Stephen G. Kliegerman
President of Development Marketing
By Leigh Kamping-Carder
The truth about the Manhattan residential real estate market is that there isn’t just one Manhattan residential real estate market. Individual city neighborhoods can see drastic variations in price and sales volume, based on the availability of certain types of housing stock.
That’s never been truer than during the recent economic downturn, when bidding wars erupted over family-size Upper West Side co-ops, while Harlem condos lingered on the market for years.
This month, The Real Deal investigated which Manhattan neighborhoods have recovered the fastest since the housing slump and which are still suffering.
With the help of data from appraisal firm Miller Samuel, we ranked Manhattan’s neighborhoods based on the percentage growth of co-op and condominium sales between 2009 — the worst of the downturn — and 2011. The research revealed that sought-after areas like Tribeca and Soho bounced back almost immediately after the 2008 Lehman Brothers collapse. Others, like the Financial District and Midtown East, however, are still seeing a continued decrease in activity
“The credit crunch initially was just this across-the-board sweep of markets stalling and prices falling,” said Miller Samuel CEO Jonathan Miller.
“[But] then it becomes a function of the type of housing stock in each neighborhood, [which] reflects how the aggregate data improved,” he added.
In 2009, that meant neighborhoods that attracted first-time homebuyers lured by low mortgage rates fared better. More recently, it’s meant those with a concentration of high-end properties are recovering faster, Miller said.
Additionally, the neighborhoods with the most drastic drops in sales volume had the most room to recover, while established areas like the Upper East Side and Upper West Side weathered the downturn with a relatively shallow decline in sales activity.
But since 2010, the volume of sales in those wealthier neighborhoods and in other core areas, like the West Village, have fallen slightly. The drop suggests that the economic worries of late 2011 — from the European debt crisis to lower Wall Street bonuses — had a more noticeable impact in the established areas than in cheaper areas like Harlem.
The recent dip that the established neighborhoods are seeing may also be related to an artificial boost in the fourth quarter of 2010 brought on by wealthy buyers picking up properties because they feared the expiration of the Bush tax cuts, Miller said.
As a benchmark for how the market has fared in recent years, Manhattan condo and co-op sales dropped about 28 percent between 2008 and 2009. Between 2009 and 2011, they rose 36.8 percent, hitting 10,161 transactions last year (roughly the same number as in 2010). Meanwhile, in the same period, average sale prices rose 2.4 percent, to $1.43 million.
Below is a rundown of the market recovery in order of the percentage sales growth in each neighborhood since 2009.
East Village and Lower East Side: For at least four straight years, sales volume in the East Village and the Lower East Side has been climbing. The rapidly gentrifying area saw 135 co-op sales in 2009, and that number had nearly doubled by 2011, jumping to 269 — the biggest jump of any neighborhood. (Condo sales are not included in the total because of the small volume of transactions.)
During the same period, the average sale price shot up 57.5 percent from $636,249 to just over $1 million.
In the last decade, it has risen a stunning 138.3 percent.
Jon Varnedoe, a vice president at Prudential Douglas Elliman and a downtown specialist, attributed the growth to a steady demand for homes in the area without a corresponding increase in supply.
The neighborhood has, of course, gone through a major transformation in recent years, with the opening of trendy new bars and boutiques and, in late 2007, the New Museum of Contemporary Art. While some new condos have gone up — such as the 36-unit Village Green at 311 East 11th Street and the 48-unit 123 Third Avenue, both of which sold out within a year — the housing stock is still largely dominated by low-rise co-op and rental buildings. That inventory squeeze has meant that when apartments do come on the market they get snapped up fast.
For the last six to 12 months, buyers have adjusted their bids, forgoing lowball offers, Varnedoe said. Some of them are surveying the tight rental market and finding it cheaper to buy than to rent in the East Village or on the Lower East Side, he said, since the area is one of Manhattan’s most affordable. That is also increasing demand for the neighborhood.
