectation is happening to rents in the next few years?
2-3%/yr. Because of the link to CPI/CPE, I find it difficult to have any other expectation with a straight face.

Thanks for the explanation, MCR. At this point, Yentle was asking 25% below purchase without takers. Maybe market would have been 35% below purchase price? And 40% below after transaction costs? If there were 50% downpayment involved, that end up blowing through most of the equity put in. So I get your point about Yentle perhaps needing another 2 years to see how the dice roll.

300, what you wrote all sounds like "hope" rather than "expectation". For example:

>> I am looking more at the front-end. 10y has supply issues. If inflation data is benign, one can see fed going to 2-3% over the next two years. Buyers will feel differently with 1-2% lower interest rate on 5/1 ARM.

You can look at the yield on 5-yr Treasuries and compared to what is implied for 5-yr Treasuries 2 years out (based on 2-yr and 7-yr Treasuries). The difference is 0.25%. So while one can hope for a 1-2% drop, the expectation is a 0.25% drop.

But let's say the hope realizes despite market expectations, and 5/1 ARMs hit 4% in 2 years. All the while, rent inflation on this unit runs at 8%/yr (as the Fed ignores such increases as it's decreasing rates). To get Yentle's purchase price, that puts the cap rate at 3% against a 5/1 ARM at 4%. And Yentle's current ask works out to a 4% cap rate.

It takes two unlikely things -- a drop in 5yr rates that is 2% more than expected and rent inflation at 8%/yr -- that are even more unlikely in conjunction, all to simply reach a point where one can say "Yeah, the fundamentals work out at prices that yield zero appreciation".

This all is like the opposite of a "margin of safety", it's a "margin of hazard". Rather than saying, "If everything goes wrong, I still will be left with something whose intrinsic value is no worse than what I'm paying" the situation is "If everything goes *right*, I will finally be left with something whose intrinsic value is no better than what I'm paying!!!"

Nada, You aren't factoring the point of rental supply in that area if you don't want to move. You may not buy a luxury home when the cap rate is below mortgage rate but the market for homes 3-4x + median national priced homes trades at cap rates below mortgage rates and it seems has been that way for a long-long time most places in the US.

Assume a can opener.

>>So do you have any reason to believe things will be better in expectation based on analysis, or is this simply hope and faith?

Here is my rather simplistic view of how cap rates and interest rates could come closer to balance:
1) The rates have peaked. The run up in the equity markets reflects the anticipated rate cuts, while real property market moves more slowly. We will see the effects when mortgage rates start coming down.
2) Incomes and rents are continuing to rise. Slowly, but 2 years from now the cap rate could look better.
3) Transactions are happening today, the market is active, but probably slightly below where yentle is willing to sell. So with a little help from 1 and 2 the picture would improve.

Some unknowns.
If we hit a bad recession and everything falls. Or we hit a bad recession, the fed drops rates to zero again, and everything rises.

Or we have a soft landing and rates are in equilibrium somewhere above the pandemic level, and yentle's building has a mortgage which needs to be refinanced at a higher rate, increasing maintenance further.

Or NYC rebalances taxes, reducing tax on coops like yentle's, or at least not hiking them further, as property values in the area as well as rents have been rising more slowly than elsewhere in the city.
Or NYC increases prop taxes due to fiscal struggles, further burdening the building with more maintenance.

Something happens internationally and foreign buyers return to the city. Or WW3 happens and then who knows.

Finally, you mentioned GenX is buying and Boomers are leaving. Is that so? More like boomers are buying a place for retirement and the prior generation is leaving? And families with nannies and pre-school expenses are priced out.

The sellers we bought our 2br from were 80+, and they were moving to FL.

300, there sure seems to be plenty of rental supply on the UES. Yentle's apt is one case. And there are currently 2500 apts available for rent in the UES, compared to 2000 apts available for sale.

And aren't cap rates for more expensive properties generally worse? I'll also note that if you look at most of the past 15 years, cap rates were higher than mortgage rates for much of the US.

