Diane M. Ramirez
COVERING ALL THE BASES, NEW YORK’S PRINCIPAL REAL ESTATE GURUS MAKE THEIR MARKET PREDICTIONS FOR 2006.
Edited by Alexa Caravia
Photography by David Paler
This winter, Haute Living invited New York’s leading industry professionals in the multimillion dollar commercial and residential real estate markets to discuss several issues relating to the Big Apple’s speedy apartment absorption. Celebrity moderators Braden Keil, Amir Korangy and Peter Slatin probed the panelists about the ins-and-outs, ups-and-downs and rumored bubble talk of New York ultra-luxe living.
KORANGY: In large, the developers that we talk to, especially the ones that have been around for a long time, say that the development boom that’s been going on in the city and around the country reminds them of the 1970s. If you go back to the 1970s, a lot of those developments never finished because there was too much development. Is that a concern for a lot of the developers that you talk to or are people still dying to get their hands on some land and build as they did a year ago, two years ago?
DE FRANCA: I still see a very, very healthy appetite for acquisitions. We can be specific to two of the most recent properties that are on the market: 170 E. End Ave. and 15 Central Park West, where the developers pay the highest price per square foot among many other properties. And from what I understand, all the projects are selling and there is still a demand for high-priced apartments. I can’t remember too much about the 70s because I was still a student (laughs). I do remember, though, our economy was not very healthy in the late 70s, and there was crime in the city. If we look at where we are today, it’s a very, very different city that we’re in and a much more stable one and a very desirable one.
KEIL: It’s great that everyone’s here. These are most people that I can’t get on the phone (laughs). I’m actually going to get a little more specific about prices in the city. Condominium studios and one-bedrooms seem to be maintaining their price levels better than any other category in the city. Conversely, the two-bedroom and larger [units] are seemingly at their yearly lows. So, from a strategic standpoint, would it be a good time for the present owners of these smaller units that are thinking of upgrading to a larger unit to sell these smaller units now and buy a larger unit because they seem to be, not depressed, but not at their highest?
CANTOR: I think we’ve seen, in the last six months, a move to downsizing condominiums in terms of development. We are seeing that yes, the studios and one-bedroom apartments are moving at a tremendous speed, and they are holding their prices. But I’ve seen a greater demand for larger units, which has really surprised me very much. We’re seeing people combining apartments; we’re seeing high-priced apartments moving very quickly and very easily. So I think that we’re doing what developers are doing. There’s no reason we shouldn’t. We all know there’s a huge amount of money that’s going to be flowing out of Wall Street in the next three months, and I think that we’re going to see a little bit of a change in the market.
HERMAN: I think that there are two sets of buyers. But I do think a lot of business people that come here, rather than rent something, will buy a smaller apartment and have a place just to hang their hat; whether they’re here once a month or twice a month.
STRIBLING: I think one of the most important things, really, is the elephant in the room; there are just not many really fabulous, big apartments available. And I know of one example that all my colleagues know, an apartment that came out at $40 million dollars and sold immediately, within weeks. The buyers are out there. The reason the numbers seemed like the prices were going down was because there was more volume in smaller apartments because for larger, grand units, buyers just may not have a good choice right now.
MALIN: I think that everyone talks about the upper end of the market that’s being hurt. I don’t necessarily know if it’s being hurt. I just think that a lot of lower-priced apartments are moving quickly because people want to get in before the perceived change in rates, and if rentals continue to go in the way they’ve been going, it’s just pressing a whole different marketplace.
PETERS: You know, the little-apartment market was kind of like the little engine that could for the last five years, and it’s been driving everything. But now I’m talking about both the condominium-apartment market and the co-op market; those are both much more active in the higher prices than they were in the preceded three or four months. And what we’re seeing is the absorption rates for those apartments that were lingering on the market-most of the inventory which had been lingering has been absorbed. And to some degree, that has had to do with the fact that prices have been adjusted to appropriate levels. This is a point I want to make very strongly: The perception that prices were coming down was incorrect from day one. Those price reductions that many articles have been written about as heralding a downturn in the market are not heralding a downturn in the market; they are heralding the acknowledgement by sellers that they cannot price ahead of the market any longer.
