Gregory J. Heym
Executive Vice President, Chief Economist
By Lauren Elkies
Financial news has been bleak as of late, with the credit crisis and the collapse of Bear Stearns rocking the real estate world.
Yet while sellers of lower- and mid-priced homes have suffered, some real estate watchdogs maintain that the market for trophy properties has remained insulated from price fluctuations.
Can that hold up with the economy headed downward? This month, The Real Deal set out to get a sense of how the ultra-high-end of the market was faring. We looked at sales of $20 million and over in the first two months of 2008, and compared them to sales in the first two months of 2007. We also gathered data for the top 25 sales between January 2007 and March 10, 2008. Sales ranged in price from $26 million to a record $51.5 million-plus (see chart).
Data show that this top slice of the eight-figure niche is still holding up. The number of these sales doubled in the first two months of 2008 over the first two months of 2007. This January and February, there were 11 closed sales of $20 million and over, compared to five in the first two months of 2007.
Ultra-high-end prices also increased modestly year over year. This year, the average sales price of the top deals increased 5.7 percent, or $1.6 million, to $29.1 million from $27.5 million in 2007.
"When you have the rest of the country in the red, I think it's pretty impressive," said Kirk Henckels, an executive vice president and director of Stribling Private Brokerage, the company marketing the Plaza. But, he added, "It's more the quantity that's overwhelming."
Still, there's a caveat: These closed and recorded transactions culled from the Real Estate Board of New York, Miller Samuel, PropertyShark, city filings and press reports reflect deals negotiated at least several months prior. That means that deals actually done during the beginning of this year in the backwash of the Bear Stearns collapse are not yet in the public record.
Also, the ultra-high-end market did not perform as well as it has in recent times.
In the overall market, the median Manhattan sales price went up 6.4 percent between fourth quarter 2006 and fourth quarter 2007, said appraiser Jonathan Miller, president and CEO of Miller Samuel.
In the luxury slice, defined as the upper 10 percent (which Miller put at transactions with a value of $2.8 million and above), the median sales price increased between fourth quarter 2006 and fourth quarter 2007, a more sizable 28.4 percent.
So the ultra-high-end's 5.7 percent rise in average price was, in Miller's view, nothing to celebrate.
"A 5.7 percent change in average price is consistent with the median price of the whole market, rather than the double-digit price growth in the upper end of the market, but we are dealing with a small data set," said Miller.
The top sale on record in the first two months of this year was $11 million more expensive than the priciest sale in the first two months of last year — $46 million compared to $35 million. The $46 million sale, a record price for a New York City co-op, was for a 17-room, seven-bedroom duplex penthouse at 1060 Fifth Avenue. The buyer was hedge funder Scott Bommer and his wife, Donya, a former television anchor. Brown Harris brokers Fritzi Kallop, John Burger and Mary Rutherfurd represented the seller, poet and writer Georgia Shreve.
The top sale in January and February 2007, in contrast, was a four-story townhouse at 36 East 75th Street, which the Russian Federation purchased for $35 million.
Stribling & Associates started the year off well. The company did 12 co-op sales of $20 million or more — closed or in contract — in January and February, said Henckels. That represents more ultra-high-end co-op sales than the company did in all of 2007.
Kyle Blackmon, a vice president at Brown Harris Stevens who has sold units in the hyper-elite 15 Central Park West, thinks that this year, the market could be OK despite the economic gloom.
"You're going to see some major properties closing over $20 million at 15 [Central Park West] in the next four to six months," he said, basing his opinion on deals in contract. He added his personal take on the Manhattan condo market: "I feel very confident that there will be deals in the $50 [million]-plus range."
If the Henry T. Sloane Mansion on East 68th Street — a townhouse listed by Brown Harris Stevens senior vice president and managing director Paula Del Nunzio for $64 million — garners its asking price, it would set a new record. This year is certainly on pace to see some eyebrow-raising deals, with four deals at 15 Central Park West around the $50 million market slated to close soon. Brokers are holding out hope that homes could fetch even more than the $50 million.
Using a wider lens
Availability seemed to be the name of the game in Manhattan's ultra-high-end residential real estate market between the beginning of 2007 and the middle of last month (the most logical cutoff point at press time), with sales at 15 Central Park West dominating the list of closings in the high-end market.
"With luxury apartments, it's just a matter of what's available, because they are in such short supply," said Gregory Heym, executive vice president and chief economist for Terra Holdings, parent company of Brown Harris Stevens and Halstead Property.
Since new development sales close in clusters, it's logical that there would be a surge in sales at 15 Central Park West between the end of last year and today. The Robert A.M. Stern building accounted for one-quarter of the top 25 closed and recorded deals between January 2007 and the middle of March 2008.
"When there are trophy properties out there, especially 15 [Central Park West], they get snapped up," said Brown Harris Stevens' Blackmon, who sold Penthouse 20 at 15 Central Park West to Citigroup chairman emeritus Sanford Weill for $42.4 million. The Weill purchase was the sixth highest-priced sale between January 2007 and mid-March 2008, and the third most expensive in 2007 alone.
Sorted by price, the most desirable properties are still around Central Park and along Park Avenue. Fifth Avenue beat out the other avenues in the number of homes trading hands, claiming seven deals. Next was Central Park West, where there were six deals, all in Arthur and William Zeckendorf's 15 Central Park West.
There were two exceptions farther Downtown: one at 845 United Nations Plaza for $34.3 million, and the other at 11 West 10th Street, which, at $34.5 million, broke the record for the most expensive residential sale Downtown.
The top publicly recorded sale over the approximately 14-and-a-half-month period was the $51.5 million condo at the Plaza Hotel to developer Harry Macklowe. Including the money he doled out to acquire seven contiguous raw-space units, Macklowe reportedly spent around $60 million, a record residential sale price ($51.5 million was confirmable by looking at public records, and the remaining amount was not; see chart on page 61 for more details).
The other Plaza sale to make the list was the $25.8 million purchase by recently resigned Bear Stearns CEO James Cayne.
The second-priciest sale overall was the $50 million purchase of 15 East 64th Street by Russian oil magnate Leonard Blavatnik. He purchased the 31-foot-wide mansion from Seagram liquor heir and music executive Edgar Bronfman Jr. It was the second-highest price ever paid for a townhouse, behind the $53 million Harkness Mansion purchase in 2006.
Despite the possible recession the country is now in, good properties are getting snapped up.
"In any market, there are properties that are exceptional, and those properties will find buyers who will perceive their value," said Brown Harris Stevens' Del Nunzio, who brokered the Harkness Mansion deal as well as the No. 3 deal on the top 25 list, the $49 million sale of the Milbank Mansion at 14-16 East 67th Street, once owned by Penthouse magazine founder Bob Guccione.
Despite so many high-flying sales, Miller of Miller Samuel said there are likely difficulties ahead.
With some prognosticators putting financial sector layoffs at around 20,000 over the next two years, the high end of the real estate market faces difficulties, Miller said.
“Marketing times will expand during this period of uncertainty,” he noted.
Also, sales activity in the overall market is down as of late last month, Miller said, which may soon show up in the data.
“There has been less sales activity so far this year compared to the same point last year,” Miller said.
And it’s only a matter of time until sales prices follow suit.
“There can be a lag time of a year or more,” Miller said, estimating that price depreciation could be evident next year.
Tuesday, April 01, 2008