Harlem: The Harlem home sales market was hit particularly hard by the recession: Transactions fell 43.6 percent from 2008 to 2009. While that precipitous drop would make any increase look formidable, Harlem’s sales numbers in 2011 also exceeded its volume from before the crash in 2008.
In 2011, there were 523 sales in the neighborhood (which also covers East Harlem, Morningside Heights and Hamilton Heights) — nearly double the number from the doldrums of 2009, and about 10.8 percent more than in 2010.
Developers added 1,596 new units in Harlem between 2006 and 2008, according to Stephen Kliegerman, president of Halstead Property Development Marketing, and created a glut during the downturn.
But “most of the major condo stock from three years ago is gone,” Kliegerman said, estimating that absorption levels are roughly 10 or 15 percent higher now than this time a year ago.
While the story of a gentrifying Harlem is nothing new, since late 2010, the area has seen even more new businesses opening, such as Red Rooster, a Marcus Samuelsson restaurant, and the Harlem Tavern, a beer garden. That growth, along with residential prices that are a relative bargain, has been a potent attraction.
Demand is not reflected in prices, however. Harlem buyers are particularly price-sensitive, Kliegerman said, and tend to stick to their budgets rather than pay more for larger apartments.
The average price in Harlem rose a modest 3.74 percent to $590,801 in 2011, up from $569,492 in 2010. And although prices have risen 41.6 percent in the last decade, that’s the lowest percentage increase of any part of Manhattan.
Battery Park City: Battery Park City’s sales market has steadily improved over the past few years, a substantial 64.2 percent from 123 transactions in 2009 to 202 in 2011.
But Battery Park City suffered more than other neighborhoods during the downturn, since all of the condo towers — the only type of home for sale on the 92-acre site — are subject to land leases, explained Pierre Moran, an associate broker with DJK Residential who specializes in the area
Because of the land leases, only a small fraction of the buildings are Fannie Mae–approved, and few banks were willing to finance buyers there during the credit crisis, Moran explained. It wasn’t until 2010, when Wells Fargo began lending in the neighborhood, that the market started to pick up, he said.
Prices in the neighborhood haven’t quite kept pace with sales volume; the average sale price in 2011 was just over $1.2 million — about 34 percent less than in 2009. But that may have something to do with the types of units that are selling: The increase in activity has primarily been with studios and one-bedrooms.
Compared to a decade ago, average prices are up about 150 percent, more than any other neighborhood.
Soho and Tribeca: The popular residential neighborhoods of Soho and Tribeca saw a steep dip in activity in 2009, followed by a sharp rise in 2010 and an ensuing plateau.
Between 2008 and 2009, sales activity dropped almost 41 percent to 287 closed deals. In 2010, however, activity rapidly shot up 64 percent to 477 deals. About the same number was clocked in 2011.
Prices in the neighborhood have been largely unscathed by the real estate downturn, however.
The average sales price, the highest in the city, has hovered at about $2.5 million for the past three years, likely as a result of a decrease in inventory since early 2009 as properties have been grabbed off the market without being replaced by new product. More recently, buildings like Reade57 and 77 Reade Street have come online.
The spike in sales may be partly the result of new services that have made the neighborhood even more attractive to families, said Elliman’s Sonia Stock, who lives and works in Tribeca. That includes the growing reputation of Public School 234, known as the Independence School, a Whole Foods, which opened in 2008, and other improvements.
Additionally, with much of the area’s housing stock made up of converted warehouses, such as 250 West Street, Tribeca and Soho are enticing families with large loft apartments offering flexible floor plans, Stock said.
“If you have good schools and nice parks — if you build it, they will come,” she said. But, she added, “there’s low inventory for Tribeca and Soho when it comes to these large open loft spaces,” which means properties tend to get snapped up quickly when they come on the market.
Midtown West and Clinton: In the last two years, sales in Midtown West and Clinton have been as hot as the more common name for this stretch of the West Side: Hell’s Kitchen.
