OPGNY

A Manhattan Co-Op Hyperinflates Babysitting Coupons

2011-12-03T18:35:00.015-05:00

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BY GREG HARDEN

In this video, Austrian economist Peter Schiff cites the experience of a Manhattan co-op that issued coupons as a means for sharing baby-sitting services.

While excoriating Paul Krugman, Peter humorously demonstrates that printing money creates inflation and bubbles rather than wealth or prosperity.

The collapse of the babysitting market in the co-op provides an insightful parallel to the housing bubble and may portend future troubles for the U.S. and world economies.

This is a must watch!

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J-51 Tax Abatement Stuy Town Ruling Sets Unfavorable Precedent for Landlords, Casts Cloud Upon Real Estate Market

2011-11-15T21:28:00.013-05:00

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Earlier this month, a New York appeals court ruled that free-market tenants at Stuyvesant Town and Peter Cooper Village may be entitled to rent rebates in excess of $215 million as compensation for illegal rent overcharges.

Stuyvesant Town

In 2007, the tenants filed a class action lawsuit against the building's owners Tishman Speyer Properties as well as the previous landlord Metropolitan Life. The suit alleged that Tishman illegally de-regulated rent-stabilized apartments while receiving a J-51 tax abatement.

The J-51 tax abatement program provides partial property tax exemptions to landlords who make certain renovations to their buildings. The Stuyvesant Town tenants claim that the landlords illegally deregulated more than 3,000 apartments in the complex while receiving more than $25 million in J-51 benefits. The New York State rent stabilization law provides for treble damages for any illegal overcharge.

Smelling blood in the water, tenants at other complexes have filed similar lawsuits. The plaintiffs range from Lenox Terrace in Harlem (home to Gov. Paterson and Rep. Charles Rangel), to Chelsea's luxury rental complex London Terrace and Clermont York Associates on the Upper East Side.

London Terrace

Uncertainty over calculating potential liabilities and even future rent rolls makes it almost impossible for any J-51 beneficiary to refinance or sell. Even investors in the five bond offerings for Tishman's $3 billion mortgage could share in the responsibility to pay back tenants.

While I have no sympathy for the likes of Tishman-Speyer, I am also turned off by well-off tenants and their lawyers trolling for free money. The plaintiffs in these actions are individuals who freely entered into market-rate leases. They should not realize windfall due to a judge’s arguable interpretation of the rent-stabilization statute.

If the landlords were wrong to destabilize, let the fines be paid to the City, perhaps earmarked for affordable housing programs.

Marion Hedges

2011-11-07T18:08:00.009-05:00

Prudential Douglas-Elliman agent Marion Salmon Hedges was critically injured last weekend when she was hit in the head by a shopping cart tossed over a fourth story pedestrian bridge as she was shopping at the East Harlem Target/Costco mall with her 13 year old son, Dayton.

In addition to being a great mom and real estate agent, Marion is also very giving of her time and energy to a number of worthwhile causes. She is the rock of her family. As a friend of the Hedges-Salmon family, I would like to extend our thoughts and prayers to Marion and wish her a speedy, successful recovery.

The Brick Presbyterian Church has established a fund to help provide Marion with crucial assistance in her rehabilitation and recovery.

Checks can be made payable to The Brick Church. Please write "Marion Hedges" in the memo line and mail to:

Laila Marie Al-Askari
Director of Administration and Finance

The Brick Presbyterian Church
62 East 92nd Street
New York, NY 10128

Phone: 212 289-4400 x257Fax: 212 996-7078
lal-askari@brickchurch

Breaking Down Co-Op Budgets

2011-11-02T22:26:00.006-04:00

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By Greg Harden

As we discussed in an earlier blog post, co-op maintenance charges in New York City can be expensive, causing many owners to wonder just where their money is going.

Many shareholders believe that trimming discretionary spending could result in significant savings and hold the line on increases. Unfortunately, about 90% of a co-op’s budget consists of fixed costs, with the largest portions allocated to real estate taxes and interest payments on the underlying mortgage.

Just take a look at a pie chart for one 40-unit non-doorman co-op with a live-in super.

Note that these budget items deal only with daily operating costs. Major repairs and capital improvements are typically paid from a co-op’s reserve fund, which a Board can replenish with an assessment.

