At the Real Estate Board of New York's first residential convention last month, there was a sense of elation
in the air. Not only was REBNY celebrating its 100th anniversary and the success of its new trade show, but there was a new sense of confidence in the future of New York City that has not been seen in nearly ten years.
All the top properties in the $1 million to $2 million range have gone into multiple bids this week in our office, said Elizabeth Stribling, president of Stribling & Associates Ltd., during the cocktail party at the end of the show. Others in the brokerage community echoed the sentiment that buyers are flocking back to the market. The rising demand, coupled with a paucity of large apartments, has led to price wars in the upper end of the market, something brokers haven't experienced since the late '80s.
A Long Slide Ends
From the stock market crash of 1987 until the mid-1990s, the city took a long downward slide, manifested by a drop in social services, an increase in crime and homelessness and a sudden end to the real estate boom of the 1980s. Although nowhere near as severe as the city's fiscal crisis of the 1970s, this economic downturn led to a loss of confidence in the New York real estate market. Families were afraid to invest in larger apartments, renters were afraid to buy and many apartment owners were having trouble selling their units when it came time to move. For those who had bought at the peak of the market, selling meant taking a substantial loss. Studios and one-bedrooms in marginal neighborhoods became almost impossible to sell at all.
Families Are Staying
But now New Yorkers are whistling a different tune. Families are staying in the city, says Joyce West, executive vice president and director of Greenthal Residential Sales, one of New York's largest brokerage firms. Family apartments are in big demand, confirms Frederik Warburg Peters, president of Ashforth Warburg Associates, a 100-year-old residential real estate brokerage firm located on Madison Avenue. Good properties are scarce; apartments are selling well in every category. The buyers are out there, he adds.
The city has been terrific on reducing crime and cleaning up the streets, says Marilyn Harra Kaye, president of The Prudential MLB Kaye International Realty. And as a result, she says, suburbanites are returning to the city. New York is considered a safe haven again. It is still the financial capital of the world, she adds.
Clark Halstead, founder of the Halstead Property Company, a real estate brokerage firm with four offices in Manhattan, also sees large numbers of families choosing to stay in New York. Applications at New York City private schools are at an all-time high, he says. He attributes this change partly to the fact that People feel more financially able, and partly to the erosion of New York's suburbs.
Wall Street Boom Fuels Real Estate
The incredible boom on Wall Street in the past two years has had a strong impact on the real estate market here in New York. When the stock market is good, our market seems to sail along with it, says Barbara Fox, president of the Fox Residential Group. She claims that 1995 was The best year we've ever had. Prices are as high as they were at the top of the marke ffb t.
Alan Rogers, managing director of Douglas Elliman, an 85-year-old real estate firm with over 270 brokers in New York City, says that the big Wall Street bonuses of 1995 have been driving the top of the market. In addition, investors who have benefitted from the record stock market increases are taking profits from their portfolios and buying second homes or trading up to larger apartments, he says.
We are a business that is very much associated with what happens on Wall Street, says Frederik Peters. And this year, the bonuses were big. Wall Street fires the whole New York City economy.
The Rent Versus Buy Equation
Professionals agree that the combination of a tight rental market and low interest rates have made small apartments much more attractive to first-time buyers than at any other time in recent years. In fact the Real Estate Board of New York's 1995 Cooperative Sales Report indicates that the purchase of smaller units was up in 1995, with most sales in the $100,000 to $200,000 price range as compared with 1994 when most sales were in the $200,000 to $300,000 price range. Overall sales volume was up nearly 13 percent.
These data are supported by The Corcoran Report, an analysis prepared by The Corcoran Group, one of New York's largest residential brokerage firms. This study shows that in 1995, 12 percent more one and two-bedroom apartments in the $100,000 to $250,000 range were sold than in the previous year. Barbara Corcoran, chairman of The Corcoran Group, attributes this to The unprecedented number of renters becoming buyers in 1995.
Clark Halstead, whose firm does a lot of rental business, points out that the tight rental market has reignited investor interest in smaller co-op and condo units. High rents and low interest rates help make the buy versus rent equation more attractive, he points out. First-time buyers absorbing the smaller apartments have buoyed the lower end of the market. There are not a lot of distressed units out there anymore, and there is no new product on the market, he says. In fact, his firm's foreclosure division, which was started about two years ago to capitalize on the many defaults of the early '90s, has essentially shut down. The foreclosures have all been absorbed, he says, and there are not a lot of new ones cropping up.
At a certain point, it becomes cheaper to buy than to rent, Alan Rogers explains.
Surplus Is Drying Up
The re-entrance of first-time buyers into the studio and one-bedroom market is one of the first indications that the surplus of small apartments is finally starting to dry up. Although it is still a buyer's market in studios and one-bedrooms, prices have stabilized and are no longer dropping as they were for so long, according to Alan Rogers.
We're short of inventory in all areas, says Clark Halstead, a sentiment that is echoed over and over again by those in the industry. There is very little available property, says Frederik Peters, adding, Good properties are scarce. Even the average properties are gradually getting absorbed.
We wish we had more upper end product, says Joyce West of Greenthal. There is so much demand for high end apartments, which she estimates have increased in price by about ten percent since 1994.
I've never seen such a low supply of pre-war apartments over $600,000 in my whole career. Almost everything is subject to multiple bids, adds Barbara Fox.
Marilyn Harra Kaye says that some of her clients have been combining apartments to come up with the square footage they need. Large pre-war apartments and even large modern apartments are hard to come by, she asserts. Even in the lower end of the marketone to two-bedroom apartmentstraffic has doubled, and more brokers are doing exclusives even for smaller apartments, according to Kaye.
New Optimism
The new optimism in the marketplace is reflected in the number of brokerage firms that are currently expanding. Prudential MLB Kaye is moving their main office to Fifth Avenue and currently looking to open a fourth Manhattan c14 office in the 70's or 80's as well as other satellite offices. The Halstead Property Company just opened a new office in Greenwich Village last December. They expanded out to the Hamptons last year when they merged with the East Hampton firm E.T. Dayton, and have plans to open a Southampton office soon.
Regardless of the ups and downs of the marketplace, there is no place on Earth like New York, and that will always be the case. As the REBNY residential conference wound to a close, Mayor Giuliani arrived to address the crowd. New York City is the greatest city in the world, he said, relating the story of how, after making that claim in his inaugural address, he got calls from Mayors all over the country asking how he could presume to make such a claim. But once he heard the Pope echo those sentiments on his visit to New York last summer, the Mayor now says, if you want to take issue with that proclamation, Take it up with the Pope.
Ms. Chesler is Executive Editor of The New York Cooperator.
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