In terms of desirability of areas, i thought this report was interesting. UES is Manhattan CD8 and looks like it is still pretty good, but more people rave about other areas, especially I think Brooklyn heights

https://cbcny.org/sites/default/files/media/files/CBC-POLCO-REPORT_Results-By-CB_03192024_0.pdf

Nada, Click on this link. 2-3 bed 2+ bath, doorman, washer dryer. 105 rentals. Not much west of Lex. Once you start to look for spacious 2/3 beds, the supply goes down further as the rentals buildings aren't built with large Living spaces in most cases.

https://streeteasy.com/for-rent/ues/beds:2-3%7Cbaths%3E=2%7Camenities:doorman,elevator,washer_dryer

The same search but with $14k cap. Hardly anything West of Lex.

https://streeteasy.com/for-rent/ues/price:-14000%7Cbeds:2-3%7Cbaths%3E=2%7Camenities:doorman,elevator,washer_dryer

300, that’s like literally 100 options on the market at the moment in a specific subsegment in a specific neighborhood. Seems like plenty of rental supply.

In any case, I think you should lever your money into UES RE investments since it looks so rosy. I think I’ll keep mine elsewhere.

Krolik, thanks for sharing your thoughts. You wrote:

>> Here is my rather simplistic view of how cap rates and interest rates could come closer to balance

I know it “could”, but what do you actually expect as the *average* case. Remember, you personally were not willing to pull the trigger until your spreadsheet spit out a 3.1% cap rate against a 2.9% 30yr mortgage in 2021.

Yentle’s tenant is paying (based on ask) a 2.5% cap rate against Yentle’s purchase price. Let’s say the market would have currently cleared at a 33% off her purchase price, meaning a 3.75% cap rate. 30yr mortgage rates sit at 6.5%.

Explain to me, with numbers, your expectation (*average* case) of where those will sit in 2026. And would that be enough for Krolik.v2 to pull the trigger?

> meaning a 3.75% cap rate. 30yr mortgage rates sit at 6.5%.

> Explain to me, with numbers, your expectation (*average* case) of where those will sit in 2026. And would that be enough for Krolik.v2 to pull the trigger?

It's my understanding the match between mortgage rates and cap rates is very connected for the lower-tier building. These two rates were much less connected for the luxury buildings (with doorman, elevator, washer driver in unit, west of Lexington ave etc).

We had discussion of some people buying the apartment at 2% cap rate against 4% mortgage rates. It seems that Yentle's building is probably much more luxury than Krolik's, so we need to check what cap rates will make Yentle.v2 to pull the trigger.

While I was checking on the rent, these are the most recent numbers

https://streeteasy.com/blog/elevated-rents-upfront-costs-weighing-on-rental-demand/

The median asking rent in New York City was $3,800 in June, 1.3% higher than a year ago. However, the citywide median asking rent remained flat from May to June, even though rents tend to rise in the summer as New Yorkers look for new homes before their leases lapse.

The median asking rent in Manhattan fell 1.7% from May to $4,400 in June, but remained steady from this time last year,.

The median asking rent in Brooklyn rose 3.8% year-over-year to $3,528 in June.

In Queens, the median asking rent jumped 8.8% to $3,100

I'm probably on the lowest tier level of the household income among the posters on this board. The Queens's rent increasing of 8.8% is just crazy, not sure if the number is very biased.

>> It seems that Yentle's building is probably much more luxury than Krolik's, so we need to check what cap rates will make Yentle.v2 to pull the trigger.

In the scale of things, not really. Yentle's apt has a better location and better bones (pre-war w/ an extra foot of ceiling height). Krolik's apt is a bit bigger and has lower monthlies. But in the end, I would put the price point of Yentle's apt as ~1.5x Krolik's (including the higher monthlies).

Now ~1.5x is not nothing, but on the scale of "luxury" in the NYC market where there are endless options at 10x the price, it's all the same ballpark IMO.

>> The Queens's rent increasing of 8.8% is just crazy, not sure if the number is very biased.

The random stats they quote in these articles are kinda useless IMO. SE's own repeated-new-rent index is a much better methodology for tracking a market. By that measure, Manhattan is up 3%, Queens 4%, and Brooklyn 5%. Zillow's measure of the same based on nationwide data is 3.5%, a level at which it's been stabilized for about a year.

