March 15, 2016

As The Fear Builds You Get A Herd Mentality

WNYC reports on New York. “Elegant new condominium towers of glass and steel are rising in neighborhoods all over the city. With some units costing tens of millions of dollars, many New Yorkers have come to regard these buildings as little more than piggy banks for the global super-rich. Now, the U.S. Treasury Department says it is concerned that luxury real estate is vulnerable to money laundering through all-cash sales to anonymous shell companies. Starting March 1st, Treasury will run a pilot program scrutinizing big-dollar purchases of property in Manhattan and Miami.”

“David Szuchman, chief of the investigation division at the Manhattan District Attorney’s office, expects the monitoring program to yield valuable information. ‘This would be one of the first attempts we have to be able to show that in a broad based way that cash is running through this city from crimes committed elsewhere, or in the United States,’ Szuchman said. ‘And nobody wants their buildings being bought up for that purpose, nobody wants dirty money being injected into Manhattan.’”

From NY Press. “The Bauhouse Group’s 900-foot condo project on Sutton Place is the latest luxury residential development to suffer from a lack of funding, as investors are increasingly wary of financing projects at the top end of the market due to a surplus in inventory and a tepid outlook on whether affluent buyers will materialize down the road. ‘There is a stall in the luxury market with too much product already,’ said Phillia Kim Downs, a luxury real estate broker with Brick and Mortar. ‘Real sellers are slashing prices across the board to compete with all the new developments out there.’”

“Downs said there was low inventory in the high-end market in 2013 and 2014, ‘but times have definitely changed.’”

Real Estate Weekly. “The growth of the ultra-luxury residential market in New York City has seen developers looking to top each other with more and more opulence. But lately, there have been signs that the price party might be over. ‘In New York City’s luxury tier, we’re already seeing prices decline,’ said Alan Lightfeldt, data scientist with StreetEasy.”

“‘As developers rushed to meet burgeoning global demand, luxury homes represented the vast majority of new product entering the market between 2014 and now. With demand beginning to wane, we’ve seen a considerable increase in the length of time that luxury units spend on the market – a reflection of oversupply at this end of the market – and prices among top-tier homes in Manhattan have actually declined each consecutive month since May 2015,’ he said.”

The New York Times. “For the ultrawealthy, 2015 was an embarrassment of riches. But after years of dizzying appreciation, the values of luxury assets are plateauing and in some cases plunging. Volumes have shrunk, prices are being cut and some auction lots are going unsold. ‘We’ve just come through a boom unlike anything I’ve experienced in 30 years in the business,’ Jonathan J. Miller, chief executive of Miller Samuel, a real estate appraisal and consulting firm, said of the market for high-end sales. ‘The hard asset buyers have all cooled at the same time.’”

“Rather suddenly, it seems, the voracious spending appetites of newly minted billionaires from Russia, Brazil and China have cooled off. In Manhattan, some sellers of luxury real estate have slashed prices. The asking price for a Park Avenue townhouse dropped $18.5 million, to just under $30 million; a seller cut the price for a Central Park South apartment by $7 million late last year, to below $18 million, and has since taken off another $2 million. Neither property has sold.”

“It appears the ultrarich are as vulnerable to the laws of supply and demand as everyone else. Despite auction catalog copy that stresses adjectives like ‘rare,’ ‘unique’ and ‘irreplaceable,’ the supply of luxury assets for sale has surged as prices have climbed into the stratosphere, driving down prices. On or near 57th Street, where developers are vying to build the world’s tallest residential apartment building, five major towers are in various stages of construction. ‘Now that all these towers are visible, and not just holes in the ground, people are realizing that there’s a lot of this kind of product coming on the market,’ Mr. Miller said.”

Crain’s New York. “New York City’s real estate market is showing telltale signs of slowing after an extraordinary three-year run. Among the recent string of sobering reports is news that a 10-story building in Brooklyn Heights will fetch a price 25% below the $300 million or more for which it was initially projected to sell. The parcels are considered prime places for both residential and commercial development. Brokers said the decrease mirrors a precipitous drop in the value of land sites in the city by 20% to 25% so far in 2016.”

“Tumbling land values, which had reached $1,000 or more per square foot for prime sites, are a reflection of the growing weakness in the city’s high-end residential market. Developers Joseph Beninati and Bruce Eichner are both facing foreclosure in Manhattan after failing to lock up the loans needed to begin building. As many as 20 other sites may be unable to secure construction financing, and may stall and face foreclosure, predicted Dennis Russo, who leads the real estate practice at law firm BakerHostetler in New York.”

“‘Until the middle of last year, no one was fearful, but today a higher percentage of people are,’ said Bob Knakal, Cushman & Wakefield’s chairman of New York investment sales. ‘Markets are psychological, and as the fear builds you get a herd mentality that comes into effect.’”

Bits Bucket for March 15, 2016

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