Though activity in the area hasn’t quite reached pre-crash levels, sales volume has grown 63.5 percent from 326 in 2009 to 533 last year. Still, that eye-popping figure is partially a result of plummeting activity following the crash: Sales fell a whopping 53 percent between 2008 and 2009 in this neighborhood — a steeper decline than in any other area.
Daniel Hedaya, the president of Platinum Properties, noted that the transformation taking place in the neighborhood — where his residential brokerage recently opened an office — has been significant. New additions are bringing more residents to the area. They range from Hudson Yards, to the planned extension of the No. 7 subway line on 42nd Street, to the numerous new towers, such as the Dillon, an 83-unit condo at 425 West 53rd Street, and Related’s rental, One MiMA Tower. Between 2000 and 2010, the population of Clinton grew 13 percent, according to city figures.
“The whole residential profile of the neighborhood has changed,” Hedaya said.
Indeed, average prices are up about 129 percent over 2001, when residences averaged less than $500,000. Meanwhile, prices were up in 2011, increasing 12 percent over the previous year, from just over $1 million to almost $1.14 million.
While some of those planned projects are in their early stages, the promise of new towers and amenities coming to one of the last undeveloped parcels of Manhattan is already helping to boost sales numbers, Hedaya said. Buyers, he said, are betting on the future of the neighborhood.
West Village and Greenwich Village: With their height limits and historic districts, the neighborhoods of the West Village and Greenwich Village are largely dominated by low-rise co-ops and townhouses, with notable exceptions like the Superior Ink condo at 400 West 12th Street on the western edge of the neighborhood.
The building restrictions have kept a damper on new inventory and, combined with a steady demand, helped buffer the area against a post-crash slump.
Sales fell 20.2 percent from 2008 to 2009 — less than the overall Manhattan rate — and quickly shot up. Since 2009, volume has increased 53.4 percent, hitting 623 sales in 2011.
But more recently, the area saw a 3.9 percent drop in sales in 2011 compared to 2010. Armanda Squadrilli, a senior vice president at Elliman whose focus is the West Village, attributes the dip to a lack of listings.
“There is a very, very high demand, but not much inventory right now,” she said, noting that it is difficult to show buyers a variety of apartments, drawing out the process of making a deal.
Meanwhile, average prices were down 12.6 percent between 2010 and 2011, from $1.63 million to $1.43 million. That is still 4.6 percent off the average sale price in 2009 — nearly $1.5 million — although higher than the 2008 level of $1.3 million.
Union Square, Gramercy Park, Kips Bay and Murray Hill: The housing stock of Union Square, Gramercy Park, Kips Bay and Murray Hill is diverse. It encompasses ritzy co-ops and condos facing Gramercy Park, the less expensive high-rise co-ops of Murray Hill and Kips Bay and condo buildings, each planting their flags around Union Square and the Flatiron District.
But across this area, sales have risen steadily since 2009, jumping from 861 to 1,241 deals, or a middle-of-the-pack 44.1 percent increase, just slightly higher than Manhattan overall. Yet sales activity has not quite ascended to prior levels: The number of closed transactions in 2011 was still 4.3 percent lower than in 2008.
According to Jessica Huff,an Associate BrokeratHalstead Property, the inventory is tighter than ever, and sellers are finding buyers more readily than they have since the crash (although apartments that need work, or come with high monthly fees, are still a tough sell).
To cite one example, at 32 Gramercy Park South, a 185-unit co-op where Huff frequently brokers sales, there are currently two properties on the market. Last spring, there were 13 up for grabs, she said.
In 2009, five sellers listed properties in the building that ultimately never sold (they were either delisted or rented out), while in 2011, only one seller faced the same fate, according to Huff.
“I definitely feel a bounce-back,” she said
Inwood, Washington Heights and Fort George: The volume of sales in Inwood, Washington Heights and Fort George is rising faster than Manhattan as a whole, although not at the same rate as in Harlem and other neighborhoods north of 96th Street.
Between 2009 and 2011, the number of transactions increased steadily, rising 42.2 percent to 192 sales. But that activity is still nearly 10 percent lower than in 2008, when 213 deals closed in the area.