> The random stats they quote in these articles are kinda useless IMO. SE's own repeated-new-rent index is a much better methodology for tracking a market

It makes sense, the repeated-new-rent index is definitely much more reliable.

For Yentle's apartment, at the time of his purchase, what was the cap and mortgage rate to find out what will let Yentle.v2 to pull the trigger?

I think 30yr mortgage rate was 3.5% (compared to 6.5% now). And at time of purchase, using purchase price and SE's rent index to backtrace from current rent, cap rate was 2%.

So I guess you're saying by the measure of a 1.5% spread between those, it'd take a cap rate of 5% for Yentle.v2 to pull the trigger today. Which means half the purchase price. Is that what you're suggesting, or something else?

Yentle.v2 is not doing that analysis. Here is the profile of Yentle's buyer as I see it:

(1) They have made a multi-year commitment to NY;

(2) There is no substitute for that neighborhood for any number of reasons (walk to the office; proximity to family members; proximity to school; what have you);

(3) They have realized that what Yentle is offering is not available for rent on any long-term basis;

(4) They view the buy decision as consumption rather than investment.

I "get" that buyer and believe they exist, albeit in a relatively small pool. Yentle's building is lovely plain and simple. It is not over-the-top "luxurious" or opulent. Yentle's buyer wants understated and elegant living in that neighborhood, and it simply is not available for rent on any semi-permanent basis.

In any event, as we've discussed elsewhere, the fun of SE discussion is that we can follow this apartment over the next few years and see how it all turns out.

Ha. There is no business investment possible in the coops if you don't lie about your intention to purchase. And value oriented 300 likes small well-maintained non-doorman buildings with low maintenance to live in (but estate condition apartment so that I can renovate). Not much supply of these on UES. So doesn't seem like I am moving any time soon from my low maintenace downtown coop. Unless my pockets and risk appetite become much bigger to do a new build condo, nothing to be done besides discussions on this board.

>> Nada: In any case, I think you should lever your money into UES RE investments since it looks so rosy. I think I’ll keep mine elsewhere.

You may be right, MCR. But I think that relatively small pool of buyers is shrinking, not growing. Shrinking demand from that pool without buyers with other motivations stepping in (e.g., financial ala Krolik.v2) => sluggish sales and stagnant pricing.

In any case, I leave it as your responsibility to bookmark this listing and revive this thread in 2 years.

With that above said, if someone does have a strong preference for that neighborhood and is willing to move every two years, I suspect there will always one or two of these things up for rent when decision time comes. Here is another rental I would have pounced on had it been available when we were looking at the end of 2010: https://streeteasy.com/building/8-east-96-street-new_york/16a1

Yentle's best hope for buyer may be their soon-to-be tenant who falls in love with the apartment after renting for two years and then decides to buy it in the same manner my friends did with their West Village pandemic rental. We had a family a family rent one of the bigger apartments in our building under similar situation for two years, and we were sad they made the decision not to buy when their two-year lease was up.

Using the absolute spread, your calculations is right on.

If we go with the relative spread, 2% cap rate against 3.5% mortgage rate will be translated to 3.7% cap rate against 6.5% mortgages rate.

My guess is that for the cap rate will be between 3.7% and 5%, maybe around 4-4.5%.

The real transactions may be different from fundamental analysis as people may bet on the future mortgage interest rate and the rent increases and also the supply.

For the Queens buildings that I am familiar with, the cap rate for the closed apartments for this year and last year is around 4.5% against 7% mortgage rate. For comparisons, several years ago, when the mortgage rate was at 3%, the cap rate was also around 3%.

I've gone down the rabbit hole; if only I were in the market, there appear to be an abundance of apartments I would look at to buy or rent, but I guess my not being in the market just reinforces Inonada's point.

Woodside, Several studies on mortgage rate impact on cap rates. In general owner-occupied homes cap rates have even less sensitivity to mortgage rates. Guessing 50% which is sort of what we see in the market.