The principal driver behind rising maintenance has been property tax increases. For the above building, the annual tax bill has increased over 45% in recent years from about $110,000 to over $160,000.

While co-op boards can retain an attorney to challenge their tax assessments, the savings realized are usually minimal.

Heating and water costs are also increasing. According to the New York City Department of Environmental Protection, water and sewer rates will increase 7.5% for 2012. Oil and natural gas prices, according to the U.S. Energy Information Administration, are also expected to climb steadily.

In addition to tax and operating cost increases, co-op buildings are also seeing revenue dry up. Buildings with commercial tenants are feeling the pinch of these economic times with losses of tenants and requests for rent reductions. If a building relied on flip taxes, it is likely struggling from the lower sale volume.

Some Boards have searched for alternative revenue sources. Converting extra basement space into rentable storage lockers is one popular method. A few years ago, one enterprising 17 story condominium on Queens Boulevard allowed risqué billboard advertisements to cover two of its facades. While the advertisements were illegal, and had to be removed, the revenue far exceeded the fines.

Fascinating Color Photos of Manahttan from 1941-42

2011-09-16T21:43:00.007-04:00

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These pictures of Manhattan from 1941 and 1942, and published last week in Britain's Daily Mail, offer a fascinating take on life in the Big Apple 70 years ago.

You can view more of these here

Why Is the Maintenance So Darn High?

2011-08-27T21:25:00.007-04:00

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by Greg Harden

When reviewing sales listings for a client, some will jump out as great deals - a 925 square foot “junior 4” on the Upper East Side for $199K, a 1000 square foot “junior 4” in Trump Plaza for $715,000, a one bedroom condominium in Battery Park City for $335,0000. Upon further examination, however, these discounted prices are usually offset by high maintenance.

Maintenance fees (or, in condominiums, combined taxes and common charges) typically range from $1.50 to $2.00 per square foot. These fees pay the building staff, common utilities, water, insurance and, in the case of co-ops, the underlying mortgage and real estate taxes. When maintenance starts exceeding $2.50 per square foot, some investigation is in order.

There are a number of reasons why a building can be beset with high maintenance. At hotel co-ops like the Pierre or the Carlyle, the cost of amenities can drive maintenance for a 1BR apartment to over $10,000 per month. Even in non-hotel buildings, health clubs, pools, doormen and other services can drive up maintenance, especially in buildings with a small number of units.

High real estate taxes and large underlying mortgages also increase maintenance costs. At one Upper East Side co-op, maintenance fees run about $3.00 per square foot due to a 99 year retail lease issued by the sponsor when the building converted to a co-op in the 1980's. The co-op leases two floors of the building to a MRI practice for only $5,000 per month, whereas the market rate is several times as much! The building pays taxes on the space but is deprived of about $400,000 in annual revenue that must be made up elsewhere.

The most frequent cause for high maintenance is the land lease. There are approximately 100 land lease buildings in New York City. Under a land lease, the co-op or condominium owns or leases the building while a separate entity owns the land upon which it is constructed.

Land leases are common in Battery Park City, where maintenance tends to be very high. In Battery Park, the land is owned by the Battery Park City Authority. The land rent fee gets rolled into owners' monthly maintenance fees, along with PILOTs (payments in lieu of taxes) and building maintenance costs.

This past May, a group of 11 condo buildings whose ground rents were scheduled to increase 63%, or a combined $14.7 million a year, reached a deal with the Battery Park City Authority that lowered the combined ground rents by $279 million over the next 30 years. Disastrous consequences had been adverted, but scenarios like this keep popping up around the city.

301 East 63rd Street

Perhaps Manhattan’s most infamous land lease can be found at 301 East 63^rd Street, a 16 floor, 166 postwar doorman co-op on 2^nd Avenue. When the initial land lease expired in 2008, the co-op was forced to renegotiate a much higher rate or face foreclosure. Under the new lease, maintenance fees skyrocketed, and sale values plummeted, leaving many owners with loans in excess of the value of their apartments. Upon the execution of the new lease, a 925 square-foot unit that had been purchased two years earlier for $650,000 was listed for a mere $250,000. The discounted price was the consequence of maintenance fees increasing from $1420 to $3163 per month! The co-op has since purchased the land for $45,000,000, so owners can now at least deduct the interest on the loan payments.

