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Buyer's market the new normal in NY property
THREE guests arrived for the recent opening of a three-bedroom rental in the Sutton Place neighbourhood of Manhattan that had an asking price of US$12,589 a month. But no one brought a cheque book - most likely on account of the yoga pants.
The visitors were there for a pop-up fitness class led by hOM, a startup that holds social and wellness events in unused office spaces and vacant apartments.
Such is the state of New York's luxury housing market, where repurposing, rebranding and, crucially, repricing luxury apartments has become the new normal.
Amid a glut of new inventory, deals are still happening, but not before buyers and renters exact their pound of flesh. And with continued uncertainty about the economy, rising mortgage rates and the prospect of higher taxes looming, the market isn't likely to improve soon.
So what hath the buyer's market wrought?
Price cuts are deepening, and agents expect more sellers to bend next year. Some developers are negotiating sweeteners, like offering to pay transfer taxes or common charges for a year or more. The rental market shows improvement, but uncertainty remains.
And the slowdown has persuaded a growing number of developers to get creative with empty apartments - enlisting tech startups that flip unleased rental units for extended-stay travellers or turning unused living rooms into makeshift amenities. Others have doubled down on high-end marketing, while some have delayed listing properties altogether. Even film and TV crews are in on the act, as location scouts turn to empty luxury apartments for inspiration.
Through the first three quarters of the year, 84 per cent of ultra-luxury listings - the priciest 10 per cent in Manhattan - sold below the original asking price, up from 65 per cent in 2015, when the market was riding high, according to StreetEasy. The median price cut remained unchanged at US$500,000, which could suggest sellers need to cut deeper still, said Nancy Wu, an economic data analyst for the company.
"It feels worse when you're out in the trenches," said Donna Olshan, president of Olshan Realty, which puts out a weekly report on contracts signed on properties seeking US$4 million and up. That segment has taken an average of 441 days to go into contract so far in 2018, the longest stretch since at least 2013, when similar homes spent 172 days on the market. Through Dec 2, US$4-million-plus homes were reduced on average by 9 per cent before a contract was signed, but Ms Olshan believes that after sellers make additional concessions, the actual discount is closer to 15 or 20 per cent.
She predicts that 2018 will finish with 6 to 10 per cent fewer US$4-million-plus contracts signed than last year, when 1,172 were signed, and roughly 20 per cent fewer than during the peak year of 2013.
The broader Manhattan sales market has also shown weakness. In the third quarter, resales, which make up about 85 per cent of sales, spent an average of 104 days on the market, 11 per cent longer than during the same period last year, according to a report from the brokerage Halstead. The median sales price fell to US$1.1 million in the third quarter, down 4.5 per cent from a year earlier, according to Douglas Elliman. Overall, there were 6,925 units for sale, up 13 per cent from a year ago.
In many cases, however, winning concessions from sellers is like pulling teeth.
"It's very hard to tell an owner who wants US$8.5 million that it's worth US$6 million," said Frances Katzen, an agent with Douglas Elliman. "They don't want to hear it, and they usually end up firing the agent."
But cut they must. Nikki Field, an agent with Sotheby's International Realty, represents the second brokerage firm to work on selling the 10,000-square-foot, triplex penthouse at 212 Fifth Ave, in the NoMad neighbourhood of Manhattan. In 2016, it languished at US$68.5 million. Ms Field and her team came on the next year and raised the price to US$73.8 million, but by this November they had relisted it for US$62.8 million, an US$11 million discount.
Along with lowering the price, they added more than US$5 million in furnishings and art to the formerly raw space, from luxury brands like Fendi Casa and Bugatti Home to works by painter Carroll Dunham.
"And I'm pretty confident this purchaser will buy every inch of furnishings," said Ms Field, adding that she has seen strong interest since the price drop. If the property sells for close to the current asking price, the sale will top the downtown record of US$59 million, set this year with the sale of a West 24th Street penthouse, said Jonathan Miller, an appraiser.
With new competition coming to market, coupled with general buyers' hesitance, time is of the essence for sellers. "Asking too much and passing that three-month point is death," said David Walker, chief executive and a founder of the brokerage firm Triplemint.
His agency has recently urged clients, especially those with homes priced over US$4 million, to hold off officially listing their properties for about a month, while Triplemint quietly builds interest and gets feedback from prospective buyers. The hope is to get qualified bidders, and a sense of the property's real worth, before wasting days online.
To find motivated prospects, the agency aggregates user data from its website and pulls from a mix of third-party subscription services to narrow down a list of likely buyers. Mr Walker would not reveal the sources of the data, but similar strategies have mined consumer purchases to find people who might be more likely to buy real estate because of a major life event like marriage or pregnancy.
"None of these things mattered in 2017, when the market was stronger," he said.
Softness in Manhattan's luxury market has helped the rental market in recent months, but there is still cause for concern.
In October, the rental vacancy rate fell to 1.49 per cent, the lowest level for that month in nine years, according to a Douglas Elliman report. But that was also the 41st consecutive month in which the share of landlord concessions had increased over the previous year. Some 41 per cent of leases included sweeteners, like a month or more of free rent, up from 28 per cent in the same period last year. And over the next several years, more than 22,000 rentals are expected to be built in Manhattan, about half of them in some stage of construction, according to Nancy Packes Data Services.
In some cases, hard-to-sell condos are seeking renters in the short term, which adds more competition to the rental market, said Jennifer Stutz of Olshan Realty. While the rental market improved last quarter, she said, heading into 2019 "it's still up in the air".
The uncertainty has allowed companies like Blueground to get a foothold in New York. The company signs one- to three-year leases on luxury apartments, many of which would have otherwise sat vacant on the market, and then flips them, fully furnished, at a premium for the travelling business class. Blueground, which was founded in Athens, near the height of Greece's economic crisis in 2013, already has 230 units in New York, from major property managers like Rose Associates and Related Rentals, and up to 20 units in a single building.
Other startups, like hOM, the yoga and social events planner, have given developers and landlords another use for vacant space. At Aalto57, the luxury rental tower in Sutton Place, residents attending an intimate yoga class sat in lotus position, barefoot on the new hardwood, facing an expensive Bertazzoni gas range in a luxury three-bedroom apartment. The unit was listed in November for US$12,589 a month and comes with two months of free rent.
The events are a way to increase tenant retention in the building, said Francesca Loftus, the company's chief executive. Property managers pay hOM a subscription fee, from US$2,100 to US$30,000 a month, to plan events for residents in amenity spaces and unused apartments.
"There's this sort of word-of-mouth marketing benefit," said Scott Marino, executive director of multi-family management for Rose Associates, the property manager. Residents who take classes in such units might someday want to upgrade, he said. NYTIMES