Gregory J. Heym
Executive Vice President, Chief Economist
Main Street Pauses
By JOSH BARBANEL
ON the co-op and condo-lined streets of Manhattan, where Main Street and Wall Street are one, real estate was on everyone’s mind, as always, last week, but the nature of the conversation had changed.
Kirk Henckels, the director of the private brokerage at Stribling & Associates, was traveling in Italy last week, but was on the phone reassuring a friend who was thinking about backing out of the purchase of a pricey Park Avenue co-op, even though he had already made it past the finicky board. The call followed a week of financial failure, government rescues and plummeting stock prices.
“You are buying a home, not I.B.M. or Goldman Sachs stock; this is a long-term purchase,” Mr. Henckels said he told the caller, and assured him the co-op would rise in value by the time the reluctant buyer decided to move on.
Mr. Henckels said he, too, was worried that the trophy apartment market might have been wounded in the financial disarray of the last few days. In this uncertain time, real estate is the safest place to put one’s money, he said, after Treasury bills.
Other brokers worried about the fate of pending sales to customers who worked at Lehman Brothers, who may or may not have jobs after the fog of the investment bank’s bankruptcy filing clears.
Shai Shustik, the president of Manhattan Residential, a brokerage firm, represented a Lehman banker scheduled to close on a $1.3 million apartment in the East 40s in Manhattan. He was in suspense all week, but by late last week, there were no signs the mortgage had been pulled.
After meeting with groups of brokers in Manhattan, Pamela Liebman, the president of the Corcoran Group, said she had not heard of a single buyer who had to walk away from a signed contract, though one renter got concessions before signing a lease.
Above all, there is a sense of uncertainty. Some sellers, she said, are holding apartments off the market, worried about selling into a panic. “The buyers are not exactly running for the hills, but they are definitely pitching their tents,” Ms. Liebman said. “They are waiting. They are holding off. There are many people who are in negotiations who decided to wait.”
Gregory J. Heym, the chief economist for two brokerages, Brown Harris Stevens and Halstead Property, said some clients wanted to pause and take a simple timeout. “People don’t want to make a decision out of fear or panic,” he said.
At the upper end, said Paula Del Nunzio of Brown Harris Stevens, distinctive properties are drawing buyers. “Everyone continues to keep their appointments, continues to keep their contracts and continues to keep their closings,” she said.
New York suffered a huge collapse in residential real estate in the 1990s, set off by a stock market crash in 1987, which over time reduced the number of financial jobs and caused a deep local recession. For brokers who lived through those lean times, it is the possibility of a longer-term collapse in sales and prices that is most worrisome.
Dolly Lenz, a broker at Prudential Douglas Elliman, recalled a time where there were 10,000 one-bedrooms “that nobody who wanted” but that eventually sold, many to Japanese and Asian investors.
Jonathan J. Miller, the president of the Miller Samuel appraisal firm, often recalls appraising a studio that had so little value he could have put the entire purchase price on a credit card.
But many changes in New York City and its real estate market since then make a repeat of the deep quagmire of the late 80s and early 90s less likely — barring a complete financial collapse.
In the mid-1980s, Mr. Miller said, there was a huge construction binge in Manhattan that produced a surplus of apartments. In the recent boom, he said, lenders were more careful, and a year ago began cutting back on lending for new developments, thereby curbing overbuilding.
Robert A. Knakal, the chairman of Massey Knakal Realty Services, noted that in the early 1990s, the vacancy rate for rental apartments was 5 percent; now it is just above 1 percent.
And in the 1990s, Ms. Lenz noted, New York’s star did not shine as brightly as it does today. That was a period of declining services, rising worries about crime, and even doubts that a city as big and complex as New York was even governable. But crime has been declining for years, and parks and streets have been spruced up.
“New York was always on the verge in the 1990s,” she said, adding that whenever she travels now, “at all dinner parties, New York City is the most talked-about city in the world.”
Wall Street, too, has changed since the 1990s. The legions of lower-paid back-office workers who toiled in the financial district are long gone, and there has been an influx of wealthy managers of hedge funds and private equity groups. Even the physical face of Wall Street has changed. JP Morgan Chase’s downtown headquarters at 75 Wall Street is being converted into condos and a hotel, and a onetime home of the stock exchange at 55 Wall Street is being marketed as the Cipriani Club Residences.
In the 1990s, Mr. Henckels said, the only buyers of expensive co-ops were top bankers who got bonuses. “Now the top of the market is made up of hedge fund and private equity people,” he said.
Sunday, September 21, 2008