160 East 61st Street

At 150 East 61^st Street. a 16 floor, 131 unit postwar doorman co-op, a potential land lease disaster was resolved more satisfactorily for homeowners. The $135,000 annual land lease was set to expire 2008. The landlord was upset about "artificially low" rent and not receiving rental income from retail space that was going to the co-op. He sought to raise the annual rent to a rate that would have quadrupled the maintenance fees and left open the possibility that they would climb even further. The co-op and the land owner eventually reached a compromise. In late 2010, the co-op and the landlord entered into a new 99-year lease. The landlord controls the retail space, while the landlord and the co-op share the expenses of managing the building and paying the real estate taxes. The land rent was set at $260,000 per year and increases to a little over $1 million after five and a half years, with CPI adjustments for the remaining years.

Brokers and buyers looking at these buildings must determine the degree to which prices should be adjusted to offset the high maintenance. It has been accepted that, in the case of two like apartments, the sale price of the apartment with higher maintenance should be lowered by $10,000 for each $100 difference in monthly maintenance. However, with interest rates so low, it costs only $50 per month to borrow $10,000 on a 30 year mortgage with a 4.5% interest rate. At this rate, a buyer should adjust the sale price by $20,000 for each $100 difference in maintenance.

Purchasing an apartment in a land lease building like 301 East 63^rd Street may provide an unusual opportunity for an adventurous buyer. Purchasing a 925 square foot apartment for $195,000 would require less than $40,000 down for a qualified buyer. Furthermore, a 71% tax deduction would provide an additional monthly savings of about $1,200 for a buyer in a high tax bracket. Should the co-op eventually pay off the land lease mortgage, the apartment could regain much of its former value. So don't let the high maintenance scare you away!

A New Rent Stabilization Deal is Reached. More Welfare for the Wealthy?

2011-06-25T09:50:00.019-04:00

BY GREG HARDEN

This past week the New York State legislature reached a deal on a new rent stabilization law. The major provisions are as follows:

• The destabilization threshold was raised from $2000 to $2500.
• The income limit for luxury decontrol was raised from $175,000 to $200,000.
• The allowable pass through for renovations was lowered from 2.5% to 1.7% of renovation costs.

The law will make it only marginally more difficult for landlords to destabilize, or at least bring to market rate, below market apartments. The $2,000 threshold was set in the mid 1990s, and the amendment does little more than index this amount for inflation.

The majority of stabilized apartments are located outside of Manhattan. The market rent for most of these apartments is less than the destabilization threshold and often less than the legal rent. Even in Manhattan, a non-doorman studio or small one bedroom will rent for less than $2000 per month. The changes in the law will have little effect on these apartments, except perhaps to make the fixtures for some newly destabilized apartments a little nicer.

The major problem I have with rent stabilization – on both a philosophical and economic level - relates to luxury apartments. The hike in the destabilization threshold provides a stay to wealthy renters who are holding onto to multi-room apartments into which they moved decades ago.

In my own Upper East Side doorman building, I know of one high income, empty nest couple who were planning on buying an apartment because the rent on their 3 bedroom / 3 bath /1500+ SF apartment was about to reach $2,000 per month. The market rate for their apartment would be at least $6,500 per month. The increase in the threshold translates into a housing subsidy of over $50,000 per year for at least another seven years. If they choose to retire by the time the rent hits $2,500, and their annual income dips below $200,000, they will be able to live out their days in the apartment so long as they spend at least 180 days per year there. This subsidy is far more generous than a Section 8 voucher!

Meanwhile, indebted college graduates making $50,000 per year pay an equivalent rent to cram into railroad or converted apartments. An established couple raising a family also will not be able to avail themselves to the apartment (which just happens to be located in the P.S. 6 school district). With one less multi-room apartment on the market, the rent for others in the neighborhood will increase.

I do not see why an apartment should have to reach $2,000 or $2,500 per month to become eligible for luxury decontrol. If someone makes $250K+ per year, they can pay market rent, buy an apartment or move to a smaller apartment or less expensive neighborhood.

Not all landlords oppose rent stabilization. Developers and owners of free market buildings (essentially any building built after 1974) love rent stabilization because it creates shortages that increase the value of their free market apartments. Meanwhile, many small landlords are stuck with static rent rolls while property taxes and other operating costs continue to rise.

