Current Financial Market Mess Will Not Affect Manhattan Real Estate

This is the best of all possible worlds.

Steve,

You are unlikely get a show of hands in approval of these absurd conclusions, which have no basis in economic theory. A finger maybe, but not a hand!

Which conclusions, Admiral? I'm not giving conclusions, or asking for approval. I'm asking what people think the effect of all of this will be.

I'm given the finger all the time - I'm impervious.

How about some interesting anecdotes instead of repeating what is on CNBC.

How is William Beaver house doing which caters to young 20 somethings on Wall Street?

How well is that out of the way One Brooklyn Bridge Park development doing that is just out of the way for people in all reality?

How is 45 John Street doing with its huge monthlies and dark light?

What is the volume of rentals for chelsea and flatiron hirises like Stratus and SkyHouse? What is the trend on rental pricing?

How have brownstones been doing in Brooklyn outside of Brooklyn Heights? in Brooklyn Heights?

How about Williamsburg river-view condos and Long Island city river-view condos? How are they selling? How are they renting?

Anyone know about trends for the Avalon buildings downtown? Are they still being filled up by rich and over-parented 22 year olds?

How are the newer high profile new development sales companies doing? Like Core and SHVO?

Have contractors been raising their labor rates or reducing them?

Have brokers begun to talk about lowering their 6% or reducing their 15% on rentals? Has anyone seen owners paying the rental broker to attract tenants?

How about some interesting discussion on Streeteasy instead of McCain, Palin, Obama, EddieWilson ranting?

ps stevejhx, we don't care about you being fingered.

Housing.

Interesting to note that the total value of U.S. residential real estate is far larger than the total market value of U.S. stocks.

It is, indeed, a very big deal and it has an enormous impact upon the U.S. economy.

And, of course, it is the single largest investment of most individuals. Mess with this and you'll have a big impact upon the economy.

Alas, if you think real estate prices won't bottom until sometime around the end of 2009 (as I do) it's hard to get real optimistic about the U.S. economy.

"Which conclusions, Admiral? I'm not giving conclusions"

Your heading "Current Financial Market Mess Will Not Affect Manhattan Real Estate" sounds conclusory to me. It doesn't say "Will the ...affect Manhattan Real Estate"; it says it "will not affect Manhattan Real Estate".

Sorry, I guess I just took you too literally...

stevejhx all I was saying is that I agree with you. The savings that one achieves each and every month from renting along with the down payment money can all be invested in high appreciating assets like Brazilian emerging growth funds, US mutual funds, commodities like Gold etc, etc and etc.
I also like the idea of not having any portion of my monthly payments going toward he principal of my mortgage.I also like pcaking moving and looking at other apts each and every year just in case my Landlord doesn't want to decrease my rental payments. Yup he doen't drop my monthly rent by at least 200 a month I'll go out and spend that money on moving expenses. Sounds like a plan to me.

ClintonB, can't tell if you're being facetious or not.

But Topper, no one will lose any money unless they're forced to sell, and there are no margin calls in real estate.

great point clintonb

to address one question - I think the entire avalon christie/bowery project (3 buildings) is more or less full. small 1 brs there go for $4000/month or more, 2 br $5500-7500/month. the whole foods there is always packed, the 2 other retail tenants (bowery wine co and some clothing store) seem to be doing ok. I understand the 2 bigger restaurants there (a new veselka and some burger joint owned by boloud or bouley, can't remember which) are slated to open this fall, and it looks like they are starting to get some of the other retail space ready too.

so yes, financial companies collapsing will have a negative impact on the overall market, but I am still bullish on the ev/les/nolita/noho area

great point clintonb

to address one question - I think the entire avalon christie/bowery project (3 buildings) is more or less full. small 1 brs there go for $4000/month or more, 2 br $5500-7500/month. the whole foods there is always packed, the 2 other retail tenants (bowery wine co and some clothing store) seem to be doing ok. I understand the 2 bigger restaurants there (a new veselka and some burger joint owned by boloud or bouley, can't remember which) are slated to open this fall, and it looks like they are starting to get some of the other retail space ready too.

so yes, financial companies collapsing will have a negative impact on the overall market, but I am still bullish on the ev/les/nolita/noho area

Sorry I wasn't clear, Admiral. Once I posted it I thought the same thing you did, but by then it was too late.

