64th and Broadway

Over the past almost-decade, I’ve done business Downtown and Uptown.  The mix has been there, and although I moved Uptown almost six years ago, I’ve continued to keep my main office downtown.  However, an opportunity presented itself to move from Brown Harris Stevens’ lovely Gold Coast offices on Fifth Avenue and 8th Street to our Upper West Side office on 64th and Broadway.  Apart from the shorter commute, this move simply makes sense.  I am thrilled to be moving our office to 1926 Broadway.  Not only does Lincoln Center often feel like the center of Manhattan these days, but it certainly allows me to serve my clients even better.  Simply put, we are positioned to be all over the city more quickly and efficiently.  I thought you’d like to know!  Be on the lookout for a more formal announcement soon.

Great Chair at the ICFF!

For those of you craving a few tidbits of design info, here’s the latest:

1) You just missed the first public Luxury Watch show here in New York City.  Apparently, it was quite something.

2) Don’t miss tomorrow’s public access to the ICFF, the International Contemporary Furniture Fair, at the Javitz Center!  I’ll have more thoughts once I visit tomorrow.

3) Have you noticed the new designer retail coming into New York City?  The list continues to grow, or more to the point, the old wholesale is leaving.  Other neat items- Anthropologies will open on the UES, great Flagships continue to flock to the city.

As I tend to work best with deadlines looming, I keep this entry to the end of my monthly blogging.  Isn’t it also nice to have the market snapshot as up-to-date as possible?

So, Scott, how is the market?  The market is as segmented as it has been in some time.  If you are a two-bedroom or three-bedroom buyer, there is incredibly low inventory across the city.  The East Side, from the 20′s up to the Upper East Side, has more inventory.  Further, the competition in prime areas on both sides of the market has made for an interesting Spring.  Let’s focus on the 2-3 bedroom market for now. 

The high end of the market is roaring.  Sales at the Laureate, my company’s newest high-end condominium, are brisk to say the least.  The numbers they are getting (easily north of $2000/sf) are being achieved up and down the building.  With fewer than 70 apartments in the building, nearly all larger than 2 bedrooms, this is going to prove to be one of the most successful projects of the year, if not the most successful.  I must admit I was very skeptical when I first saw the presentation, that the numbers would be hard to achieve.  Watching these contracts get signed has been a signal that buyers of larger apartments are not afraid to commit.  I believe it comes down to a longer-term play, combined with cheap money.  That, and a well-constructed building will get people there.  Other BHS projects, downtown and elsewhere- if well done- are selling well.  HL23, a building that has been incredibly well-received by critics across the country, is continuing to put West Chelsea (23rd and 10th avenue) on the map.  The full-floor apartments and views make this a great opportunity, often at prices that are very competitive with far inferior product.  We are talking about $5-6mm per unit to start.  On 5th avenue and Central Park West, the view apartments are selling briskly. 

Lovely 76th and Broadway Condominium

We’ll come down from the stratosphere, though, and focus on an intense area of the market- the buyers who are hunkering down in Manhattan, who are craving great location, larger space, decent amenities, and reasonable carrying charges.  Fair Housing laws make this group harder to market to directly, since we are not allowed to call apartments “Great for Families,” near a specific school, etc- But these buyers are out in force.  If one can borrow at under 4% for an interest-only product (hard to find in the Jumbo area north of $729k) and under 5% for 30-yr fixed product, it makes for a good time to purchase.  Dealmaking simply becomes a factor of injecting reality into each situation.

The Reality:

1) Some buyers who are qualified are feeling a bit overconfident in their prospects.  For example, a qualified, all-cash customer has lost out on at least two properties because she came in too low on her offers.  Other buyers are realizing that they need to come in at realistic numbers.  She is finally understanding that an all cash deal is great, but it is hardly better than a qualified buyer without a mortgage contingency.  I am working very hard to keep buyers realistic- the longer the inventory stays low, the easier this will be.  Vanderbilt Appraisal came out with a recent inventory report, which shows that downtown there is well under what is considered a “healthy” amount of inventory.  I have buyers who simply cannot find a decent 1 bedroom with an office in Tribeca under $1.5mm.  Forget about 2-bedrooms.  We’ll see if/when inventory comes back. 