Considering some of the proposals offered by the Democratic assembly, such as a $3,000 destabilization threshold and $300,000 per year income threshold for luxury decontrol, the legislation could have been much worse. Let’s be thankful for divided government!

Retried superbroker Alice Mason's East 72nd Street apartment. Alice pays just over $2,000 per month for this six room, 2000+ s.f. apartment. The apartment is no longer subject to luxury decontrol becasue the Legisture just raised the deregulation threshold to $2,500 per month.

New York Rent Regulation Laws

2011-06-16T23:35:00.000-04:00

New York State’s rent stabilization and rent control laws expired midnight Wednesday night after the Democrat controlled Assembly and Republican controlled Senate failed to reach a compromise. Governor Cuomo is threatening to keep the legislators in Albany in special session until a new law is passed.

The rent control and rent stabilization regime cover over one million apartments in New York City. The regime applies primarily to apartments built prior to 1973 with rents below $2000 per month.

The laws limit rent increases to levels set annually by the Rent Guidelines Board, a panel consisting of both landlord and tenant representatives and by members appointed by the Mayor.

Public meetings before the Rent Guidelines Board are always contentious affairs interrupted by tenant activists. The landlord representatives always ask for 10% plus increases, citing rising taxes and operating costs, while the tenants usually ask for a rent freeze. The mayoral appointees split the difference, typically decreeing annual increases in the range of 3 to 6 percent.

The legislature last amended the rent laws in 1997. The amendments allowed for vacancy increases of up to 20% along with a pass-through of 2.5% of all improvement costs. Most significantly, the amendments stipulated that, once vacant, any apartment whose legal rent reached $2,000 per month could be removed from rent stabilization. Moreover, any occupied apartment that reached $2,000 per month would be removed from rent stabilization should the occupants earn $175,000 per year for two consecutive years.

The amendments established de facto vacancy decontrol. Any landlord with adequate resources can now easily raise the legal rent of a vacant apartment to reach the $2000 per month threshold.

As a consequence, tensions between landlords and tenants have increased substantially. The prospect of decontrolling stabilized apartments incentivizes landlords to monitor, and sue, tenants who might be subleasing their apartments or not using them as their primary residence. Many unscrupulous landlords will neglect their properties or harass tenants with meritless lawsuits to hasten their tenants’ departure. In at least one instance, a landlord is believed to have murdered his rent regulated tenants.

While the system does protect low and middle income tenants, it also benefits wealthy renters. Most notoriously, Mia Farrow used to live in a rent stabilized 11 room penthouse on Central Park West, while now retired super broker Alice Mason held court for decades in her rent stabilized eight room apartment on East 72nd Street.

The Republican controlled Senate wants only to extend the existing regulations. Democrats hope to increase the destabilization threshold to $3,000 per month, limit the improvement pass-through and raise the luxury decontrol income threshold to $300,000 year.

I feel that price controls cause scarcity and that the housing market, in the long run, will be healthier if rent stabilization can be phased out.

However, I also believe that it would be neither fair nor feasible to strip low and middle income tenants of their protections.

Here is a proposed compromise that will hopefully curb the worst abuses of the current system while protecting those whom the laws were intended to benefit.

1) Do not raise any luxury decontrol thresholds.

I do not think that wealthy people should be entitled to government subsidies totaling tens of thousands of dollars per year. In my own building, I know of several 2 and 3 bedroom apartments that are occupied by people who make a very good living. The apartments would rent for $5000 to $7000 per month but are occupied by high income empty nesters paying under $2000 per month. These low rents amount to a subsidy of over $60,000 per year!

Therefore, I would support eliminating rent protections entirely for people making $175K per year. As a compromise these apartments could be kept in rent stabilization and offered in a lottery to properly vetted low or middle income tenants.

2) Limit the inheritance rights of rent stabilized apartments to surviving spouses and partners.

I do not think that a good deal on rental housing ought to be a commodity that should be passed down through generations.

3) Allow landlords -- or perhaps just small landlords -- to pass-through a fixed portion of real estate tax increases and other government-controlled costs to rent stabilized tenants. Such a provision might give legislators some pause before hitting up landlords for additional tax revenue and devaluing their investments.

