Matrix Blog

New York City

If Choosing Suburbs: Surge in NYC High Wage Earners Choosing NY-NJ-CT

July 21, 2014 | 2:11 pm |

IBOmoversstudy2014
[click to expand]

According to New York City’s IBO, in 2012, there were actually 5 times more moves to Florida than to adjacent Connecticut.

However when breaking the movers into 2 categories: households with real income below and above $500,000, the results really change. New York, New Jersey and Connecticut enjoyed a large increase of high income movers from New York City. The California market share in this category of movers collapsed.

But it is important to recognize that the high wage earners only represent 1.8% of total movers. Florida is still the third most popular destination for movers from NYC who are mere mortals.

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Bloomberg Surveillance TV – Guest Host 6-25-14

June 25, 2014 | 8:30 am | bloomberg_news_logo | Videos |


UPDATE: above clip just added – expanded conversation.

Got to guest host an hour (6am to 7am) of Bloomberg Television’s Surveillance with Tom Keene, Scarlett Fu and Adam Johnson to talk housing. The above is just a couple of minutes of the hour (yes, you’re spared). We spoke about Case Shiller, New Home Sales, biting in World Cup Soccer, my fireman son using a GoPro in fires and LeBron/Carmelo’s real worth among other things. Like I said, we did talk housing.

Adam brought up a great point – while the economy is always characterized as 70% consumer driven, 16% of that is actually health care spending so the overall number is really 54%.

Very smart conversations (the topic of biting included). Always fun to join them.

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[Fox Business TV] Risk & Reward with Deirdre Bolton 5-29-14

May 29, 2014 | 4:43 pm | realtytraclogo | Videos |

It was great to reconnect with Deirdre Bolton after she made the move to Fox Business from her long time home at Bloomberg TV.

We talked housing, touching on NAR’s pending home sale index release as well as research from Realtytrac concerning record prices in a growing number of urban markets.

Fun.

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Documentary: The Coney Island Zipper, A Land Use Battle

May 25, 2014 | 9:12 pm |

coneyislandzipper
[click to view film on PBS until 4/1/17]

I saw the documentary: ZIPPER: CONEY ISLAND’S LAST WILD RIDE (here’s the trailer) over the weekend on the land use battle in Coney Island. I like the filmmakers’ focus on the guys that ran the “Zipper” (the ride is guaranteed to make me throw up) to humanize the development battle between NYC, Coney Island residents and the developer. Plus you can’t go wrong with a good Blue Oyster Cult song in the opening.

After watching the documentary (you can purchase or rent it here), you can’t help but see how difficult it is to develop property in NYC striking a balance between community needs with economic feasibility as well as navigate political power and government.

This difficulty is a key reason why residential housing costs are so high in most urban markets.

Still, a new ride in Coney Island was just opened – The Thunderbolt Roller Coaster.

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[Video] TRD Forum: Getting A Sense of the New Development Frenzy

May 23, 2014 | 4:24 pm | trdlogo | Videos |

I stumbled across this clip taken at the recent New Development Showcase hosted by The Real Deal. The publisher and founder, Amir Korangy, pulls off a couple of well-timed video-bombs!

This video gives you a good sense of the excitement, if not frenzy in the residential development space in New York City. There was a long line of people waiting to enter the venue for the event when I arrived.

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[TRD] Here’s The New Development Showcase Panel, Including Heckler

May 20, 2014 | 6:30 am | trdlogo | Videos |

The Real Deal has posted the full video of the panel discussion I participated on last week with developers Steve Witkoff, Miki Naftali and Michael Stern. The Real Deal’s publisher Amir Korangy deftly kept the conversation going and candid, despite the technical challenges, sweltering heat and a heckler (i.e. just another day in NYC).

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Zillow is Forecasting Future Property Values

May 14, 2014 | 10:42 am |

zillow-logo

“I may be cool, but you can’t change the future” -Beavis & Butthead.

Zillow has recently re-announced it is forecasting the value of each property out over the next year. It’s not a new tool for them, at least conceptually since the “What is a Zestimate Forecast?” page was last updated on October 3, 2012.

In a world with Big Data, it’s clearly inevitable to see an expansion of the capabilities of services from firms like Zillow and Trulia as their data set grows. Zillow’s Zestimate was a key web site feature at their launch (no listings!), but the company lit the real estate housing market industry on fire, establishing Zillow as a powerful brand that was here to stay, even if the Zestimate tool was problematic.

The challenges facing the Zillow Forecast tool

The Zestimates are still dependent on the quality of public record
Many markets (ie NYC), have quality-challenged public record. But as time passes, Zillow’s data set gets bigger and their logarithms get better and I have not doubt that the reliability will continue to improve.