2) The properties that are well located, well-priced, and renovated (enough) are seeing multiple bids, often over the asking price.  I’ll give away a story that may appear in the New York Times soon.  An Upper West Side property that will close very soon ended up selling in an all cash deal at the asking price.  In the Winter, my clients and I sat down and discussed prospects.  I told them where I thought the property would sell, and we then ironed out where we would bring to market.  Lo and behold, we had forty (40) people at the first open house, with a strong deal on the table after 2 weeks, when the buyer who ended up getting the apartment walked in.  These situations can be frustrating for buyers who just want a home and are qualified to buy it.  Inventory is low to the point where the “need” buyers will pay what is necessary, edging out the buyers who for one reason or another have a less rosy outlook on the market.  When we finally break the bad news to these other buyers, there is shock and dismay and frustration- they wonder how someone could pay these numbers.  However, I think that we’ll look back on these times in five years and realize just how low the market was in late 2009 early 2010 and the deals that were there.  We are past the bottom now for 2+ bedrooms.

3) The junk is still sitting.  It’s not that people are buying anything- the apartments that need work often are sitting (sometimes not) and if it’s overpriced, buyers will wait or bid very low.  The lesson?  Come out of the gate well-priced or underpriced, and let the market decide how much the property is worth. 

4) The hottest part of the market are 2-bedrooms under $1mm and 3-bedrooms – there’s not a single three-bedroom under $1.25mm on the West Side that doesn’t have multiple bids.  It’s shocking.  I’m exaggerating, but not by much. 

Onto the other segment of the market in which I do have business- the One Bedrooms.  On the East Side, there is more inventory than anywhere else.  It is simply taking longer to sell these.  2005 pricing is very common.  If you are priced higher than these numbers, your property may sit.  But even if you have a well-priced property, a one-bedroom is taking longer to sell- the buyers out there right now are looking at everything, and their confidence is much better founded in reality than the buyer I mentioned above.  I have one-bedroom buyers who have a view of what an apartment is worth in this market- and they are getting much closer than one might think.  It’s not a seller’s market for a one-bedroom.  Well-priced units are selling, but only at the right price and in the right location.  One can feel the frustration building a little bit with sellers.  I have sellers who will opt to take apartments off the market rather than sell at too large a loss- and since there seems to be a gap between the sales price of the 1-bedrooms, and the demand (and therefore price) of the 2-bedrooms, circumstances must line up for buyers and sellers to come together.  Otherwise, patience, grasshoppers.  I’m not painting a great picture, and I’m sorry.

The last thing that I’ll leave you with is that there is still great optimism in Manhattan.  Buyers are feeling good about jobs, and our economy here is getting better.  We will see how it plays out.  I believe the one-bedrooms will start selling in the summer, when all the 2-3 bedrooms buyers hit the beach.

In reality, Frank Cronin writes me:  “Low rates are consistently still in the market…[it] will continue for some time. I also like the fact that our institution [HSBC]…offers pricing incentives (discounts to the rate)…lowering the rate even more.” 

Waiting for the other shoe to drop

I know that I’m shortening what he wrote, but it goes on and on…this is where it gets interesting.

“I do not think anyone should feel concerned about the government leaving the jumbo market.  Fannie and Freddie sets guidelines on a national level that actually hurt lending in NY…Fannie and Freddie blanket guidelines are meant for the mid to low value markets, yet because it blankets the county it deters the peak of the market because the guideline are designed for the high end, unique market.”

In a climate where nearly 100% of loans are underwritten and sold to the government- I’m so curious to see who picks up the slack if/when this lending stops.  As my dentist used to say when he’d check out trouble spots for cavities, “We’ll keep an eye on this one.”

Just to add to the positive news, another broker writes, “The good news is that home loan rates recently reached some of the best levels so far in 2011 – and rumors on Friday that Greece may leave the European Union helped Bonds, as traders sought a safe haven.”

Have a good weekend,
Scott

First, a seller should only agree on a mortgage contingency up to 75% of the purchase price, or 5% less than what is standard current lending practices (80% financing), if need be.  Even better, 5% less than what the building allows for financing- if a building allows for 75% financing on the contract price, a mortgage contingency should be for 5% less than that- or 70%. 

Want to leave your deal to Him?

Another request from a buyer would be an appraisal contingency.  I am very much NOT in favor of allowing  this.  It’s absolutely insane for a buyer and seller to put his or her deal in the hands of the guy making $350 on the appraisal.  He gets paid whether the deal goes through or not.  I just don’t think that an appraiser has the crucial data available to him- past closed sales are already 3-12 months out of date (for condo and cooperative deals) and are fully out of touch with the current market.  An appraiser doesn’t see the comparables he is using- other than calling a broker or looking at photos.  We all know how misleading some apartment photos can be – there is so much room for error here, especially in undervaluing an apartment’s contract price, and OVERvaluing a terrible apartment that ultimately is a bad comp.  Because someone sold an apartment in a fire sale, an estate sale, a job move, a divorce- there are a million reasons why an apartment sold for too low.  A unit that is not renovated will sell at a much lower price than the same apartment, completely renovated.  To put it another way- a gorgeous, renovated apartment trades as a premium.  Why would a buyer run screaming for the hills when this happens?  There simply an information mismatch between the market and an appraiser- a buyer should realize that a great apartment in the greatest city in the USA will have demand- these apartments don’t come up every day. 