4) Increase penalties on landlords who abuse the system by harassing rent stabilized tenants

5) Index the decontrol threshold for low and middle income renters for inflation, using 1997 as your baseline year.

A Double Dip for NYC?

2011-06-12T16:43:00.000-04:00

Last week, Standard & Poors released its quarterly Case-Shiller Index. The index gauges trends in national and local real estate markets using data from repeat sales of single family homes.

According to S & P, housing prices fell 4.2 percent for the first quarter of 2011, pushing housing prices back to their 2002 level.

As inflation gathers steam and housing prices continue to slide, we are approaching the point where housing inflation will intersect the Consumer Price Index trend line.

The intersection of housing prices and inflation will be a pivotal moment of the correction. One would think that this point should mark the end of the correction. However, continuing economic weakness, foreclosures and higher interest rates could cause further declines in housing prices and encourage even solvent home owners to engage in “strategic default.” Such a crash would be unprecedented and undermine any economic recovery.

In New York City, it took the Lehman Brothers collapse in September 2008 to force a correction to the real estate market. In other parts of the country, especially Florida, California, and Arizona, prices began their decline as early as 2006.

Could the New York City market continue this pattern of lagging behind national trends and experience a “double dip” that will bring prices down to 2002 and 2003 levels?

In an admittedly unscientific survey, I graphed the average of the five median sales at the Manhattan Place Condominium at 630 First Avenue (at E. 36th Street) for each year from 2003 – 2009.

Manhattan Place – Transaction Volume (2003 – 2011)

The data is consistent with trends in Manhattan for the last few years. The market peaked in 2007, declined slightly even prior to the Lehman Brothers crash in 2008, dropped precipitously in 2009 and rebounded in 2010 due to the first-time home buyer’s credit, low interest rates and other government stimulus.

While the national market has returned to 2002 levels, the above data suggests that the Manhattan market is back only to 2005 levels. By 2005, however, the Manhattan market had already doubled from mid to late 1990s levels and increased by more than 20% from 2003 and 2004 levels. So has the market really stabilized or, like the national market, will it “double dip” and slide to levels in more in keeping with the CPI?

Let’s take a look at what is going on at Manhattan Place right now:

Manhattan Place Condominium – Apartments on Market

Considering that most sellers price their apartments at about 3% to 5% over the likely closing price to allow some room for negotiation, it appears that closing prices may be heading lower in the coming months. The last apartment to sell was #34P, a 765 high-floor 1BR that closed last month at $941 per square foot. However, #16N, a 951 square foot Junior 4, closed in February at only $835 per square foot, while two others closed in January for $910 per foot. It should be interesting to see the closing prices for the two apartments currently in contract.

A number of variables unique to the Manhattan market may limit further declines. Manhattan’s strict co-op boards have limited foreclosures and the downward pressure they can exert on prices. A low rental vacancy rate, and rebound in the rental market, can make purchasing an attractive alternative to $3000 per month one bedrooms and $5000 two bedrooms.

While I don’t think we will ever see a return to 1990s level prices, and perhaps not even to 2003 prices, further slippage in NYC housing market, and in particular co-ops and condos in the under $1M range, is possible.

Always A Classic

2011-01-30T22:22:00.004-05:00

This is a video of Peter Schiff speaking before the Western Mortgage Bankers Association. His predictions were spot on but dismissed by the conventional wisdom.

Oxford Property Group - Best Deal for Agents

2011-01-08T11:29:00.016-05:00

Oxford Property Group offers real estate agents the best deal in the industry. Our commission split structure is as follows:

Option 1:

Pay $349 per month and keep 100% of your commission

Option 2:

Pay $49 per month and:

1. When a sale occurs, keep your entire commission less

$1000 on sales below $1.5 Million;
$2000 on sales of $1.5 Million or above.

2. When a rental occurs, keep 90% of your commission with minimum of $250 and a maximum of $500.

In additon to these industry-leading commission split options, Oxford also offers:

Discounted Craigslist and New York Times ads
An attractive website to highlight your listings and biography
An attractive office with computer terminals, receptionist and conference room
OLR and Costar accounts
Access to select landlord listings not available through common industry databases
Documents library
One-on-one triaing program for slect new agents

If you are an agent lookikng to maximize your earnings, please contact Adam Mahfouda or Greg Harden immediately.