If the Zestimate is wrong, the forecast will be wrong
Take a look at this chart on the highest price closed sale in Manhattan:

15cpwzestimatechart

This is perhaps Manhattan’s most famous “trophy” sale of the past several years, 15 Central Park West. The property sold for $88M but the Zestimate at the time of sale indicated the value was $72M. However today the value is $11.9M and the forecast estimated an 8.6% increase next year to $12.9M.

15cpwlandingpage

The Zestimate Forecast projects the current Zestimate out over the next year using a bunch of indicators

Zillow uses:
-mortgage interest rate (local, but not much different than national)
-property tax rate(local)
-construction costs(local)
-number of vacant homes(assumed local)
-percentage of loans that are subprime(assumed local)
-percentage of delinquent loans (assumed local)
-supply of homes for sale (local)
-change in household income (somewhat local, huge lag time)
-population growth (somewhat local, huge lag time)
-unemployment rate (somewhat local, lag time)

I feel that most of these indicators, when considered as a group, are important to consider won’t capture the nuance of next year’s view because they either lag or aren’t granular enough to be a key influence on value trends over a short period. I would think Zillow would add search patterns and other “Internety” things to leverage their proprietary data to help with accuracy. I’d also consider “new inventory”, not just total inventory (supply) to help catch the nuances of a tight time frame of forecasting.

The key national factor driving nearly all housing markets now – credit – is really hard to quantify.

Still, forecasts are the future (sorry) and kudos to Zillow for taking the first step, even though the results, like the early days of the Zestimate, are probably not very accurate.

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[Panelist] May 15 – The Real Deal’s New Development Showcase

May 9, 2014 | 1:40 pm | trdlogo | Public |

trdshowcase5-2014
[click to see full flyer as pdf]

They’re expecting 2,000 attendees! You can sign up here.

I’m looking forward to it.

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The $100M+ US Home Sale Trifecta – Without NYC – 2014 Edition

May 6, 2014 | 5:23 pm | Milestones |

60furtherlaneGE

With the $147M sale in East Hampton, NY, it has been a busy couple of weeks for the .0000000000000000001% of the home buying public in the US. With the 3rd US home sale to close above $100M in 2014, it has left many thinking – why isn’t NYC in the fray?

After all, NYC arguably legitimized the US “trophy sale” frenzy a few years ago when Sandy Weill sold his penthouse at 15 Central Park West to a Russian oligarch for double what he paid for it. I’ve argued that this $88M sale was the launchpad for the new trophy market in NYC even though the transaction appears to be a divorce strategy. After that sale closed, the subsequent trifecta of trophy sales back then seems relatively affordable now.

As journalists tell me…three data points make a trend.

2014 US Sales over $100M
$147,000,000 Further Lane, East Hampton, NY
$120,000,000 Copper Beech Farm, Greenwich, CT
$102,000,000 The Fleur de Lys, Los Angles, CA

So is the era of US $100M+ sales a trend?

Yes, although it is probably more accurate to call it a “phenomenon” than a trend.

In NYC? Eventually.

To a few real estate brokers I engaged with on this topic, the idea that NYC would see the $100m threshold broken in 2014 seemed inevitable, only because of this 2014 US trifecta. It is the belief that we are experiencing a momentum swing over the $100m threshold because 3 sales by May, compared to a sale a year means a shift.

Meh. I view this phenomenon as “product-specific” and not “location-specific.” There is a randomness to the locations where these sales occur. However I do believe the probability is high that NYC will see such a sale in the not too distant future.

Then again, does it really matter? Do these $100M+ sales have anything to do with the remainder of the US housing market? No they don’t. But it’s fun to talk about.

The Manhattan $1M Average Sales Price Threshold broken in 2007
I remember when the Manhattan $1M average sales price threshold was broken in 2007, foreign media went gaga, struggling to find a deeper meaning to housing. There wasn’t. I always viewed it as simply a number on the spectrum.

Affordable Irony
Definitive proof that I have “hipster” tendencies – my never ending search for irony.

Yesterday’s announcement of the 3rd US $100m+ sale was one of record breaking irony: the announcement of NYC mayor’s 10-year plan to create 200k affordable housing units. The need for affordable housing – low and middle income – has always challenged NYC. The mayor’s affordable housing plan “moon shot” as the New York Times has described it came out on the same day as the $147M East Hampton sale story broke. Irony.

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Floored: Can/Should A Governing Body Set Minimum Sales Prices?

