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Crain’s New York Business

[Video] Steve Witkoff on future of Helmsley Park Lane Hotel

April 15, 2014 | 3:03 pm | crainslogo |

Daniel Geiger of Crains New York Business interviews well know developer Steve Witkoff on his plans for the Park Lane Hotel, formerly owned by Leona and Harry Helmsley. Steve talks about shadow effect and how he plans to let Vornado discover how deep the top of the market is via their nearby development site on Central Park South.

There has been a lot of discussion about “Billionaires Row” which these developments would be part of.

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NYC Construction Permits Surge, But Still Remain Below Population Growth

March 5, 2014 | 9:00 am | crainslogo |

3-14permitscnyb

Joe Anuta at Crain’s New York Business lays out the permit situation for building construction, which reached 18,000 units in 2013.

Citywide, 2013′s figure is still shy of the 20,000 units the congress estimates developers need to build annually simply to keep up with the growth of the number of households, to replace outdated buildings and to provide housing options for New Yorkers across the income spectrum.

With all the construction going on right now, it isn’t enough to:

  1. Keep pace with population growth.
  2. Help lower the cost of housing by creating abundant supply.

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[Sienna Research] 4.7% of New Yorkers Want To Buy, Most Since Lehman Tipping Point

June 11, 2010 | 3:15 pm | crainslogo |


[click to open survey]

The Sienna Research Institute conducts a monthly New Yorker Consumer Poll every month. This month showed that more New Yorkers planned to purchase homes than immediately following the credit crunch in the fall of 2008:

4.7% of consumers in the state plan to buy a home this year, compared with just 3.4% in April and 3% in May 2009. As good as it is, the latest reading is still far shy of the three-year high set in June 2007, when 5.6% of New Yorkers said they wanted to buy. Conversely, in January 2009, at the lowest ebb in the last three years, a mere 2.2% said they would buy a home.

In fact the improvement in consumer attitudes toward housing are far more optimistic than overall confidence compared to 3 years ago.

New York consumer buying plans for homes are down 0.6% from the same period in 2007 while the New York Consumer Confidence Index is down 15.1% over the same period.

Apparently New Yorkers are more confident about their housing future than their overall lives.


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[Real Estate Quant] The Formula That Killed Wall Street + Housing

February 25, 2009 | 6:53 pm | nytlogo |

One of the most perplexing things I have not been able to get my arms around in the aftermath of the mortgage securitization/CDO collapse is: how did some many smart people get it so wrong?

Felix Salmon, one of my favorite econ writers and prolific blogger at Portfolio writes an amaziningly clear piece on this subject in Wired Magazine (I’m a long-time fan, but how many years can they go before they make money on it?) called Recipe for Disaster: The Formula That Killed Wall Street. It’s worth a thorough reading. I’d even consider reading it more than once.

It talks about the increased reliance on “brainy financial engineers” called quants and how they were focused on modeling risk without paying attention to historical trends as it relates to mortgage securitization (and we now understand the ultimate impact on housing markets).

In 2000, while working at JPMorgan Chase, Li published a paper in The Journal of Fixed Income titled “On Default Correlation: A Copula Function Approach.” (In statistics, a copula is used to couple the behavior of two or more variables.) Using some relatively simple math—by Wall Street standards, anyway—Li came up with an ingenious way to model default correlation without even looking at historical default data. Instead, he used market data about the prices of instruments known as credit default swaps.

The phrase “don’t kill the messenger” (probably used by many ethical appraisers commiserating about delivering bad news to a lender who didn’t want to hear it) applies here. This engineer profiled created a formula and the masses loved for its simplicity and were blinded by high profits, never looked deep enough to understand its misapplication.

Nassim Nicholas Taleb, hedge fund manager and author of The Black Swan, is particularly harsh when it comes to the copula. “People got very excited about the Gaussian copula because of its mathematical elegance, but the thing never worked,” he says. “Co-association between securities is not measurable using correlation,” because past history can never prepare you for that one day when everything goes south. “Anything that relies on correlation is charlatanism.”

It seems that smart people do not have all the answers. Here’s a nobel laureate in economics on Wall Street whose firm just filed for bankruptcy.



Crains New York Business Economic Spotlight Chart – February 2009

February 23, 2009 | 12:05 am | crainslogo | Charts |

I have had the pleasure of providing a monthly chart for the Economic Spotlight section of Crain’s New York Business magazine since September 2003. Here is the latest, which appears in the current issue of Crain’s New York Business.

Source: Crain’s New York Business

Go here for a complete archive of my Crains’s New York Economic Spotlight charts that have been published. They are organized by year.


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The 6th Highest Wall Street Bonus Payout In History, Girlfriend

February 1, 2009 | 12:07 am | nytlogo |

Last week the New York State Comptroller announced that Wall Street bonuses fell 44% to $18.4B and the securities industry losses may exceed $35B

Troubled Asset Relief Program (TARP), which infused billions of dollars into the financial system, helped prevent more institutions from failing. TARP placed restrictions on bonuses for top executives and many have voluntarily forgone bonuses, but it did not impose limitations for lower-level employees.

