Thoughts & Predicitions from Industry Pros Looking Back, Looking Ahead

Thoughts & Predicitions from Industry Pros

 For pretty much every business sector you can think of, 2009 was a roller  coaster of a year—and real estate was particularly hard-hit. Some industry professionals have  weathered the storm, while others have packed up and moved on from the  uncertainty of this tumultuous industry to seek better fortunes elsewhere. Now,  as the year draws to a welcome close, it may be a good time for not just  evaluating 2009, but postulating what 2010 might have in store. So we asked a  handful of New York real estate professionals to reflect back on this past year  and see if they can look into their crystal ball to forecast next year’s trends and challenges.  

 A Big Rough Patch

 Paul Purcell, co-founder of Charles Rutenberg Realty in Manhattan, frankly  admits that from December 2008 through March of 2009, “I didn’t want to get out of bed. We had no market, no volume and no deals being done.  We were off about 80 percent of our business. The day Lehman Brothers [went  under] was called the ‘day of death’ around here—it was like the faucet got turned off.” Purcell explains that fearful buyers were pulling back—even if it meant forfeiting down payments and fees for properties in contract.  

 “Even when you knew cooler heads should prevail, it was a frightening time for  all of us,” he continues. “It wasn't until late spring and early summer—right after Memorial Day—that the industry started to turn back on again. [Buyers] had been waiting on  the sidelines, looking for prices to be attractive. Combine that with  incredible interest rates, and these people decided they were going to go for  it. These are just anecdotal reports, but the feel on the street seems to be  that there’s a renewed confidence now.”  

 Raffi Arslanian, a principal with New Jersey-based RSA Development Group LLC,  saw 2009 as the eye of the economic storm—and says that the full effects still haven't been felt in the area.  

 “New York City is not immune to market conditions,” he says. “Buyers are seeing greater drops in price in New Jersey, and consequently their  appetite for looking there has sharpened. First-timers and much younger, less  affluent buyers are making their way to the suburbs because New York City is  still beyond their reach, regardless of the extent of price reduction.”  

 In addition, Arslanian says that despite the economic shake-up, it's not the  super-affluent who will feel the burn in the real estate market so much as the  everyday homeowner or buyer.  

 “As always, the [most affluent] groups that are insulated from this economy are  not affected,” says Arslanian, “but the heavily-leveraged groups are, and they will continue to be in trouble.  It’s sad to see that the TARP [Troubled Asset Relief Program] money extended by the  federal government has been funneled to institutions without any directive to  its use, instead of refinancing the individuals and families in need. There are  no real mechanisms to relieve the common homeowner, so more and more will  surely go into foreclosure and the trend will continue throughout 2010. On the  other hand, I do suspect that the end of 2010 will start to show some  resolution.”  

 A Slow Comeback?

 “We started the year with a lot of inventory and price corrections,” says Jacky Teplitzky, managing director of Prudential Douglas Elliman. “Very few transactions happened in the spring—but the summer surprised all of us.  

 Buyers came to the market and bought. Sellers who couldn’t get their prices either took their apartments off the market or rented them  out, so inventory started to go down. September till now saw additional  activity and even bidding wars—it was like a voice from the past!”  

 Sandra M. Radna of the Manhattan- and Smithtown-based law firm Radna & Androsiglio, LLP agrees that things may be creeping back toward normalcy—though it will take time, and “normal” is a relative term when talking about New York City real estate.  

 “I think that the 2010 co-op and condo markets will have a slower comeback than  the housing market because of the decreased reserves held by co-op and condo  boards for repairs,” says Radna. “[Less reserve funding] may cause maintenance fees for these buildings to remain  high—even if the cost of the residence itself has decreased.”  

 Ed Schor, a broker with Apartment Buyers Alternative in Manhattan says that the  recession has made sellers more realistic in their pricing. “More than one-third of sellers in the third quarter [of 2009] cut their asking  price, but this was less than the number who cut asking prices last year. It  indicates that some modicum of realistic expectations has settled in,” he says. “If realism reigns on both sides of the transaction, deals will happen. So, I  think maybe we’re out of free-fall and into a good time to buy, if not to sell.”  

 For her part, Radna isn't so sure the market has quite bottomed out yet. “I hope that we've seen the bottom of the recessionary downswing,” she says, “but it may get worse again before there is a complete recovery.”  

 Radna also suspects that the hot neighborhoods and communities in 2010 will be simpler, smaller, more affordable homes near areas where work is more readily  available. “I think homeowners are thinking 'practical' instead of 'glitzy',” she says. “The fancy neighborhoods far from business areas with long commutes will make  less sense for those trying to stretch every penny.”  