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Q4 2010 Manhattan Market Report

2011-01-05T00:37:00.001-05:00

Douglas Elliman and Miller Samuels have released their Q4 2010 sales report.

The data suggests that the market for Manhattan condos and co-ops has stabilized. Buyers have grown comfortable with purchasing at current price levels. Sellers have realized that they must either adjust to the post-bubble reality, or their apartments will languish. The report’s findings:

• The average price of a Manhattan apartment was $1.48 million, a jump of 14.4% compared with the year-ago quarter.

• The number of sales fell by 13.8% in the fourth quarter compared with the previous quarter, and 7.2% compared with the year-earlier quarter.

• The median sale price of $845,000 in the fourth quarter was off by 7.5% from the previous quarter and up
4.3% from a year earlier, the report found.

According to Miller, the number of sales and listings on the market has returned to their averages of the past decade. "Now we are exiting this gyration we have gone through over the last two years to a more normal distribution of sales," he intoned.

So how can one explain a jump in the average price but a drop in the median price? How can a drop in sales volume suggest increased market stability?

In 2009 and 2010, the Federal home buyer tax credit of $8000 for first-time home buyers and $6,500 for repeat buyers increased demand for starter apartments (generally studios and 1BRs in the $300 - $500K range). Congress’ announcement last summer that it would not extend the program beyond October 2010 spurred a last minute surge and a subsequent drop in closings for this market segment.

Meanwhile, with prices stabilizing at levels 15% to 20% off peak, and interest rates at historic lows, buyers for two and three bedroom apartments are re-entering the market. Thus, in the last two months of 2010, total volume declined while both the relative and actual number of higher end purchases increased, driving up the average sales price.

As for my forecast for upcoming quarters, I do not see a return to pre-Lehman prices anytime soon. I will explain my reasoning in a separate post. However, stability and affordability, combined with brisk sales volume, should be celebrated rather bemoaned. A 15% decline from 300% to 400% run from 1997 to 2007 is a natural and welcome correction that will allow purchasers, and in particularly young families, to live in a comfortable home without having to stretch to a financial breaking point.

How Big Is a Square Foot?

2011-01-03T22:37:00.016-05:00

by GREG HARDEN

Last weekend The New York Times published an informative cover story on how the quoted square footage of apartments is frequently “exaggerated, massaged, misrepresented and manipulated.”

I have noticed for years that sellers and landlords routinely overstate square footage. I would estimate an average embellishment of over 10 percent.

According to appraiser Jonathan Miller, the square footage of an apartment is determined by measuring the space between the interior walls, including bathrooms, closets and foyers. Outdoor space should not be included in the total square footage or should be quoted separately from the interior space.

Condominium offering plans are required by law to disclose the square footage of each apartment but should still be checked for accuracy. For example, the offering plan for 1420 York Avenue Condominium lists all 99 studio apartments at 400 square feet even though they range from under 350 to about 450.

Most cooperative offering plans publish only floor plans with room dimensions.

Determining the square footage of an apartment, then, is not that difficult. Simply follow these three steps:

• Verify with a tape measure that the published room
dimensions are accurate.
• Cut and paste the floor plan into a PowerPoint slide
• Use the PowerPoint ruler and a bit of basic geometry and
algebra to determine the total area.

Overstating square footage is a frequent source of lawsuits against brokers and their clients. In 1998, most famously, a couple purchasing a $2.5M “classic six” apartment at 983 Park Avenue sued Stribling & Associates for the return of their down payment plus $25,000 in legal and architectural fees. The purchaser had discovered that the apartment was only 2800 square feet while the marketing materials had represented 3300 square feet. The case was settled out of but could have been avoided had the square footage been accurately represented accurately or not represented at all.

The square footage misestimates are a self-perpetuating phenomenon. Square footage is perhaps the first metric that buyers and their agents examine while scanning and sorting listings. Thus, sellers and agents do not want their units to be perceived as smaller than similarly sized listings. If your apartment is really 450 feet, but all the competing listings are overstated at 500 – 550 square feet, then prospective purchasers will overlook your listing.