A selling broker and a buyer’s broker need to make sure a buyer understands the dynamics here.  If you only have to bring your toothbrush to an apartment – the euphemism for a sparking new apartment- you don’t have to pay hotel tax, but you do pay a bit more.

We’ve been able to put deals together or keep deals together by reassuring buyers that they are STILL paying 10% below the top of the market.  Qualified buyers aren’t creating these issues- it seems that attorneys and appraisers are.  Five years from now, most buyers will be thrilled to have bought their apartments at the “bottom.”  We’ll do our best to make sure the deals go through!

Even Lincoln Thought Your Apartment Was Overpriced

Former Senator Moynihan wrote, “Everyone is entitled to their own opinions.  They are not entitled to their own facts.”  I love that quote.  Certainly, brokers are entitled to think their properties are worth what they are listing at- but pricing often strains credulity. 

I’m working with a great guy in finance who is depending on me to work out the ultimate contract price.  He already feels that now is the time to make a purchase happen.  I am seeing rates drop today.  Joy!  But I’m seeing crazy prices.  Here’s a good example.  Click here to see it.  Apartment is beautiful, views are amazing.  But $999k?  It has such a limited pool of buyers- and one can get a 2BR apartment for this price- this will trade below $900k.  No doorman, no amenities- And we’re seeing this disconnect still with sellers.  I realize that you bought your apartment at the top of the market.  And if one is trying to sell without losing money in that situation- if that’s your only goal- I don’t have good news for you.  However, if you’re upgrading- you should be able to be successful.  It just takes a broader view of things.

That’s all for today.  Let’s get some realistic sellers!

1) Jobs keep picking up in NYC, to the tune of 17,000 per month.  Unemployment is now down to 8.7%, 8.8% state-wide.  New Jersey isn’t doing that badly, either.

2) Rates continue to stay flat, for far longer than expected

3) Inventory remains low

4) Rental prices are moving up, up, up

1) Yes, the jobs are being added.  Yes, they are being added in all the right places.  This is very, very good news for the market.  Currently, there are 7,875 listings on the market.  That’s up from about 7400 3 months ago.  This is entirely consistent with the time of year, when many go on the market.  Compare that to about 9,500 July 2009 and to 4,800 in January 2008.  We are in a healthy market- defined by an inventory of about 8,000.  The biggest lagging indicator, which will appear in all of the 2nd quarter reports, is a massive jump in volume in the 1st quarter.  There’s been a jump of over 30% in the number of deals.  That is huge. 

My feeling?  We’re going to see more things go into contract, as rates push slightly up by the end of the year.  The impact of rising rates will be muted by the demand for pricing.  So we’ll likely see pricing go up, but just a tiny bit.  If rates stayed flat, we’ll see even more pricing pressure upward. 

2) See my discussion on mortgage rates by clicking here.

3) Inventory would have to jump almost 30%  to create an issue.  I don’t see that happening anytime soon.  It’s really slightly below absorption rate, which means if we see a dip in the summer of properties, due to those that are not priced well and are taken off the market, and those that sell, we will actually see this number go down- better for sellers.  We’re seeing bidding wars for properties that are well priced in the 2-3 bedrooms market, and the luxury market is seeing activity not seeing since 2007-2008.  This fully depends on the neighborhood, type of building, etc.  Anecdotally, I’ve been involved on either side of bidding wars in the last 3 weeks of properties up to $2mm.  We haven’t won them all, but the inflection points seem to be slightly under $1mm to avoid the mansion tax, or where the mortgage amount stays under the $1.1mm max for tax deductibility.  

4) There was an article in the Times two weeks ago discussing the rent vs buy argument.  Yes, yes- rents are going up- as much as 20% from last year.  And yes, renting can still be cheaper than buying here in NYC.  (see this calculator here) But as rents continue upward (as jobs get added), as more people move into the city- Bloomberg is talking about 800k-1mm people in the next decade- it’s not as much of an argument about what a purchase should cost versus renting- it’s about what’s actually on the market- and if demand to purchase stays strong- and continues to- I doubt we’ll see the downward pressure on prices to equalize- one might argue that we’ll see the upward pricing on rentals to make it more of a wash.  But a different tack on why things are priced where they are has to do with capitalization rates- we don’t have to dive too far into this, but 3-4% cap rates are the norm on condos purchased by investors.  That’s assuming an all-cash purchase.  Quite hard to find better returns on condos.  These investors benefit from both improving rental markets and appreciation if/when they sell. 