KEIL: Do you think inventory would probably also apply? I mean, if you have people that are throwing these big numbers out for apartments that they can’t possibly get; I’m thinking $70 million apartments.
PETERS: I think that we would all agree that we’ve seen a substantial absorption of units in the $20-, $25- and $30-million range. I think many of the condos and co-ops have come out of those ranges. We saw one of our competitors bring out an apartment for $21 million on Fifth Avenue a couple of weeks ago that was a wreck; nothing had been done to it in 30 years. It was sold within a week. People are bending over backwords to find the money to buy these units. Cause they want to own in New York City.
DE FRANCA: [Related] sold three units between $10 and $30 million at Time Warner Center in the past month, and we’re down to two remaining units at Time Warner, so it is showing the stability in the high-end level in the market.
SLATIN: Susan, what are some of the circumstances and conditions that you find elsewhere in the county-in Los Angeles, in Chicago? What are some of the similarities in the marketplace, in what people look for?
DE FRANCA: What we’re seeing is the demand for vertical living. Some of the West Coast states are now looking at the way that we’ve lived; that we’ve had all our amenities and services at our fingertips, and these other markets want it too. We are developing a luxury project in Century City, and we also just bought the former St. Regis Hotel.
MALIN: We have a project in Philadelphia, the St. James, and it was the largest, new residential-construction rental product with the highest price per square foot that they had seen in that city; and the basis and reason for it was that they wanted to build a New York-style rental complex in Philadelphia to capture that market and bring a product that wasn’t existing before. It’s a lifestyle play, and they want to make sure that they’re delivering product in a city that didn’t have a product.
SLATIN: That walk to work certainly helped kick off residential development conversions in lower Manhattan several years ago, and it’s continuing now. How deep is that market, and how much deeper will it get? And if anyone wants to tackle the question, should there be residential in Ground Zero?
RAMIREZ: I actually live in Downtown, and it is a lovely community, a well-kept secret to some degree. The parks are fabulous; the services are there. It’s got a ways to go still, but it is a community already that is there, and everyone that lives there is committed to it. The schools are terrific, there are lots of families down there, and it’s a great place to raise children. We need more residential, and I believe it will come because the demand is there.
KORANGY: When you pay $3,000 to $4,000 per square foot, what kind of amenities do these developers have to put in there to compete?
LANSILL: To me, it’s changed from amenities to lifestyle. Ian Schrager is leading the chart with highly sophisticated lifestyle-driven products. At 50 Gramercy Park North, for instance, he is offering what he’s termed estate management, where they will provide dog walkers, find babysitters for you, etcetera.
RAMIREZ: I really think it’s lifestyle, not so much amenities anymore, that’s so important. It’s, “Can you make my ease of living better?” And that’s lifestyle.
KEIL: We’re hearing a lot about the Wall Street bonuses. I think they’re at a projected record high for next year, but they were pretty high last year, and they were pretty high the year before. Haven’t they already bought the properties they’re going to buy?
HERMAN: I think this is probably the first time that you have multiple generations all buying at the same time. You have the WWII generation, you have the baby boomers and you have their kids; and that’s all in one market, so that’s very different.
LANSILL: I would say that the title of this magazine [Haute Living] is where we are in the market right now. We have buyers buying real estate because they’re buying fashionably.
SLATIN: Speaking of the buyer, is there a surprise buyer or a new buyer out there? Or is it the same old buyer?
STRIBLING: Plain old rich Americans (laughs).
2006 MARKET PREDICTIONS
KEIL: We have to wrap it up. We want your predictions on where you think the market is going to go for 2006.