May 6, 2014 | 2:47 pm |

woodfloored

The concept of “setting a price floor” applies to gated communities, homeowner associations, planned unit developments – in fact any situation where a central governing body has direct influence over the sales price and/or buyer of your property. I believe the idea of “setting price floors” is surprisingly common in the outer boroughs of NYC, especially Queens.

Let me back up a second to provide context.

As the Manhattan market peaked in 2007/2008, we began to observe some co-op boards setting floors to prices in their buildings to “maintain value” for their shareholders. While a fiduciary responsibility, it is steeped in contradictions to free market principles. There was a great New York Times summary piece about this practice back in June 2007: “Should Co-op Boards Set ‘Floor Prices’?

About 15 months after the NYT article was written Lehman Brothers had collapsed and AIG, Fannie Mae and Freddie Mac were all bailed out. Manhattan sales prices had fallen about 30% from 2008 to 2009. During this period I observed an increase in the practice of setting price floors. A hypothetical scenario (the type I often observed first hand) for – let’s call it – “Apartment XXX” and the timeline might go something like this:

  • Sold in 8/2007 for $1,000,000
  • Listed in 8/2008 for $1,100,000
  • Zero activity until 1/2009, offered $700,000. Offer rejected by shareholder.
  • Offer made by new buyer in 2/2009, offered $705,000. Offer rejected by shareholder.
  • Offer made by new buyer in 3/2009, offered $700,000. Offer accepted by shareholder.
  • Board turndown – “price too low.”
  • Offer made by new buyer in 4/2009, offered $695,000. Offer rejected by shareholder.
  • Offer made by new buyer in 5/2009, offered $710,000. Offer accepted by shareholder.
  • Board turndown – “price too low.”
  • Taken off market by shareholder.

A co-op board CAN’T dictate sales prices
It is clear from the steady stream of new offers in my hypothetical that the market had reset to a significantly lower level during the year. If that was the case (it was), then the board was actually doing a disservice to their shareholders by making their apartments essentially unsaleable. A buyer isn’t going to pay what the seller or the board wants the price to be. Econ 101. Housing market prices change over time, hopefully rising more than falling in the long run. The brokerage community also has a fiduciary responsibility to get the highest price for their seller under market conditions at that time. Although the board is trying to protect their shareholders (and themselves as shareholders), they have in effect, temporarily nullified the market in their building. The brokerage community is less likely to bring offers to sellers because they assume the board will reject the price even though the property had been properly exposed and vetted in the marketplace.

A co-op board CAN protect their shareholder against price outliers
One of the misnomers of the “setting a price floor” discussion is the fact that appraisal quality for lenders has been decimated since the financial crisis as banks now fully rely on appraisal management company ie “AMC” appraisers and most have no “local market knowledge.” An out of market appraiser will likely be more influenced by outliers than a local appraiser because the out of market appraiser is data starved and has no experience in the nuances of that market. It is clearly prudent for a board to be vigilant about outliers as reflected in the video. I’ve consulted on transactions for boards that don’t represent market value – ie the heir or executor lives on the other side of the country, doesn’t care about the market value and simply wants to dump the unit, make some money and move on. The out of market appraiser will probably use that sale as a “comp.”

“Protecting against outliers” is very different than “controlling prices” in a market.

In the outer boroughs especially in Queens, I believe the practice of setting a price floor has remained a widespread practice for years. Here’s a co-op attorney who is providing tips on how to “maintain values” on Habitat Magazine‘s web site. Concepts like setting up “sliding scales” to sell at 95% of the average of past sales may work in a stable market but worry me because the co-op won’t be able to respond to downturns and is in danger of choking off the market, potentially depressing prices even more.

This video also talks about apartments being different in condition and boards need to consider this because real estate appraisers don’t take into consideration whether or not an apartment was renovated.

No! This is absolutely an incorrect or the appraiser is not being asked to provide an opinion of market value – appraisers are supposed to take condition into consideration if they are being requested to provide an opinion of market value.

As I mentioned earlier, with the proliferation of AMCs, appraisers working for retail banks are generally being paid 50% of the market rate and can’t or won’t confirm condition of their comps. Higher up banking executives don’t yet equate appraisal fees with appraisal quality.

“Maintaining Value” in a co-op (or multi-unit housing entity with a governing body) Here are a few (non-legal) valuation thoughts on “maintaining” values in a co-op. I’ve personally always taken this to mean that the corporation is run efficiently for the benefit of the shareholders and when that happens, property values are “maintained” relative to the market. I also believe their values will ebb and flow with the world that surrounds the building – ie supply, demand, credit, interest rates, economy, employment, etc. These are outside factors tend to be things that the board has no control over. If the board takes actions to control “market forces” they can potentially damage shareholder value and they are potentially not fulfilling their fiduciary responsibilities.

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