On Multifamily CBRE has 60% of mortgage rate change is cap rate move.
https://www.cbre.com/insights/viewpoints/spiking-10-year-treasury-rate-signals-caution-for-commercial-real-estate

A diffrent way to compare.
https://www.cbre.com/insights/viewpoints/a-multi-perspective-view-on-cap-rates

I'll let you guys have some fun with this. Of course there is a backstory, we've assisted the family with a few other purchases. This is the home that children were raised in and they've owned since the '80s. The sellers are a wonderful family, and in no rush to sell, although they're not living here currently.

https://streeteasy.com/building/122-east-82-street-new_york/8a

Keith Burkhardt

Woodside>> If we go with the relative spread

300>> On Multifamily CBRE has 60% of mortgage rate change is cap rate move

What are the fundamental drivers of the move in the spread being relative? I’m not saying there shouldn’t be one, just not sure what it would be.

I do find the 60% study’s result interesting vis a vis with how BREIT marked its books. 3.x% increase in 10yr treasuries between Jan 2021 & Jan 2024 => 0.3% increase in assumed exit cap rate.

>> I've gone down the rabbit hole; if only I were in the market, there appear to be an abundance of apartments I would look at to buy or rent, but I guess my not being in the market just reinforces Inonada's point.

LOL, perhaps. I’m not denying a high level of absolute demand here, just pointing out that the relative change in demand drives volume and change in prices.

>> With that above said, if someone does have a strong preference for that neighborhood and is willing to move every two years, I suspect there will always one or two of these things up for rent when decision time comes

I think I’ve increasingly put myself into a niche where the total supply just gets smaller and smaller. Nevertheless, it kinda surprises me that each and every time, I have been able to stumble into something great when the time came.

I’ve reached the point where buying one of these white elephants has become a “whatever”. And the discounts to whatever price used to be can be eye-popping, especially if the owner is of extreme means and the apt they no longer want a rounding error. But I kinda look around at the sheer number of these white elephants that are just sitting around, between on-market and off-market and simply unused. I’m more worried about the headache of unloading them once I get bored rather than finding another one to rent once I get bored.

>> The sellers are a wonderful family, and in no rush to sell, although they're not living here currently.

We’re a perfect match! I’m a wonderful person, am in no rush to buy, am not currently living there either.

Nice apt. Ask feels high by about $1M compared to sales prices in the current market IMO, but I’m sure me saying that doesn’t surprise you. I’d guess it would have sold had it asked $3.5M when it first listed.

I don't know. But some thoughts:

I suspect there is huge amount of stickiness and results are in relative terms as that is how the research publishers modeled it.

In addition, while I haven't seen a research relative to real rates where the change is in order of 1.5% using some sort of averaging as a starting point. Using real rate changes the magnitude of cap rate change vs Mortgage rates.

Then there is tax deduction on the first $750k.

Also, some sort of dampening of alternative investments for "cash buyers / higher percentage down payment" due to taxes in form of T-bill minus say 25-30% tax. Call it 3/4 percentish depending on which maturity (0-2y) of T-bill you use. Could that be max cap rate for >$1mm apartments.

Economy has been strong, stock market has been high and people buy when they have money.

>> Nada: What are the fundamental drivers of the move in the spread being relative? I’m not saying there shouldn’t be one, just not sure what it would be.

This is probably most relevant of institutional investors as they don't think they will ever pay taxes on real estate yields or cap gains due to 1031 exchange. But I think the methodologies used by CBRE factors that in indirectly.

Also, some sort of dampening of alternative investments for "cash buyers / higher percentage down payment" due to taxes in form of T-bill minus say 25-30% tax. Call it 3/4 percentish depending on which maturity (0-2y) of T-bill you use. Could that be max cap rate for >$1mm apartments.

>> I suspect there is huge amount of stickiness and results are in relative terms as that is how the research publishers modeled it.

This makes sense to me. Certainly, there’s an aspect of “you get what you model”. And given the degree of stickiness in CRE, it kinda seems that 40 years only gives you ~4 independent data points. Which makes it hard to really isolate this one bit from everything else going on in the decade. I have no doubt the authors did the best job they could — such is the nature of econometrics— but is there a reason why one should bet the effect as steady-state? That’s what I wonder.

