NYC Condo Market on Verge of Collapse - NYMag Article

Correction - remove "recently" from first sentence.

The NYC real estate will crash significantly in 2009. I wouldn't be surprised to see depreciatios of up to 50%, even in Manhattan. Expect crime to increase drastically as well, and the city to get even filthier than it is now.

Cracker Boy, now you read tea leaves too?

Darn good article, thanks!

There should be little question that the super cycle bull market has ended and the bear has just begun. Folks should keep in mind (just in case they haven't paid much attention to the stock market or other large RE markets) that bear markets after a prolonged bull & over-investment cycle of this magnitude are equally as vicious or more so than the bull that preceded it.

alanhart, your racist comments are deeply disturbing. But I guess I can't expect too much from an Obama supporter.

serge07, this recession will be at least as bad as the 1981-1982 recession. And an Obama presidency will make it even worse. I don't think we'll go into a great depression, but the next several years will be pretty bad for this great nation.

rufus, call 311 (from NYC) and ask for the racist hotline and maybe they can help you

rufus, it's difficult to say how this bear marker will ultimately unfold. I'll be looking closely for key data points of which the 2009 selling season results will be the first. By the conclusion of the 2010 spring selling season, the picture should come sharper into focus and we'll take it from there.

RE bear market cycles are not short lived in their duration and can last far longer than most expect. This cycle concerns me due to the massive over investment this market has experienced & which continues to this day. One only has to look at the construction projects underway throughout the city & suburbs in addition t far too many to count new buildings and conversion completions of the past few years to get a sense of this. A bell should have gone off when even Toll Brothers threw in the towel and entered the Manhattan RE market in 2006.

If one walks around the city today (high end neighborhoods included), I find the number of retail establishments that have closed and the retail space offered for rent disturbing. The situation has changed significantly for the worse in a relatively short period of time. I suspect many others may follow after the holiday shopping season.

I find the increased numbers of vacant retail space to be a refreshing change. One way in which Manhattan really suffered during the boom is that rent on commercial retail space - the lifeblood of any residential neighborhood - skyrocketed. Mom and pop shops that had existed for decades disappeared, and in their stead arose nothing but Duane Reades, Starbucks, and bank after mother(&*)#$)&ing bank branch. It created something of a mallification of Manhattan and sent NYers fleeing to the outer-boros for a more authentic NYC experience. Manhattan became more bland and boring as a result.

*ONE* positive aspect of an impending RE downturn is that hopefully, commercial rents will go down to a more reasonable level, and maybe, just maybe, shops like Murder Ink, Shakespeare & Co., and their spiritual progeny will crop up again and give Manhattan its soul back.

the lack of retail is troubling because it is usually correlated with higher crime and overall decline in prosperity. it is sad that NYC has lost its status as a financial powerhouse.

Notice how "Time-On-The-Market" is now being quoted in terms of months, not weeks! As TOTM and inventories grow, we are seeing more impatient and motivated sellers (and the brokers who represent them) hungry to unload. It's good to know you can put in a bid and if the seller doesn't accept, it might be months before they see another bid.

Regarding vacant retail spaces - this is a sad and direct result of small businesses not being able to get the funding they need to stay afloat. Typically, their lease will run out, the landlord raises the rent on them, they are unable to pass the rent increases to their customers, they can't get the financing to open-up shop somewhere else, they go out of business and lay off all their workers. This is happening all over NYC!

I hadn't realized how badly new condos were doing. It looks at this point like we're headed somewhere every bit as bad as the infamous real estate bust of the early '90s

Thanks for the interesting link, farquhar.

Ah Lowery we can only hope we get to that point in the 90s. Prices are so inflated. I really haven't been looking until recently and I am simply shocked at the cost of the average 2 br. It should be cut in half. Or studios for almost a million - insane.

Those sleek new developments are made of subpar materials and are cookie-cutter designed. Built for the market of transient money, too. A studio for $700K?
Grand co-op owners, rejoy!

I don't think the empty storefronts we're seeing right now have much to do with local retail doing badly, or having trouble accessing credit (although those factors will likely show their results soon).

They're empty because:
1. Landlords became too ambitious in jacking up rents for storefronts, even outpacing the vibrant cashflows of a couple of years ago. And with much longer commercial leases than residential leases, its easy to see why that's not as stupid as it seems in hindsight.
2. A change in the law allowed coops to charge market rents for storefronts, by eliminating the Federal tax requirement that they derive 80% of their operating expenses from residential revenue (maintenance). Under the old system, storefronts rented for artificially low prices. Some coops got around this by going condop, breaking out the retail as a condo.