The market crash saw sales activity there decline 36.6 percent.
Meanwhile, average prices for homes in the area, which is dominated by co-ops, have declined a modest 4 percent since 2009. In 2011, an average apartment in the neighborhood, consistently the cheapest part of Manhattan, cost $366,828, a decline of 5 percent compared to the previous year.
The average price is still off by 16.1 percent from 2008, when it was $437,458.
But a historical look at pricing shows that residences here cost an average of just over $191,000 in 2001, meaning they have risen 92 percent in the last decade.
Midtown East: Since 2009, sales in Midtown East (which includes Turtle Bay) have grown by 29.2 percent to 853 sales — but that doesn’t tell the whole story of the market there.
Much of that growth occurred in 2010, when the U.S. government offered tax incentives for first-time homebuyers — a group that Julie Perlin, a senior vice president at Stribling & Associates, said is drawn to the neighborhood for its supply of less expensive one-bedroom and studio apartments in co-op buildings like 301 East 48th Street.
In fact, sales jumped 41 percent in 2010 over the year before. But the tax credit program expired — it applied to contracts signed by April 30, 2010 — and, with it, the sales bump in Midtown East.
In 2011, year-over-year sales dropped 8.3 percent.
Average prices followed a similar trajectory, spiking in 2010 to $1.55 million before falling 9.5 percent to $1.4 million in 2011. (The median price in 2010 was $880,000, closer to the $800,000 purchase price limit for the tax credit.)
The area had been among the hardest hit during the recession, with sales falling 39.4 percent from 2008 to 2009, and average sale prices sliding 27 percent.
But looking ahead, Perlin is optimistic.
“As long as we see rental prices going up in 2012, and interest rates remaining low in 2012, you’re going to see more buyers coming out and making purchases so that they don’t get tied up into rentals,” she said.
Upper West Side: Like the Upper East Side, the Upper West Side did not experience the same kind of boom and bust as other areas. There were 1,558 deals in the neighborhood in 2009, down from 1,972 deals in 2008. In 2011, the number of deals jumped back to 1,984 — 27.3 percent more than in 2009.
Also mimicking the Upper East Side, sales activity has fallen since 2010 — about 7.1 percent — and the neighborhood recovery is lagging the overall Manhattan market.
Lisa Lippman, a senior vice president at Brown Harris Stevens who is based in the area, was surprised to find the Upper West Side on a list of slower-recovering neighborhoods.
But she acknowledged that some of the factors that kept a lid on Manhattan-wide sales volume in the fourth quarter of 2011 may have had a bigger impact on the wealthy buyers of the Upper West Side.
Those factors include last summer’s Standard & Poor’s downgrade of U.S. government debt, the fear that Greece’s fiscal woes would spread and general worries about stock market volatility and lower Wall Street bonuses. A boost in 2010 from the feared end of the Bush tax cuts also had an effect, Miller said.
So far in 2012, activity has increased, while prices are holding steady, Lippman said. “Things that are priced right, we’re seeing a lot more multiple bids,” she added.
In the last decade, the volume of sales has become more evenly split in the neighborhood between co-ops and condos, as opposed to only co-ops.
Upper East Side: The Upper East Side, which accounts for about a fifth of condo and co-op sales in Manhattan, tends to experience less drastic swings in volume and price than other neighborhoods.
That held true during the most recent recession: sales volume dropped only 8.1 percent from 1,766 units in 2008 to 1,623 in 2009. Since then, deal volume has grown 26.7 percent, reaching 2,056 in 2011.
However, that represents a drop of 2.8 percent from 2010, partly the result of a bump prompted by the threatened expiration of the Bush tax cuts, and the macroeconomic woes of 2011.
But on the Upper East Side — where sales of co-ops outsell condos by roughly a factor of two to one — one key market factor is a mismatch between the types of units buyers are looking for and the type of units that are most readily available. Indeed, the demand for scarce three-bedroom and larger apartments popular with families coexists with an oversupply of one- and two-bedrooms in the neighborhood, said Carolyn Levitan, a senior vice president with Corcoran who focuses on the Upper East Side.
