They’re expecting 2,000 attendees! You can sign up here.
I’m looking forward to it.
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.
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.
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.
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:
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.
Don’t forget to buy his book so he can continue to be inspired to give us these types of insights.
My personal favorite:
But there are so many more to learn from…
My friend Nathan Pyle‘s book NYC Basic Tips & Etiquette is selling out at The Strand and is hovering at around #100± on Amazon overall, #1 in travel and #1 in comics. He’s so modest that he doesn’t realize how amazing it is to have Harper Collins/William Morrow behind the marketing – and they approached him! Even cooler that he gave my wife and I a shoutout in the book!
Here’s the book saga timeline (ie Facebook page).
Tags: Nathan Pyle
My friend Nathan Pyle has penned a book: NYC Basic Tips and Etiquette that should be required reading, well at least required viewing for:
You get what I mean. This book is clearly for everyone.
He’s come a long way from making selfie-videos of his basketball dunking prowess. I’ve long been a fan of his art. Nathan combines nice Midwestern sensibilities (he’s from Ohio) with street smarts, artistic talent and a dab of humor.
In fact Nathan’s only shortcoming is his siding with the “GIF” (Graphics Interchange Format) pronunciation camp while I am squarely in the “Sounds like “Jif” as in the peanut butter AND confirmed by the inventor of the “GIF” camp who said, and I quote:
“It’s pronounced JIF, not GIF.”
Here are a few samples, I plan to revisit his artwork over the next few weeks. The book even provides instructions on where to eat pizza on a busy sidewalk!!! C’mon people, the value add for that alone is worth well above the very modest price! Here are a few samples…
There was a good article in the New York Times yesterday: In Many Cities, Rent Is Rising Out of Reach of Middle Class
Many have complained about the Federal Government’s (and our society’s) overselling of homeownership over the past decade and how the decline in homeownership will eventually lead to an emphasis on rentals in the US. Of course, like many housing market ideas, good and bad, they tend to be presented in a vacuum, without real context.
I believe much of this discourse is in reaction to tight credit combined with a weak economy rather than some sort of fundamental cultural and economic shift. During the bubble we got the opposite discourse – that there was a fundamental cultural and economic shift towards homeownership.
Currently there is a much smaller subset of Americans that have access to financing. According to the Federal Reserve Senior Loan Officer Survey, lending has actually tightened in 2014 over 2013 (related to QM). Many homeowners are unable to sell because they can no longer buy and many renters no longer qualify for financing so the idea of of homeownership as a goal fades.
Case in point has been the recent public discourse on the issue of home affordability, whether it be sales or rentals. Zillow presented an analysis for the New York Times that illustrates how much rents have risen in the past 13 years (since 2000) in cities across the US.
Here’s the scenario:
The economy is weak – we are seeing tepid growth in employment, stagnant incomes and historically tight residential mortgage lending.
The organic flow out of the rental market into the sales market is slowed and a log jam is created of too many renters and not enough buyers.
Rising rents against stagnant incomes creates an affordability crisis. The sales and rental markets are connected. They are not mutually exclusive.
Rising rents are a product of tight credit, which is a residual byproduct of the financial crisis. Fix the economy and credit eases, then lending normalizes (no, not circa ’06) and the pressure on rental housing is eased.
I’m not entirely confident with the reliability of the historical rental data being presented to the New York Times by Zillow – but I still agree that affordability is being pressured:
- Zillow was launched circa 2006 and rents are not public record so the early data has to be super thin.
- The comparison was made between a first quarter (low) and a third quarter (high) in a highly seasonal market.
- I am not sure if “New York” means Manhattan or New York City. If it is Manhattan, then our median rent figure in 1Q 2000 was $2,600 in nominal terms, and $4,276 in real terms. In nominal (unadjusted for inflation) terms, rents have risen 23.1% through 3Q 2013 while real median rent has fallen 27.3%. The Zillow median rent as share of median income nearly doubled, rising from 23.7% to 39.5%. Either incomes have collapsed in NYC or the 2000 rental figure being punched into their model is flawed, ie way low, no?
Other inights on any of this would be appreciated.
NYC is never boring.
From: Notify NYC
Subject: Notify NYC – Notification
Date: March 26, 2014 at 1:11:07 PM EDT
To: Jonathan Miller
Notification issued 3/26/14 at 1:09 PM. On Thursday, March 27, the filming of a TV series will simulate the aftermath of a crime scene throughout the day in the vicinity of Sixth Ave between West 30th and West 31st Street in Manhattan. Included in the simulated activity will be emergency response vehicles and actors dressed as law enforcement officers interacting with the PATH train entrance. NYPD will be on site.
Tags: Notify NYC
The Federal Reserve Bank of New York uses a coincident index to track the New York, New Jersey and New York City economies.
They define a coincident index as:
“A coincident index is a single summary statistic that tracks the current state of the economy. “
The Fed results share no analysis but state:
Our Indexes of Coincident Economic Indicators (CEI) for January show economic activity expanded at a brisk pace in New York State and New York City, but was essentially flat in New Jersey.