Halstead Property

Gregory J. Heym
Executive Vice President, Chief Economist
(212) 546-1069

Ivana Tagliamonte
Exec. Vice President
Village Office
Tel: (212) 381-6575
itagliamonte@halstead.com

Louise Phillips Forbes
Exec. Vice President
Park Avenue Flagship
Tel: (212) 381-3329
lphillips@halstead.com

Foreigners May Save NY Real Estate From Wall Street Weakness

By Josee Rose

Manhattan's luxury real-estate market may feel an unusual chill from the Wall Street crowd this spring.

Despite early worries that 2007 bonuses would fall dramatically below the record levels set in 2006, overall bonuses only came in about 5% lower. But at companies such as Merrill Lynch & Co. (MER), a greater percentage of these bonuses was paid in stock rather than cash. Combined with the continued housing meltdown, credit mess and recession fears, luxury real-estate agents have noticed a lot more caution among buyers using Wall Street bonus money. However, the wariness of Wall Street is being offset by growing interest from foreign buyers who see New York luxury real estate as a bargain right now, especially in light of the weak dollar.

"It's caution versus eagerness, when comparing Wall Street buyers to foreign buyers," said Ivana Tagliamante, senior vice president at Halstead Property in New York. She said foreigners probably account for 50% of condo showings today, a figure that was closer to 10% two years ago.

Elizabeth Lee Sample and Brenda Powers, brokers at Brown Harris Stevens, agreed, saying three out of five prospective buyers are foreign, up from one out of five buyers a year ago. "Foreign buyers are more than picking up the slack of the American buyer without question," said Sample. "There's a huge demand from foreign buyers right now, more so than last year, and that's making up for Wall Street hesitancy."

The usually eager Wall Street crowd has taken a step back this year and, while they are still buying luxury real estate, they are "shopping carefully," said John Burger, senior vice president and managing director of Brown Harris Stevens. "People may not feel as liquid after their 2007 bonus as they did after their 2006 bonus," he said.

According to data from Brown Harris Stevens, the number of luxury sales, or property priced at $5 million and higher, rose 20% for the first six months of 2007. "At that end of the market, some of that has to be attributed to Wall Street bonuses," said Gregory Heym, executive vice president and chief economist at Terra Holdings LLC, a privately held real-estate company.

Louise Phillips Forbes, executive vice president of Halstead Property, said she has noticed a cautiousness among buyers spending around $2 million. However, "there's 30% more buyers because of Europe," she said.

Louise Sunshine, developer director of Alexico Group, a real-estate development company in New York, agreed. "People are much more conscious of what they are paying for," she said. "Last year they were over-the-top in terms of luxury. This year it's not quite as frivolous."

For 2008, it is back to basics and, in real estate, that means space, location and lighting, according to Burger. "These are the fundamentals that you can't change, and they are crucial at the top of requirements," he said.

Buyers with whom Sunshine worked "are looking for more at-home amenities." She cited sales at the Laurel condominium on the Upper East side, a building that includes a triathlon training center, a family lounge, game room, arcade, computer room and library. She explained for families living at places like the Laurel, "the public spaces of the building are extensions of their home space," and they want to make sure they have top-notch amenities if they are paying top dollar.

But despite the desire to have more space or a better location, market turmoil is causing some buyers to hold on to their properties for a little bit longer. For example, some buyers with whom Forbes is working decided to put off making a real-estate decision right now. "They're deciding to wait six months," she said. "Or if they're bidding on something, they're just giving the asking price."

Tagliamante said at the end of January when the stock market fell and closed at its lowest point in a while, two purchasers withdrew offers. "One tried to renegotiate the price for about 10% less than what they were expected to pay," she said.

Compounding the situation is the shortage of luxury properties on the market. According to Jacky Teplitzky, a managing director at Prudential Douglas Elliman in New York, the number of luxury apartments (including co-ops and condominiums) fell 35% to 887 units for the fourth quarter of 2007 compared to the fourth quarter of 2006.

Forbes said there has always been a scarcity of luxury apartments above the $5-million mark, and Teplizky said one reason for the shortage of Park Avenue and Fifth Avenue apartments "is that people are staying put because they want to see how this situation will play out," she said.

Agents said that, despite the uncertainty of the financial markets, they are still making deals, citing the condominiums at the Laurel, 15 Central Park West and the New York Plaza at Fifth Avenue and Central Park as prime locations of interest.
"Clearly, 2007 was the year the Manhattan residential real-estate market hit its peak levels across the board," said Burger. "In 2008, the sentiment is that there'll be a certain leveling off."

Tuesday, February 12, 2008