Is this article really that bearish? I mean, only two of the condo buildings have over 100 units and the big one with over 350 is not going to be completely finished until 2010. Almost all the listings are for small buildings (under 50 units and most under 15 units) and most are in marginal areas of town. Is it surprising that these would do badly? The article is anecdotally interesting, but I'd hardly say that "NYC condo market on verge of collapse" BASED on this article.

Regardless, Farquhar, thanks for the post. Would like to see some really big buildings with time on market remain empty. Then we'll see some capitulation.

I know a couple other people have mentioned this but it's going to get really interesting when the construction loans mature and developers can't refinance them.

If one reads the article closely, s/he will notice that almost all of the developments "in trouble" in Manhattan below 100th St. are small ones, ranging from 6 units to a few dozen-ish (as opposed to 200+ unit bldgs you see all over being built in Manhattan).

I wonder if the high CCs that come with these small developments may have a lot to do with the slow sale... Are the big developments doing okay, or maybe this particular journalist just happened not to look at big developments? Any thoughts, anyone?

I think the article means if you want to pick up a bargain in Harlem, you may get your chance.

High CCs def have something to do with it. Look at 15USW, the bigger apartments have mait/CC charges close to $4K a month. Thats on top of the $2500-3500/sqft. Probably explains why the building is having trouble selling.

I think it's still a fair ways off before construction loans get into trouble. That said, when they do, I expect the banks will be under a lot of pressure to clean up their balance sheets and get the bad loans off their books. That's when the big opportunities will occur.

What about new developments like Lucida, Bromptom, Georgica, 300 E 79 on the UES?
Any news on prices?
I heard from a friend that bought at the Brompton that they will finally start closing in a couple of month.

Verge of collapse? Yawn. farquhar you should work for the NY Post, sensationalism at its best.

Directly from the article in question:

"And wherever you’re shopping, remember that long-term buys are inherently safer at a time like this. The era of the quick profitable flip is over."

Anybody with any sense has been saying this for quite some time now. And this is not exactly equatable to a "collapse."

I can't imagine how the condo market can sustain itself--even after the financial messes are cleaned up. I am always looking for investment units and found almost all the the new condos subpar in terms of construction quality. That's not to say ever condo is crap, of course. I know there are some excellent conversions but the cost cutting that went on in the majority of new buildings is frightening. I actually think many will have long term structural defects that will lead to major maint. increases over the years.

> Anybody with any sense has been saying this for quite some time now. And this is not exactly
> equatable to a "collapse."

but it doesn't rule it out either....

Hasn't the NYC condo market been on the "verge of collapse" for the last 2-3 years????

does that change whether or not its actually happening now?

If somebody told you to wear your seatbelt 3 years ago, does it make them wrong because you only crashed today?

Collapse is probably too strong of a word. It's not like they're going to be giving apartments away.

However, a 20-30% correction (peak-to-trough) is probably more realistic. You can't deny that there have already been a plethora of price-chops over the last few months. Add to that the fact that sellers are offering concessions on the back-end that are not reflected in the recorded sales price, a growing inventory, a declining number of sales, a projected rise in real estate taxes, ongoing layoffs and bleak outlook for bonus-season. I simply don't understand how anyone can argue against the idea that prices are declining from here. Can I have some of what you are smoking? It seems to be working pretty well at creating a sense of denial.

Have you seen the pound and euro, baby?

Pound - $1.64
Euro - $1.29

Not to mention the $CAD - $0.81!!!!

No fear, these unsold condos will be scooped up by foreign investors.

I have to think every second counts before cash-strapped Europeans begin listing their NYC properties.

This could get very ugly.

I can't wait - haven't we been waiting long enough?

Aer Lingus just doubled their JFK routes for all the Irish carpenters leaving 15 CPW.

with the dollar strengthening and the economy getting worse, things are going to get really tough for NYC real estate. I expect a 50% depreciation for manhattan condos by the end of 2009.

Cracker Boy, this is the only grounded comment you've made in your months of posting here: "I expect a 50% depreciation for manhattan condos by the end of 2009."

Have your psychopharmacologist keep you on whatever antipsychotic you've just tried.

> I expect a 50% depreciation for manhattan condos by the end of 2009.