STRIBLING: As most people in this room know, I’m the cheerleader for New York City. We are extremely optimistic for the first quarter of 2006. We’re following a pattern here, and it looks like it’s a good pattern.
RAMIREZ: I’m very optimistic about 2006. I think we’re going to see a healthy and sustainable rate of growth.
De FRANCA: I’m equally bullish on the market-New York’s a destination market, the cultural capital of the world, I believe. And I really feel because we are on stable footing right now, that we are primed to have great levels of absorption, and that many of these new properties that aren’t selling quite well are going to be absorbed. So, I see a very strong market.
MALIN: You hear the positive news about Wall Street bonuses; the economy’s moving in the right direction. The things that everyone felt were going to have major drawbacks, in terms of the hurricanes, in terms of fuel prices; none of those things have really put our market in the state of any negativity, so I feel that the economy’s going to move forward. I think the market's going to move forward, and I think people are going to look at that reality shortly.
LANSILL: Every time I read an article about the bubble or something that implies the bubble, I take a deep breath, and I remind myself that we are selling real estate. We have the good fortune to be selling real estate on an island, an island that cannot be expanded, and almost every parking garage in the city is a suspect for a commuted element. So I think that you should invest in parking garages (laughs). But I also think that there’s still considerable scarcity here, and I think that 2006 is going to be successful for the people who price responsibly.
CANTOR: I guess we have to be positive; this is our business. But I truly am positive. This year, I think it’s going to be a very strong market. I think, actually, prices may be stronger than maybe even Dottie [Herman] had mentioned in terms of leveling off. And I look at absorption because our second market is preconstruction and projects, and I think absorption is going to be strong. No one is mentioning the other side of the equation, prices of construction and land; and land has leveled off a bit, but construction prices are going up and I think that is, strangely enough, going to drive prices up, along with the rental market.
PETERS: It’s hard to comment at the end of such an illustrious group (laughs), but I, too, I would have said almost exactly what Elizabeth [Stribling] said; that it’s hard to predict more than six months out. There’s every reason to be optimistic about a very strong first quarter and a strong second quarter as well, given not only our economic situation here in the city, the beauty of the city, but also the national economy and the continuing low interest rates. I’m assuming that January or February sees the end of the fed-rate heights, and then we’re in a more stable financial environment. The one other thing I want to say is that I often say to my brokers, You know, there are three kinds of markets; there’s a buyer’s market, there’s a seller’s market and there’s a broker’s market; and what we’ve moved into is what I like to call a broker’s market, in which it’s really up to the broker to make the deal. The word negotiation has once more entered our vocabulary after an absence of a number of years (laughs), and I actually think that’s terrific because it means we have the opportunity to make buyers and sellers equally unhappy (laughs). You know you’ve struck a good deal when the buyer and the seller are equally unhappy with what you’ve compelled them to do, and we’re once again in a situation where that opportunity is afforded to us. And in the end, what that means, is that both sides of the transaction come away feeling satisfied, and I think that’s really worked for us.
HERMAN: Well obviously I am suggesting 2005 was Douglas Elliman’s best year, as I would assume for most companies. So, we at Douglas Elliman are looking not at 25-30% appreciation in 2006, but I am looking at a more normal year. I do think special or one of a kind properties will always sell for extreme prices, as the market is always there.
• BRADEN KEIL | The New York Post
• AMIR KORANGY | The Real Deal
• PETER SLATIN | The Forbes/Slatin Report
• RICHARD CANTOR | Cantor & Pecorella
• SUSAN DE FRANCA | Related Residential Sales
• DOTTIE HERMAN | Prudential Douglas Elliman
• JAMES LANSILL | The Sunshine Group
• GARY MALIN | Citi-Habitats
• FREDERICK PETERS | Warburg Realty
• DIANE RAMIREZ | Halstead Property
• ELIZABETH STRIBLING | Stribling & Associates
• BLUE STAR JETS
• DOM PERIGNON
• KRIEGER WATCH
Thursday, February 16, 2006