"The savings that one achieves each and every month from renting"

About 50% in today's market.

Owner-occupied residential real estate is nothing more than capitalized rent.

Houser, take a look at this and get back to me:

http://www.nytimes.com/imagepages/2008/09/11/business/20080911_LEHMAN_GRAPHIC.html

My take: If I could predict the future of the stock market, I'd make a much bigger salary on Wall Street than I do now. I'm an efficient market believer - is the worst over? Is the worst yet to come? People who study this MUCH more than me and control MUCH more money than I do believe the current stock market price is fair, given these risks. Who am I to question that?

"so yes, financial companies collapsing will have a negative impact on the overall market, but I am still bullish on the ev/les/nolita/noho area"

That's what I want to hear! Bullish because there are 2 other retail tenants.

Good point, evillager.

steve - what the hell is your problem? I'm simply giving real data points on the avalon project (as was asked), which is indicative of what is happening in the area. there's also new luxury hotels (bowery hotel, thompson LES, cooper square hotel), luxury condos like 211 elizabeth and 52 east 4th going for $1500-2000 psf vs neighborhood average of around $1000. every day it seems like a new boutique or restaurant opens up in space that was unused or was quasi-industrial.

so yes, I feel pretty good about my assumption that prices for nice propoerties in the area will narrow with other, more established areas of the city over the next 5-10 years.

your problem is that you can't possibly admit that every data point in every neighborhood in the city is negative. since I work in finance, I am well aware of what is going on, and do think the impact will be very negative on the overall market...but I'm not buying the overall market. I own a specific apartment in a specific building in a specific neighborhood.

and hey, if you disagree with me, who cares? you have nothing at stake in it, so your opinion doesn't mean much. and you know what? I hope prices tank - I would just rent out my current place and upgrade to something bigger.

ClintonB, I can speak to some of the market in Brooklyn:

One Brooklyn Bridge Park is not moving as of now. I think by this point it's developed a bit of a bad rep for sitting for so long, but this is the nature of these enormous developments - they can't sell everything that quickly. There was an article in the NYT about a couple who recently bought there and seem quite happy, but that's not exactly hard data to work off.

Williamsburg is tough to cover so broadly, mostly because it's such a large area, and certain parts have been more affected than others (namely east of the BQE and southside). There was another recent thread on 101 North 5th, which is "prime" WB, and the price cuts, which is an early sign that even in the better areas there, anything that's still in construction is going to have to keep prices down at least to levels we were seeing last year. New construction around the Bedford stop is selling, albeit MUCH more slowly than a year ago. There's definitely room for negotiation.

Essentially the same for brownstones. There isn't a large inventory, which helps, but pricing needs to stay flat or come down if people want to move their homes. As investments, few if any of these make sense on a cash-flow basis given the current prices and rents, which won't help either.

bjw, I walked around the bedford stop recently and was simply astounded at the amount of construction going on, particularly north of 7th street. Seems like its still too early to buy there, assuming most of that construction gets completed. What do you think?

Special_K, it really depends on your needs and timeline. If you're in no rush to buy/move, I honestly don't see any reason to rush to bid on anything. That said, if you're serious about looking there, it's a great time to just shop around and get to know the area. Open houses aren't exactly busy, brokers are forced to be a bit more honest, and you can feel a lot more confident about your knowledge of the market when you do decide to buy. In general though, I really like the area as is (I live there), and am quite confident it will get better.

evillager, have I hit a nerve?

I know you work in finance, but if you call what you posted "data points," you might want to reconsider.