State Comptroller Thomas P. DiNapoli seems to be inferring that high level executives held back and the more pedestrian lower paid employees took the money? I don’t think so. Sure, CEOs at Citi and others witheld bonus compensation, but that wasn’t in the majority. In fact 79% of all Wall Street employees got paid a bonus this year.

In fact, although the bonus pool was down 44%, it was the sixth highest payout in history.

Here’s what I wrote about bonuses last year at this time. Much has changed, other than the concepts applied to compensation (hint: they’re not correlated with performance.)

That certainly important for the New York real estate economy, but given the credit crunch, it may not prove to be much help. Each January, the bonus compensation starts the real estate market engine.

Maureen Dowd in her Op-ed piece Disgorge, Wall Street Fat Cats suggests:

The president needs to think like Andrew Cuomo. “ ‘Performance bonus’ for many of the C.E.O.’s is an oxymoron,” he said. “I would tell them, a) you don’t deserve a bonus, b) where are you going to go? and c) if you want to go, go.”

Firstly, I think we all need a refresher course on what a bonus is:

bo⋅nus   [boh-nuhs] noun, plural -nus⋅es
1. something given or paid over and above what is due.
2. a sum of money granted or given to an employee, a returned soldier, etc., in addition to regular pay, usually in appreciation for work done, length of service, accumulated favors, etc.
3. something free, as an extra dividend, given by a corporation to a purchaser of its securities.
4. a premium paid for a loan, contract, etc.
5. something extra or additional given freely: Every purchaser of a pound of coffee received a box of cookies as a bonus.

I always saw bonus as a mislabeled compensation method – most see it as base pay plus commission. After all, the average compensation on Wall Street has averaged 40% to 50% of total compensation and bonus payouts have been at or near record levels over the past 6 years – based on nothing really. It morphed into a way to offload compensation risk to the employees. We’ll pay you half of your salary at the end of the year if we can, which morphed into no matter what.

Felix Salmon at Portfolio opines further on this point – that there is a minimum bonus payment level that must be made (seemingly contrary to Andrew Cuomo’s statement above).

Now there are good reasons for having a bonus system: it incentivizes profitable work, and it makes it easy for banks to pay less money in lean years. But as Bookstaber writes, there’s definitely an implicit minimum bonus at investment banks — a sticky level below which it’s hard to cut bonuses any further.

There are reasons to have a minimum bonus, rather than baking that money into base pay: it’s not included in pay-rise calculations, for starters. But when banks start getting multi-billion-dollar government bailouts, it looks really bad if they then just turn around and spend a similar amount of money on bonuses.

But resentment is growing and the campaign weary “Main Street vs. Wall Street” has found new life. Wall Street has lost billions, been bailed out for billions and been paid billions in bonuses. The mortgage securitization juggernaut will end up costing taxpayers trillions and the industry is whining about compensation.

Washington is angry, and perhaps embarrassed for not building this into the TARP.

But seriously, did Congress really expect Wall Street to stop paying out bonuses voluntarily? Its part of the culture, always has been. It’s like asking Congress voluntarily not to run attack ads and not be overly partisan - it’s simply built into their DNA.

No moral judgement being made here – people outside this world don’t seem to understand what makes Wall Street tick. If its not mandated, then status quo will prevail.

Even worse, the lower compensation is having an adverse effect on the social lives of Wall Street bankers, ’cause its the economy, Girlfriend.

UPDATE: Signs Wall Street may already be re-inventing itself.


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Crains New York Business Economic Spotlight Chart – January 2009

January 21, 2009 | 11:46 pm | crainslogo | Charts |

I have had the pleasure of providing a monthly chart for the Economic Spotlight section of Crain’s New York Business magazine since September 2003. Here is the latest, which appears in the current issue of Crain’s New York Business.

Source: Crain’s New York Business

Go here for a complete archive of my Crains’s New York Economic Spotlight charts that have been published. They are organized by year.


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[When Brooklyn Was The World] 4Q 2008 Brooklyn Market Overview Available For Download

January 14, 2009 | 10:08 pm | curbed | Radio |

The 4Q 2008 Brooklyn Market Overview that I author for Prudential Douglas Elliman was just released.

The President and CEO of Prudential Douglas Elliman, Dottie Herman, is a big believer in publishing market data to create more transparency for consumers in the market her firm serves – Manhattan to Montauk.

Other reports we prepare can be found here.

Customized tables for the 4Q 2008 Brooklyn data and a series of updated charts are available on our corporate site.