Which would still make it 3x more expensive than Chicago.... where demand only decreases.

i think that's pure wishful thinking. people in the nyc area are more liquid than you think (even outside finance) and with so many anxious buyers waiting for their opportunity with cash in hand, i can't imagine 50%, 15% more likely. I bought in Carroll Gardens in early 07 at sub $700/sq ft and while I envision a correction, similar people in my shoes who had planned to unload in 2010/2011, may have to wait -- by either buying a bigger place on the cheap (at your alleged 50% crystal ball price) and renting out current place, renovating, or renting out current place and rent yourself until market rebounds. There are options to weather the downturn -- especially with many that can afford to avoid the desperate sell.

curious007, I bought in Harlem (new gut-renov) in 2001 at sub $150/sq ft. So what's your point?

alanhart, nice analysis of the retail situation with co-ops finally being free to charge full market rents for their retail spaces and retaining tax exempt status; too bad that many of them don't see the handwriting on the wall in respect to the decline in discretionary spending that's about to hit them during the next 12 months. It's going to take months and months of vacancies to filter into the minds of the board members of many co-ops that it's not 2006 anymore. unfortunately, that's not good for the overall economy of the city, much less the economies of individual co-op buildings.

> There are options to weather the downturn -- especially with many that can afford to avoid the
> desperate sell.

I'm sure that many can weather, but RE market is determined at the margins. You only need a portion of sellers to be "motivated" to affect pricing significantly. Given 35k projected wall street layoffs and probably 6 figures worth outside finance, there is a lot of potential impact.

Even if we went back to just 2003 prices, you are talking 30% price reductions...

> i can't imagine 50%, 15% more likely.

50% might be too much, but I think we're way past 15% as likely. We're probably past it already.

Miller Samuel report has 12% reduction Q3 over Q1, with 9.4% decline Q3 over Q2 alone. And pretty much *all* of that data is pre-panic and pre the major anecdotal price chops. If Q3 saw almost 10% down, I can't imagine how Q4 doesn't get at least that. Just another 8% gets us to 20%.

And we haven't even hit bonus season.

I used to think 15-20%, but I think we're there already, and in my head its now 25-30%

"I'm sure that many can weather, but RE market is determined at the margins. You only need a portion of sellers to be "motivated" to affect pricing significantly"

I totally agree.

If 'RE market is determined at the margins' it means that it doesn't matter jack sh**t that co-op boards were fastidious about requiring 25% down and 2 years mortgage and maintenance. When a similar condo down the street bought by flippers and Irish carpenters is selling at fire sale prices, the co-op owner now divorcing or estate sale or empty nester who wants to move on is going to have to lower their price to match. So the whole 'Manhattan is immune to large price drops b/c co-op boards were stringent' argument is total bs.

"Miller Samuel report has 12% reduction Q3 over Q1, with 9.4% decline Q3 over Q2 alone. And pretty much *all* of that data is pre-panic and pre the major anecdotal price chops. If Q3 saw almost 10% down, I can't imagine how Q4 doesn't get at least that. Just another 8% gets us to 20%.

And we haven't even hit bonus season.

I used to think 15-20%, but I think we're there already, and in my head its now 25-30%"

nyc10022, again, I take issue with the 12% decline you constantly cite. Other reports tell conflicting stories, so we're not there yet. I expect Q4 to be ugly, but I don't think it's correct to state what you're stating, though I think you're right, we are down 25-30% "in [your] head."

As for the foreign demand?

Based on what's happening in the global markets, the need for liquidity, and continuing massive deleveraging, expect a FLOOD of condo listings in NYC from foreign buyers.

At current exchange rates (euro $1.25, pound $1.55, CAD $0.78, plus depreciation of all other currencies against the dollar), foreigners (1) are incurring MASSIVE carrying costs in their local currencies and (2) can sell at lower and lower prices and still get a reasonable price in their own currencies.

Not to mention, most oil producing countries besides Saudi Arabia aren't covering production costs at $64/bbl. They aren't feeling quite as flush either.

The party is so very, very over. Now the only question is how bad the next 3-4 years are. Hold onto your hats.

Farquhar I was just thinking the same thing. Europeans will not only lose on their investments on real rates but also currency rates. It's a big lose for them right now. All but the Japanese. Let them flood the market. Prices need to really come down

cccharley - actually foreign owners who bought already win on currency IF THEY SELL.

Other than that, foreign owners lose big time on carrying costs.

Given currency movements, the best play for foreign investors now is to sell NYC real estate.

Oh they sell in dollars- and get more dollar - you are right. I need more coffee. They will lose on price though if they bought in the past few years

Yeah, the Japanese are the only ones who lose on both accounts, as the Yen strengthens vs. the dollar.