Gregory J. Heym
Executive Vice President, Chief Economist
By Sharon L. Lynch
New York City's residential real estate market is showing the first signs of fallout as U.S. banks and securities firms cut the most jobs in seven years.
Manhattan apartment sales fell in January and February from a year earlier and new properties came to the market at the fastest pace since at least 2000, according to data from New York-based real estate appraiser Miller Samuel Inc. Transactions slid 6.4 percent to 3,250, while the number of condominiums, co- operatives and townhouses for sale at the end of last month climbed to 6,225, 15 percent more than at the start of the year.
Declining sales indicate that the nation's most expensive urban property market may founder this year as Wall Street retrenches, said Miller Samuel President Jonathan Miller in an interview. Financial companies have taken at least $208 billion in asset and mortgage-related writedowns. They've cut 34,000 jobs in the past nine months with more to come from the takeover of Bear Stearns Cos.
"It's very much of a concern because while the share of jobs being lost is relatively small, the income effect is large,'' said Marisa Di Natale, senior economist at Moody's Economy.com, based in West Chester, Pennsylvania. "Wall Street bonuses and salaries in particular have been propping up the Manhattan real estate market.''
At developer Ian Schrager's 40 Bond St., the avant-guard lofts created by Pritzker Prize-winning architects Herzog & de Meuron aren't holding their prices. The Corcoran Group recently cut the price of a three-bedroom, 2,600-square-foot apartment by about 8 percent to $5.5 million. The unit features wide-plank Austrian smoked oak floors, 11-foot ceilings and access to spa services.
Bear Stearns Fallout
Manhattan apartment prices have more than tripled over the last 10 years as employment and population climbed and crime plummeted. The last time year-over-year prices dropped for a quarter was at the beginning of 2002, just after the Sept. 11 terrorist attacks. The last annual decline was in 1995, after the Federal Reserve increased interest rates seven times in a year.
JPMorgan Chase & Co.'s planned buyout of Bear Stearns, once the fifth-largest U.S. investment bank, is rattling buyers and sellers now, said Gregory J. Heym, chief economist for Terra Holdings LLC. The closely held company owns residential brokers Brown Harris Stevens and Halstead Property LLC.
"The amount of uncertainty, at least as long as I've been following the market, is unprecedented,'' said Heym.
Bear Stearns, based in New York, employs about 14,000 people worldwide and paid $2 billion in 2007 bonuses.
Property prices are continuing to rise, for now. They gained almost 14 percent to a median of $850,000 in the first two months of this year, Heym said. Miller, Terra Holdings and Corcoran will report first-quarter results this week.
Condo and co-op prices rose throughout last year, gaining 6.4 percent in the fourth quarter of 2007 compared with a year earlier, according to Miller Samuel. Nationwide, the Chicago- based National Association of Realtors reported the first annual decline in median U.S. house prices since the Great Depression.
The high end of the New York City market is the hottest. Buyers in the top 10 percent, those anteing up at least $2.8 million, paid 28 percent more in the three months ended Dec. 31 than a year earlier, according to Miller.
Sales at the Plaza, the famed hotel recently converted to condominiums, and the newly constructed 15 Central Park West have topped $6,000 a square foot. Former Citigroup Inc. Chairman Sanford Weill paid $42 million for his 15 Central Park West condo.
Scaling Back Expectations
The market is changing for what Brown Harris Stevens broker John Burger calls the "middle luxury'' category of $3 million to $7 million apartments. Many brokers are scaling back sellers' expectations.
"In 2006 and 2007, they looked at the last 12 months' worth of sales and priced their apartments at 10 percent more,'' Burger said. "Today they are sitting down with the soon-to-be listing broker and saying 'Do you think we can get what they got in '06?'''
Miller estimates the number of deals closed in Manhattan has fallen 6.4 percent and Heym at Terra says they have dropped about 4 percent. Neil Binder, co-founder of the Bellmarc Cos., said contracts signed at his firm in January and February were down 20 percent.
Finance jobs drive the Manhattan market. The median apartment price has roughly tracked Wall Street bonus income since 1997, according to Miller. Employment at investment banks accounted for almost 15 percent of the city's total privately paid wages in the first quarter of 2006, according to the U.S. Bureau of Labor Statistics.
More Job Cuts
Future real estate gains are in jeopardy over the next two years because Wall Street may cut another 25,000 jobs by 2010, Di Natale estimates.
Sellers are feeling the pinch.
Prudential Douglas Elliman Real Estate broker Liviya Abramov dropped the price of a West Village apartment almost 11 percent to $715,000 after the one-bedroom with a doorman and garden failed to lure a buyer.
"I had to convince my seller,'' Abramov said. "It's the market.''
Sunday, March 30, 2008