A report excerpt

…The median sales price was $490,000, down 7.5% from the prior year quarter result of $530,000 and down 3.9% from the prior quarter result of $510,000. The year over year change in quarter median sales price has declined for 5 consecutive quarters beginning in the fourth quarter of 2007 when the decline was 0.9%. Subsequent quarters resulted in declines in this metric of 1%, 1.9%, 5.6% and 7.5%. In addition, this is the first time the indicator fell below $500,000 since the first quarter of 2006 when the median sales price was $499,500. Average sales price for the quarter was $559,338, down 5.2% from the prior year quarter average sales price of $590,169 and down 2.8% from $575,287 in the prior quarter. Brooklyn showed declines in median sales price more than a year ahead of Manhattan…

The media coverage of the report is available here as they were obtained (in no particular order). In addition, the headlines and respective links to articles listed below are a fun way to see how the media interprets the report content since every outlet was working off the same information.

Print/Web

Brooklyn Apartment, Home Prices Drop 7.5% as Recession Hits [Bloomberg]
Brooklyn Housing Boom: Dude, It’s So Over [New York Observer]
Q4 Brooklyn Reports Show Bloodletting, Except Brownstones [Curbed]
Brooklyn housing market still suffering [Crains]
Brooklyn apartment sales prices fall 7.5 pct -report [Reuters]
Brooklyn Real Estate Begins to Collapse, Too [Gothamist]
Brooklyn apartment sales prices fall 7.5 pct -report [Forbes]
Brooklyn Real-estate Market Reports: More Sobering News [New York Mag]
Elliman: Condos Down, Co-ops Flat, Brownstones Up in 4Q [Brownstoner]
Brownstone Brooklyn prices unscathed in fourth quarter [The Real Deal]
Brooklyn Housing Market Hit [WNYC]
Experts: Real-estate boom about to go bust [The Brooklyn Paper]

Radio

4Q 08 Brooklyn Market recap [WNYC Radio]
Brooklyn Housing Market in 4q 2008 [Bloomberg Radio]


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Editorializing The Real Estate Hype

January 13, 2009 | 2:10 am | inmanlogo |

In the current issue of Crain’s New York Business, there was an editorial on the hyping of real estate. I thought it was pretty good, especially ’cause I was named as the voice of reason.

If the top 10% of transactions (those for more than $3 million) were excluded, Manhattan apartment prices were flat for the past two years, notes Jonathan Miller, the appraiser who is the savviest observer of the local residential market. In fact, Mr. Miller has been pointing out for most of the past year that the activity in the most expensive segment was distorting the average price and that the decline in the number of transactions spelled trouble. He always insisted that Wall Street bonuses drove the market, not international buyers.

The concept for sharp-minded people:

Live by the sword,
die by the sword

My observations of real estate professionals in housing markets as they begin to weaken seems to go like this:

  • Over hype the positive
  • Spin, misdirection
  • Denial
  • Disbelief
  • Passive acceptance
  • Jump on the bandwagon
  • Over hype the negative

Many agents are doing a better job in relating to the current environment, but there are still stragglers.

I had an agent come up to me last week after I spoke at the Inman conference on Friday and asked

why do you paint the market so “negatively”? How can you possibly know what the numbers really are?

Good grief.

I’d like to consider myself a “neutral observer.” I got beat up in 3Q 05 and again in 1Q 08 when we had significant evidence of weaker conditions. The punishment often came from top agents, who perhaps had more to lose? In each case our results were status quo after acceptance of the new market was realized – usually 1-2 quarters later.

Change can be hard to deal with.


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[Quadrillions In Indebtedness] 4Q 2008 Manhattan Market Overview Available For Download

January 8, 2009 | 2:25 am | curbed | Public |

The 4Q 2008 Manhattan Market Overview that I author for Prudential Douglas Elliman was released on Tuesday.

Other reports we prepare can be found here.

The 4Q 2008 data and a series of updated charts are also available.

All in all, well over 100 media hits covering the report (that we know about, but who’s counting) without a formal press release. Apparently there is interest in the Manhattan housing market.

An excerpt

…At the close of the prior quarter, there was significant turmoil in the financial markets and unprecedented intervention by federal government agencies. The bailout of Fannie Mae, Freddie Mac and insurance giant AIG, the investor run on the money market Reserve Primary Fund and the bankruptcy of Lehman Brothers, marked a significant change in the Manhattan housing market as well as the US housing market. The fourth quarter was characterized by a sharp decline in contract activity and a downward correction in contract price levels. Sales contract activity showed evidence of a decline in activity of 40% to 75% compared to the same period last year. Contract price levels showed an average decline of 20% from August 2008. As a result of the 45-60 day lag between contract and closing date, a decline is anticipated in both the number of sales and closing price levels in the first quarter of 2009…

In 2005, I began posting the links of the coverage of each report to see how each media outlet reports the market using the exact same data. I find it to be an interesting way to look at how this information is interpreted and presented.

The media coverage of the report was provided here as they were released (in no particular order). The headlines selected below provide an interesting media perspective of the report contents since every outlet was working off the same information. I didn’t include all the wire stories from AP, Bloomberg or Reuters.

Print/Web

Television/Radio


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