>> Using real rate changes the magnitude of cap rate change vs Mortgage rates.
I agree here too. There are non-trivial lags on how inflation works into these. But if you take that inflation is long-term stable, should I believe the 60% as a long-term truth or one derived from the variability in lags and what they measured?

>> …tax … people buy homes when stocks/economy is strong…
I’ll note this study was for CRE, so i don’t think these factors apply.

>Keith; apartment beautiful in lots of ways but the layout requiring going through kitchen and dining from three of the four bedrooms is certainly not ideal. Combining apartments often leads to some slightly quirky layouts

>Keith; apartment beautiful in lots of ways but the layout requiring going through kitchen and dining from three of the four bedrooms is certainly not ideal. Combining apartments often leads to some slightly quirky layouts

>Keith; apartment beautiful in lots of ways but the layout requiring going through kitchen and dining from three of the four bedrooms is certainly not ideal. Combining apartments often leads to some slightly quirky layouts

Nada, I think change with be higher than 60% if you use real rate change. Basically in multi-family, which people view as inflation protected asset to a large degree, we have seen close to 100% of real rate change but it is a little too abstract for general widely consumed research as people don't finance in real rates.

---
Real rate changes: I agree here too. There are non-trivial lags on how inflation works into these. But if you take that inflation is long-term stable, should I believe the 60% as a long-term truth or one derived from the variability in lags and what they measured?

Is it time for another friendly bet on Street East index for Manhattan in 6 months horizon?

Nah, I can’t afford to lose anymore.

One day, I will sell my apartment at 2.5 cap and buy another one at 5 cap assuming reno on my cost basis. Such is my dream. But chances are high that I will stay put. Even my 8y old is already eyeing our current apartment when she grows up.

No wonder you want me to keep taking bets I lose.

@keith - That is a lovely family apartment. I have no thoughts on the price, but I will be watching and am rooting for a sale.

Who is Krolik.v2? Is that me buying another property down the line? Or someone else with a similar profile buying my (or similar) apartment in the near term (3 years since I purchased)?

Pardon my digression ; ) we've been in Portugal for July, searching for a place to potentially call home. Unfortunately, we discovered Portugal a little late, though the real estate cycle seems to be turning. In Lisbon, real estate prices have been driven up by foreigners along with Visa schemes for citizenship.

One thing for sure. It's about 50% less expensive to spend a month of the summer here, versus even the Hamptons or Jersey. And in my opinion, a lot more interesting and fun.

I've definitely been influenced by nada's perspective on buying versus renting. I thought I would absolutely want to pay cash for a place here. However, as I pay more attention to rent versus buy dynamics, they're really out of whack in Lisbon, a city that's made our top three. In many cases it's about 50% less expensive to rent. And it would seem when rents are so inexpensive relative to buying, what's the point of dealing with the headaches of foreign ownership. Ultimately for us it's about having low, fixed monthly costs.

Anyway, hope everyone's having a great summer! And greetings from the real Burkhardt group...

https://www.linkedin.com/posts/keith-burkhardt-371705a_yes-you-absolutely-have-to-work-hard-and-activity-7220354143087902720-z20E?utm_source=share&utm_medium=member_android

You might also consider Porto, a 'second city' with not as many amenities as Lisbon but Casa da Musica, while not the Met, has 1st class offerings.

Have toyed with the same idea for the same reasons but (1) health care/Medicare and (2) making friends which might be easier (?) in one's native land...

> Who is Krolik.v2? Is that me buying another property down the line? Or someone else with a similar profile buying my (or similar) apartment in the near term (3 years since I purchased)?

It's the latter.

Now we switched to use Yentle.v2, the buyer pool with a similar profile to Yentle, who are likely to buy Yentle's current apartment.

>> The sellers are a wonderful family, and in no rush to sell, although they're not living here currently.

> We’re a perfect match! I’m a wonderful person, am in no rush to buy, am not currently living there either.

LOL

For the people with less resources, it's always a RUSH for them to sell or to buy. They can not afford to have the apartment sitting empty or keep paying the rent that increases every year.

> Nada, I think change with be higher than 60% if you use real rate change. Basically in multi-family, which people view as inflation protected asset to a large degree, we have seen close to 100% of real rate change but it is a little too abstract for general widely consumed research as people don't finance in real rates.