Further, if inflation ever comes- and one has to think it will, the mix of inflation/interest rates/improving economy will be an interesting one to watch.

Happy Passover, if you celebrate it!

Scott
Harris Residential Team

Prepared by Gregory Heym Chief Economist, Brown Harris Stevens

NYC Unemployment Rate Holds At 8.9%

• New York City’s unemployment rate was unchanged in February, at 8.9%.

• For the first time since June of 2010, the NYC and national rates were the same. The city’s rate had been lower than the national rate for the prior seven months.

• The national unemployment rate has fallen almost a full percent since November of last year.

Finance Hiring Picks Up in NYC

• New York City payrolls rose by almost 37,000 over the past 12 months, helped by increased hiring in the financial sector.

• During the 12 months ending February 2011 the finance sector added 10,700 jobs, its best year-over-year gain since March 2007.

• Education and health services, and professional and business services were the leaders in job growth, each adding over 16,000 jobs over the past year.

• Job losses continue to be led by the government, manufacturing and construction sectors.

On this Spring Friday, I’m thrilled to share some of what’s going on here at the ranch, known officially now as the Harris Residential Team.  I was given the green light by BHS ownership to begin marketing my team under this name, which is complementary to Brown Harris Stevens as well.  The brand that has been crafted since 1873 is so important to maintain, and I’m proud of the work we do, work that is consonant with that brand.  In this light, you can expect to see some great changes going forward, in our capacity to do great things for our clients, and in the way I will be marketing the team.  There will be a number of big announcements in the coming weeks- and I’m so excited to share them with you soon.

Main things you can expect over the next few weeks and months:
1) The Practical Home, in terms of name and branding, will get a makeover
2) My team will continue to provide a growing array of services for you – and our branding and new marketing will be more consistent with what we area already doing.
3) Not that it impacts you at all, but our back-of-house is getting lots of upgrades, which will streamline the way that we can help and advise our clientele- Our technology at BHS is getting an upgrade- so faster x, y and z, all for the better for you.
4) Some surprise announcements!
5) Continuing to have a sense of humor along the way…

Have a great weekend,
Scott
@ the Harris Residential Team

Job Title: Intern – Marketing and Communications

Description:

A Top-Tier Team at Brown Harris Stevens, New York City’s oldest residential Real Estate Firm founded in 1873, is looking for a summer intern.   This is an internship for an aspiring marketing or real estate professional, wanting to learn about the dynamic residential real estate industry in New York City.  Duties will include:

• Preparing Assisting in preparation and creation of mktg collateral materials
• Preparing property
• Answering phones
• Market research
• Data Entry and Maintenance
• Coordinating calendar for Top Tier Vice President at BHS
• Communication between members of the team
• Maintaining Blog and Website for the team
• Tracking real-time market changes (new listings) and trends
• Research for client communications
• Preparing mailings (print and email) to prospective clientele
• Assisting in new systems and tools integration
• Online Research

Computer savvy is a must, including expertise in Google applications, the standard Microsoft Suite.  You will be working closely with Team Coordinator, as well as Team Director.

Industry:                Residential Real Estate, Marketing
Job Type:                Part Time/Full-Time
Salary:                   Paid
Location:               New York, NY
Start Date:             Late May 2011 through Summer, Schedule Flexible to accommodate an excellent intern

Company Information
Name: Harris Residential Team @ Brown Harris Stevens

Info:
Led by Vice President, Director Scott Harris, The Harris Residential Team at Brown Harris Stevens has been involved in the marketing and sales of over $500mm in residential sales and marketing since 2002.  The team guides, advises, and partners with their clients on the purchase and sales of condominiums, townhouses, and cooperative apartments throughout Manhattan and areas of Brooklyn.  The team is dedicated to providing the very best expertise and market knowledge about the New York City real estate market, while creating life-long relationships with its customers.  Smarter clients are happier clients.

Location:

Two Fifth Avenue
New York NY 10011

Submit Resumes by email to:
Emily Cipolla, Team Director ecipolla@bhsusa.com

The Harris Residential Team @
Brown Harris Stevens
Two Fifth Avenue
New York NY 10011
212-317-3682