I'm not talking about Avalon, which was put out to let a year ago. I'm not talking about yesterday. I'm talking about tomorrow.

And you've made your point: you "think the impact will be very negative on the overall market...but you're not buying the overall market." So you think that your "specific apartment in a specific building in a specific neighborhood" simultaneously has a high and a low beta: when it comes to price volatility, it must be near zero. But when it comes to return, it must be near infinite.

Like houser, I was also very happy & fortunate to have invested in Manhattan RE from 1996-2006. Prices up to 2004 were reasonable IMO given the rental alternative so it was a relatively simple decision at the time.

Today, I have very little interest in NYC RE. I'll look into again when I believe it has digested/discounted the abrupt changes in economic fundamentals, from the private to public sectors. Valuations are steep and the fundamentals are questionable at best which historically, hasn't made for the best recipe.

Topper, excellent point on the value of RE relative to the US stock market. I believe in late 2005, RE surpassed it by approx. 40% which is the largest red flag I've seen other than AOL reaching the market cap of Exxon in the late 1990s. RE normally parallels the value of the US market and the latter has had minimal appreciation in the past decade.

From Urbandigs - seems to make a lot of sense:

I attended the Real Deal New Development Forum last night. Although the panelists felt that we may be in for more short term pain, the consensus was that:

A) we are near the bottom, and
B) the fundamentals of NYC real estate are still strong for the long term

Although foreign buyers may only be getting a 20% discount on real estate, with the 421-a expiring & the difficulty getting financing on large projects, there's not much new development in the pipeline. So the supply that hugely exceeded demand in places like Miami and Las Vegas is just not going to happen here. Larry Silverstein reminded the audience that by 2010, another 200,000 people are projected to move to NYC, and by 2030, the city will house over 9 million people.

Andrew Heiberger suggested that people are moving back to NYC because living in the burbs is getting more expensive. The increase in oil and gas prices has caused heat & hot water costs to escalate. Commuting to jobs in the city isn't cost-effective with $4/gallon gasoline. Crime is low. There are more 5 year old children in Manhattan than there ever have been, indicating that families are staying here and moving back here.

Barbara Corcoran said that she worried in the past when Wall Street was down, or the Japanese stopped investing, or for various other reasons. But she has learned over the past 30 years to "never worry about NYC." (She also admitted that she was wrong about Red Hook being the next big thing but that Astoria is looking promising!)

The panelists agreed that Wall Street is going to have more layoffs. However, globalization has really hit NYC and there is a lot of wealth out there, both foreign and domestic. NYC is still "cheap" in comparison to the real estate in London and Paris. So Wall Street does not impact real estate values as it did in the past. If someone in finance is laid off and sells anything, it's more likely to be their Hamptons house, not their primary residence.

"Prices up to 2004 were reasonable"

Agreed.

"panelists": Larry Silverstein, Andrew Heiberger, Barbara Corcoran.

Where was Donald Trump?

"The panelists agreed that Wall Street is going to have more layoffs [but] Wall Street does not impact real estate values as it did in the past."

LMFAO, LMFAO, LMFAO.

With all due respect, LICComment, your conference does remind me a bit of some of the investment conferences I attended around June, 2000. Sure we'll have a little pain for a few more months but the Internet is a game-changing development.

And as Steve (presumably facetiously) remarked, as long as you don't have to sell any of these stocks that have corrected 20% they are only "paper losses."

I always love that one!

Reasonable article but a little short on quantifiable data other than the job losses. Other major overseas RE markets are in decline pus the USD continues to appreciate. I see no mention of either for starters. We'll see what happens in a year or two.