Another explanation is that dollars per square foot is the most frequently cited metric when casually valuing apartments. Squeezing out an extra 50 square feet by including hallways or measuring from outside the exterior walls might justify a 10 to 15% increased in perceived value. Phrases such as “pre-war co-ops west of Third Avenue are selling for 1100 square feet” are common in this industry.

The inaccuracy of quoted square feet is just one reason why I think that dollars per square feet should be de-emphasized as a measure of value, particularly for co-ops. When used uncritically, the metric also fails to account for differences in light, views, condition and maintenance charges.

The overstating of square footage has been going on so long that most people misperceive apartment sizes. For the uninitiated, here is my guide matching square footage with apartment size:

300 – 350: Small Studio
400 - 450: Average Studio
525 – 550: Large Studio – Alcove Studio
600 – 650: Small 1BR
700 – 750: Standard 1BR
850 – 950: Junior 4
1000 – 1100 Small 2BR
1200 - 1400 Average 2BR – Small 3BR
1500 – 1800 Standard 3BRs and up

For condominiums, I would advise selling agents to quote the square footage cited in the offering plan. For coops, I would use only the room dimensions listed in the offering plan. I would double check everything with a tape measure and include unambiguous disclaimers.

Finally, buyers making the largest purchases of their lives should also take it upon themselves to double check all measurements.

While square footage remains a contentious issue in residential estate, I’ll save the even more dubious claims and ambiguities common in commercial real estate in another article.

Only in New York!

2010-07-03T18:15:00.003-04:00

Here is the story of one New Yorker who has lived in 39 Apartments since moving to New York City

Interview on WABC's John Batchelor Show

Amazon link to Brooke Berman's book, No Place Like Home

Renting versus Buying

2010-06-24T09:48:00.007-04:00

Is it better to rent or buy? The choice depends upon the goals and circumstances of the buyer.

Stories of New Yorkers purchasing in the 1970s, or even as late as the mid-to-late 1990s, and making millions on their apartments, are legion. And if you make all your payments on a 30 year mortgage, then you should have a sizable asset for your retirement.

However, if there is a chance you may have to relocate, and cannot sublet, or if you anticipate holding onto the apartment for a short period of time, then perhaps renting may be wiser. Remember, closing costs can reach up to 10% of the sales price.

In Manhattan, the monthly carrying costs, assuming a 20 percent down payment, will always be significantly higher then the cost of renting a like apartment. If you are not in a high tax bracket, you will not be able to defray this difference by deducting the mortgage interest.

Let’s see what happens if you were to rent or purchase the same apartment, a 654 square foot S-Line apartment with river views at Manhattan Place Condominium at 630 First Avenue.

1) Rent: $2450/month

Annual Increase: 3%
Rental Average: $2,681 per year.

2) Purchase

Sale Price: $600,000
Closing Costs: $12,000
Common Charges: $680/month (Currently $640, assuming 2% annual increase)
Taxes $780/month (Currently $712, assuming 3% annual increase)
Down Payment: $150,000
Loan: $450,000 @ 5.5%, 30 Year Fixed
Loan Payment $2555/month
Upkeep $100/month
Total Monthly Cost: $4,115
Tax Bracket: 35%
Tax Savings Mortgage: $804/month (assumes 90% of payment is applied to interest)
Tax Savings (R.E. Taxes) $275/month
Total Tax Savings $1079.00
Total Net: $3,036/month

Therefore, the renter saves about $350 per month or about $4200 per year, or almost 30K over seven years.

The key to this analysis, of course, depends what happens when the property sells. In the early 2000s, many buyers assumed that 15% annual increases would continue indefinitely. Over the last two years, prices have dropped about 15%.

Assuming that Manhattan condos have bottomed and will increase at 2.5% per year from hereon, then the resale price would be $712,000 after seven years. After deducting $56K for broker fees and transfer taxes, plus another $2500 in closing costs, the buyer is left with about $650K.

But remember that the buyer paid $4,000 more per year than she would have paid had she rented. And her $150,000 down payment could have been earning interest or dividends elsewhere.

Real estate is among the most highly leveraged of all investment classes. If prices do not recover, or if you have to sell due to a relocation (remember, many co-ops do not permit sublets), a 10% drop on the condo above would result in over a 60% loss on the down payment, once closing costs are factored.