Meanwhile, construction of the first phase of the Second Avenue subway between East 63rd and 96th streets has scared away buyers along the stretch, she said.
“The quality of the neighborhood is not the quiet, charming Upper East Side that we once knew there,” Levitan said. “It’s affecting people’s willingness to buy properties on the Upper East Side. It’s making the neighborhood less desirable.”
Indeed, sales in Yorkville — which stretches from East 86th to East 96th streets and from York to Lexington avenues — have screeched to a halt, falling 2.5 percent from 2010 to 2011 after rising by 42 percent from 2009 to 2010. Sales also dropped on the Park and Fifth avenue corridors during that time.
However, those properties will no doubt appreciate substantially in value when the subway is completed, Levitan said.
Chelsea: It may seem counterintuitive, but Chelsea — which has seen no end of hype in the last few years, with the opening of the High Line and its accompanying influx of new luxury residential towers — has actually recovered slower than many other Manhattan neighborhoods.
While there were 601 closed deals in the area in 2011, up 20.4 percent from 2009, that increase has been slower than the growth of the Manhattan market as a whole. And it’s still lower than the pre-crash sales volume.
To some extent, this slower recovery is due to the fact that when the recession hit, Chelsea was already a well-established residential market. Indeed, sales in Chelsea fell less steeply than in other neighborhoods during the downturn.
Meanwhile, average prices have risen 13.8 percent since 2009, to about $1.5 million from $1.32 million, representing the second-highest neighborhood price increase.
“Sure, there was a slowdown in 2009 and 2010, but for the most part [Chelsea] has been a healthy neighborhood,” said Eric Zollinger, founder of Zollinger & Associates, a Chelsea-based residential brokerage.
Zollinger posited that the relatively low increase in deal volume could also be the product of inflated numbers in 2009. Some buyers signed contracts for new construction condos in 2007 and early 2008 that did not close until 2009, he said. For example, in 2007 he signed a contract to buy his own unit in the Caledonia at 450 West 17th Street; the deal did not close until December 2008.
This phenomenon would have impacted Chelsea more than some other places, Zollinger said, since “Chelsea saw a huge increase in buildings during the boom.”
Still, the area is made up of all kinds of housing stock, from prewar co-ops to walk-up rentals to glassy condo towers. “With Chelsea you certainly get a potpourri of any type of residential property,” Zollinger said.
Financial District: The Financial District may have transformed in the last decade, with its numerous office-to-residential tower conversions, but sales volume has fallen steadily for at least four years now. In 2011, sales activity fell to 363 transactions, a 4.2 percent drop since 2010 and a 15.4 percent drop since 2009, making the Financial District the only part of Manhattan with continually declining sales.
Likewise, average prices had been dropping since 2008, although they finally began rebounding between 2010 and 2011, rising 8.6 percent to $963,949 from $887,620.
It’s difficult to pinpoint the reason for the drop in sales activity, but Platinum Properties’ Hedaya suggested it might be related to a decrease in inventory. Condo projects in the area, such as the William Beaver House and 25 Broad Street, have gone partly rental, offering cautious buyers another option to purchasing.
The Occupy Wall Street protesters, who camped out in Zuccotti Park for weeks last fall, may also be partly to blame, since buyers were less inclined to look there, he said. He noted that was especially true for investors who shied away from the area during the protests.
“Wall Street was blockaded off for a few months,” Hedaya continued. “When you’re looking from an investment perspective, it’s difficult to look past that.”
Hedaya said that currently there is a lot of activity at the lower end of the market, or residences priced around $500,000. One World Trade Center is quickly rising, and the Fulton Street Transit Center is slated for completion in 2014, bringing new energy to the area.
“These are things that have been in the pipeline for so long,” Hedaya said, “but now people can actually visualize [them] being finished.”
Sunday, April 01, 2012