If folks were to vacate the Westchester burbs in numbers, then I would be more than happy to steal a house. :) I have friends in Larchmont, and their commute is 2 miles to the train and an easy ride to Grand Central. The gas bill isn't a problem. They sold their Manhattan apt. & have a terrific home. They are also saving a nice chunk of change not paying City taxes.It's not as bad as this article makes sound.

steve, you should really keep away from using financial terms, as well as commenting on neighborhoods about which you know little

avalon phase 3 (the one on the north side of 1st street) started renting this past spring, and clintonb asked about it (by the way, from what I can see most the renters are not 22 year olds, more like 30- and 40-somethings)

bjw, thanks for the response. i really like the area as well. i also like the changes that are taking place over the next couple of years there (though i know some locals don't like the gentrification) so i am serious about buying there. what do you think is the best way to check things out and get a feel for the market (i.e., broker, website, walk from bldg to bldg, etc.)?

and as for this topic of this thread, it's just inconceivable to me that the devastation happening on wall street and the markets is not going to negatively impact nyc real estate. though i think how bad things will get will largely depend on the Lehman situation (i.e., bank goes under or bought by competitor with overlapping business or bought by foreign bank w/ complementary business)

"The panelists agreed that Wall Street is going to have more layoffs. However, globalization has really hit NYC and there is a lot of wealth out there, both foreign and domestic. NYC is still "cheap" in comparison to the real estate in London and Paris. So Wall Street does not impact real estate values as it did in the past. If someone in finance is laid off and sells anything, it's more likely to be their Hamptons house, not their primary residence"

Wall street is to the Hamptons what, Europe is to Manhattan. Second homes.

LICC, let us not get into the finance discussion again - I know that you were in an elevator with Bernie Ebbers once....

What you said is that your particular apartment in your particular neighborhood is immune to market conditions on the downside, and in fact will go up over the long-term even if the rest of the city goes down.

That means it should be cheap but the risk is high to get the return you claim, but you claim that the risk is low and the return will be high.

And to prove it you cite the 2 retail outlets recently let.

BTW why would you want to live in a neighborhood with 40-somethings like me? Aren't you young and hip? Isn't that why you moved to the E. Village in the first place? To avoid the elderly and infirm like me?

Ahhhh...the European fascination....good while it lasted...

Seriously, not sure why people still talk about this phenomenon (while i agree it used to be a factor)...

The Euro and Pound are getting crushed right now and their economies are in more trouble than ours...its just took them awhile to catch the cold after we sneezed...

"Wall street is to the Hamptons what, Europe is to Manhattan. Second homes."

- Exactly

And for them to not recognize the impact of the credit cruch is beyond me....with WaMu and Lehman the next 2 to go down who we're big players in the market, where are people going to go to get Mortgages?

And yes, the majority of Manhattan is Jumbo so the Freddie/Fannie bailout will not help....Liquidity is not the problem, Credit Standards are...

garelj- AHHHHHHH. Someone who gets it. I'm in love. HAHA.

Special_K, if you're strictly looking at new construction there, I really think your best bet is to hit a few open houses over the weekends and get a feel for what's out there (StreetEasy has a new dev section where you can get a list of all the ones particular to the area if you'd like). You'll get a good feel for the differences from building to building, and you now have the time to reflect on those peacefully afterwards. And I would strongly advise going back a second and even third time later on, especially if major construction is still ongoing. Avoid the broker route - I really don't find them particularly useful unless you're quite green when it comes to RE here. If you're looking at a resale though, it may be beneficial to use a broker. Resales in the area are obviously significantly cheaper and also a bit tougher to track down. There's also a wide range of housing stock, from converted warehouse/manufacturing space to legit brownstones. If you have a particular preference, that'll help narrow down where to look to a certain extent.

bjw, thanks again your help. i'll check out some open houses on the new construction first and then work my way to resales from there.

steve, did you mean to direct that last comment at me? I don't recall this risk-return, East Village conversation you say we had. Are you imagining things, or am I just in your head all the time?

You're right LICC - I meant evillager. Must be the two l's in evillager and the 2 c's in LICC.

LICComment, I'm not sure if you know this, but what you quoted was from a broker...

Give us some specific examples of new prime condos being hurt by the market.