So, here are my conclusions:

• Buy if you can get a good price that does not stretch your finances
• Buy if you anticipate that you will be staying in the apartment for seven years or more
• If you may not stay for seven years, and cannot afford a loss, be sure you can sublet your apartment. Be wary of co-ops that charge exorbitant sublet fees or require cumbersome application packages
• Buy if you can take full advantage of the tax benefits
• Buy if you will be happy in the apartment

The most desirable locations in better buildings, with light and nice layouts, will hold their value in a down market much more than apartments with flaws or those situated in outlying areas.

In the 2000s, many buyers looked at real estate as a means to quick riches and as their own personal ATM machines. I would now look at an apartment as a place to live and, if you are going to hold for the long term, a means to slowly accumulate some wealth.

Our First Post!

2010-06-02T02:36:00.032-04:00

As a real estate broker, the question I am most frequently asked is "How's the market doing?"

While each sector of the market (sales/rentals, commercial/residential) is governed by its own dynamics, a common thread is that "it could have been much worse."

Whereas markets in Arizona, Florida, Nevada and California have experienced near total collapse, the Manhattan market has held up quite well.

Let's start with residential sales. I think the best barrometer for comparison are the closing prices for the same or same-line apartments. The easiest buildings in which to find such comps are highrise condominiums with like floorplans. Although the science may be inexact, a look at a couple of buildings reveals similar trends.

1) Manahattan Place, 630 First Avenue

S Line - Floors 5-35 - 654 SF 1BR East River View. See Pics Here:

Apt # 11S - Sale Date: 1997 - Price: $180,000
Apt. #7S - Sale Date: Sep. 2003 - Price: $390,000
Apt. #8S - Sale Date: March 2004 - Price $449,000
Apt. #17S - Sale Date: Aug. 2008 - Sale Price $645,000
Apt. #21S - Sale Date: March 2010 - Sale Price $570,000
Apt. #8S - Sale Date: May 2010 - Sale Price - $625,000

1) Assuming that the #21S closing is a conservative reflection of present market value, the S-Line has appreciated 316% since between 1997 and 2010.

2) Assuming that #17S sales represents a slightly below peak price, the S line has declined about 15%.

3) I think the guy who bought #8S overpaid!

Consdiering that markets like Las Vegas and Miami have reached 1990s prices, Manhattanites who bought their apartments in the late 1990s and early 2000s have preserved substantial gains.

Building 2) 200 Riverside Boulevard
B Line Floors 21-35, 1120 SF 2BR-2BA - See Pics Here

Apt. Sold Price APPSF Sold Date

30B $1,350,000 1,205 18-Feb-10
31B $1,300,000 1,160 12-Feb-10
35B $1,510,000 1,348 11-Dec-07
21B $1,275,000 1,138 26-Dec-06
28B $1,330,000 1,187 1-Sep-06
23B $1,160,000 1,035

Again, we see about a 15% decline off the peak price and a return to 2006 levels.

Some commentators have pointed to a recent uptick in rental activity as a precursor to a rebounding sales market.

I think such sentiment is a little premature. While not as vulnerable as markets like Las Vegas and Miami, the New York real estate market remains linked to larger macroeconomic trends.

Over the last decade, we have endured the collapse of the tech stock and real estate bubbles. As we are seeing in Greece, the next hurdle is the sovereign debt bubble.

In the U.S., a number of state and municipal governments are already on the verge of bankruptcy.

The Federal government has assumed a health care entitlement even though it has provided no roadmap on how it will honor unfunded obligations ranging from social security to medicaid/medicare to Fannie and Freddie mortgages. It continues to implement many of the same stimulative policies that contributed to the last two bubbles.

If we continue down this path, our creditors may demand higher interest rates to keep financing our debt. Higher borrowing costs would depress real estate values and push many ARM holders into default.

Such instability could further undermine the equity markets, discouraging buyers from using their cash reserves to make down payments on apartments.

As the Federal Reserve can always print money to fulfill Uncle Sam's financial obligations, perhaps inflation could forestall any further decline in real estate, at least in nominal terms.

Eventually, our economy will recover. The sooner the government implements policies that encourage savings, investment and production as opposed to spending and borrowing, the more quickly we can all move forward.

Greg Harden