The real rates discussion does make my head dizzy. I think we have discussions, in very long long term (for the past 00 years), the real price of the housing is very stable.

https://en.wikipedia.org/wiki/Case%E2%80%93Shiller_index#/media/File:Case%E2%80%93Shiller_Index.svg

In the short term (10 to 20 years), mortgage rate is on the the nominal rate, not sure how to translate it to the real rate? and how to compute the cap rate in the real rates?

> One day, I will sell my apartment at 2.5 cap and buy another one at 5 cap assuming reno on my cost basis. Such is my dream. But chances are high that I will stay put. Even my 8y old is already eyeing our current apartment when she grows up.

Having the apartment long long term is the key. I just read a story about some New Yorkers having the same house for many generations.

For my own apartment, not sure if one of my children will inherit it, none of them has expressed any interest yet, LOL. There is always a bedroom for them if they need it while we are alive. They can do whatever to the apartment when my wife and I have finished the journey on the earth.

>> Who is Krolik.v2? Is that me buying another property down the line? Or someone else with a similar profile buying my (or similar) apartment in the near term (3 years since I purchased)?

That’d be someone else with a similar profile as you 3 years ago, buying a similar apt in the near term. E.g., would you have been a buyer in your current building today at prices where they are currently transacting.

>> And it would seem when rents are so inexpensive relative to buying, what's the point of dealing with the headaches of foreign ownership. Ultimately for us it's about having low, fixed monthly costs.

I’ll also point out a couple of obvious points.

First, you might decide that Portugal is the place for you after living there for a year or two. Or you might not.

Second, even if you conclude Portugal is for you, you might realize that a different part of Lisbon or perhaps Porto or perhaps XYZ is better. Why tie yourself down?

Sometimes it pays to commit and buy, because the price vs rent favors it. But you’re a natural renter in this situation, not a natural buyer. If the financials favor renting so obviously, why fight it?

Just be careful, however. When I first came to NYC ~20 years ago, I was a natural renter (unclear if I’d stay). I should have nominally turned into a natural buyer at some point, but I got hooked on cheap rents. Masses of people were out there willingly lending me their RE at cap rates of 3% at first, then soon 2.x%, and eventually 1.x%. I couldn’t say “no” to those types of offers, particularly as I had much better ways of deploying my capital. The trouble is, now after ~20 years of renting, my wiring has changed to being a natural renter. It’s not even about the financials anymore really, though it’s a nice perk. Rather, I want the freedom to get up and leave and try something new at my whim without hassle.

So be careful with that, you can’t stare into the abyss without it changing you :).

Keith - Portugal is lovely, sounds like a nice plan. Have you been to algarve?

For fun sharing my fantasy even if we are not moving.

https://streeteasy.com/building/1040-park-avenue-new_york/11c

I think rent for this type of place renovated is $22-25k if this were to be a rental building using $8-9 per sq ft. Call it $23k less $8k maintenance, insurance, assessment upkeep. $180k per year.

https://streeteasy.com/for-rent/ues/price:18000-30000%7Cbeds%3E=3%7Cbaths%3E=2%7Cin_rect:40.767,40.791,-73.975,-73.943%7Camenities:doorman,washer_dryer

At $2.6mm (includng flip tax, yes it is way off ask) plus $600k reno at my cost without factoring in my labor, $3.2mm renovated (remember it is day dreaming).

5+ cap.

@keith - I am sure you have already checked out Cascais, as well as Costa da Caporica. I have not been since 1989, and at the time, both were already the province of rich Germans and Russians. I imagine that money is what keeps the rent v buy so firmly skewered towards rent, but as you have already surmised, that market dynamic provides some pretty sweet rental opportunities at the high end.

And speaking of day dreaming, I looked up more information on my favorite Maisonette offering in close proximity to our current apartment. It looks like it was purchased in 2021 with the intent of flipping. Ouch: https://www.curbed.com/article/sutton-place-maisonette-sam-watters-pictures.html

MCR, I think you should buy that maisonnette for yourself and the PH for Mr. MCR. Then you will have achieved marital bliss all in the same building!