 Neighborhoods to Watch

 It's long been a real estate truism that in tough times, it's the oldest, most  established neighborhoods that hold their value best, and the fringey,  up-and-coming or not-quite-gentrified areas that are likely to backslide the  most in terms of value and desirability.  

 Teplitzky feels this will likely be the pattern as the market attempts to right  itself in the coming year. “We're back to more traditional established neighborhoods,” she says, “The Upper East Side, Upper West Side, Gramercy and Park Avenue South. Harlem  will continue being hurt, because it went up too fast. Long Island City might  suffer; if people can get the same apartment for the same price in Manhattan,  they will bypass LIC and head for the city.”  

 Schor agrees, saying he sees some markets struggling to reclaim the kind of  growth that characterized the pre-recession years. Neighborhoods like Red Hook,  Fort Greene, Greenpoint, Long Island City, and Williamsburg may take longer to  bounce back from stalled development and slow sales. “Far West Manhattan will resume its growth, but at slower pace—and the Upper East Side, Upper West Side, Tribeca, Midtown East & West will hold their own,” he says. “I’m not certain about the Financial District.”  

 Alon Chadad, vice president of Manhattan-based brokerage firm NestSeekers  International concurs that “the Brooklyn waterfront will take some time to get back,” but disagrees with other pros' concerns about Long Island City. “I think Long Island City is not producing enough housing fast enough,” says Chadad. “We are selling everything over there and running out of inventory. Long Island  City will continue to thrive. The Upper West Side will continue to expand and  take more and more families from the entire city and the West will be the new  East. I think that the Financial District will take another year or two to  clean up the mess of failed projects and clean inventory. Otherwise, the rest  of the city will continue to thrive.”  

 Looking Forward, Branching Out

 And how the city and industry manage to thrive may have more and more to do with  fundamentals, like customer service, and adapting to a changed landscape.  Margie Russell, executive director of the New York Association of Realty  Managers (NYARM) sums up her year-end assessment of 2009 this way. “The economic conditions have been a wake-up call to all who serve building  clients,” she says. “Every person and every company must know that nothing is guaranteed, no gravy  train exists, and all should consider everyday an opportunity to justify their  earned income.”  

 As for what she sees happening as the real estate industry continues to feel its  way toward better days, “I predict we will see a huge upsurge of English-as-second-language trainings in  our industry. Why? Because of the new, more stringent federal EPA lead paint  laws that take effect in April 2010, building service workers and contractor’s workers must pass a written test prior to receiving their certification. This  test is only given in English and Spanish.  

 “This means a big change in the skill set that is required for the entry level  building worker,” Russell continues. “If a written test is required to perform lead-safe work practices and that test  can’t be successfully completed, then the building service worker—by law—can’t fulfill that particular task. [Building administrators] will then have to make  a decision as to how they will enforce a literacy requirement,” Russell says.  

 A Saner, More Stable 2010

 Again and again, the professionals interviewed for this article heralded the  return of stability and rationality to what had been in recent years a  market-gone-wild.  

 Chadad also says that the spiraling price increases and breakneck pace of new  development around the city in the past five years was getting out of control. “It stopped making sense,” he explains. “A person would buy a property and then put it back on the market a year later  for double the price. The recession in a sense has acted as a correction to  that out-of-control atmosphere.”  

 Teplitzky is also cautiously optimistic. “In my opinion, 2010 will bring pricing stabilization,” she says, “and might even bring price increases if the inventory levels continue to  decrease. I'm wishing for stabilization and for the roller coaster ride in the  financial world to come to an end. Also on my wish list: no more corporate  bankruptcies; lower unemployment numbers, and no major bad events—tsunamis, earthquakes, hurricanes. Basically, a peaceful, uneventful year!”  

 Going forward, Purcell says he would also like to see “moderate and steady growth, instead of a wild ride. We seemed to have gotten  confused with what real estate is. It’s not a liquid [asset]—it’s a home. We got tied up into this exponential growth and trying to make money  from it, and that's simply not the way it should be viewed. You must be able to  afford your home and weather things in good and bad.”  

 For his part, Arslanian says, “I would like to see a degree of consolidation in municipal services to relieve  the enormous tax burden to our homeowners. Tax incentives are gimmicky and  perishable. We need to live more vertically. I would like to see an even  principle of life applied across the board with less room for corruption or  manipulation. Financially, the markets are finding their level—and they should be left alone without grand interventions.”  

 In this new era, Schor says, “Things may not be as good as before the economic debacle, but as a relative  matter, reason should prevail and value find its way back into the market.”  

 Lisa Iannucci is a freelance writer, author and a frequent contributor toThe Cooperator.

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