Placing A Roomba In The Middle Of A Rich Creamy Housing Market
Because we all love rich, creamy pudding, I used it for a luxury market analogy this week. Oh, and Happy Holidays to all – see you next week!
Wait for it…
But I digress…
Cash Is No Longer King For Luxury Buyers
The plunge in cash buyers above $5 million (top 8% of the Manhattan market)  might be attributable to the wealthy taking advantage of the plunge in mortgage rates over the past year. However, I believe it is much more indicative of the exodus of investors from the market after the passage of the new rent law in New York state  that punishes aspiring landlords.
The exodus of investors has a significant impact on the current absorption as well as the future of new development activity since at least 25% of new condominium sales were made by investors and there is nearly a decade of stock to sell-off. Investors typically become landlords on the day they close.
Creating “Combos” May Be One Way Around New York’s New Rent Law
There is a good Wall Street Journal article using empirical data to show the change to apartment renovations  since the frenzy of new New York State housing-related laws first half of 2019.
While it is a small data set, combining units are catching on, taking advantage of the market premium for larger contiguous space.
In Manhattan Townhouse Sales, Width Matters
The widest house I’ve ever appraised was a 50-footer on the Upper East Side in the park block between Madison and Fifth Avenues once owned by the son of the IBM founder Thomas Watson and had remained a gutted shell since the late 1980s before the previous sale in 2006.
The second widest sales I am aware of was the 48-footer created by the Milbank family in 1920 by combining two houses at 14-16 East 67th Street. My firm and I have appraised that house a number of times over the years, before and after its complete gut renovation.
Clearly a wider house enables more square footage but there is another reason why width is a valuable amenity on its own. Because townhouses are normally built right up to the lot line, townhouse width can’t be expanded unless the adjacent property is acquired. In a high-density market like Manhattan, width is a key valuation metric.
The Milbank family also created a 55-footer in Greenwich Village years ago and it is now on the market with a new price cut to $50,000,000 .
What’s so interesting about this house is that the exterior is maintained (I believe it is landmarked) as original yet the interior is modern.
Since the financial crisis, there have been at least 10 sales at or above $25,000,000 downtown. The metrics for downtown townhouses contain the largest average width of any region in Manhattan. According to our Elliman townhouse report in 2018 , the average width was 24.9′ while Manhattan averages 21 feet.
Here’s a hypothetical about townhouse width: two homes equal in square footage are side by side in identical condition. One is 50′ wide and one is 35′ wide. The 50-footer enjoys a significant premium in the market.
In A Weakening Market, More Manhattan Co-op Boards Are Killing Sales That Are ‘Too Low’
I’ll be writing about this phenomenon a lot in 2020 but I’ve been told that a growing number of boards are killing sales they deem too “low” even though the sale was vetted by the market – properly exposed, fully qualified buyer, etc.
A leading real estate broker, Donna Olshan, that I’ve known for most of my career, shared a letter written to a board that described the efforts to sell the apartment to offset certain board members who felt the price was too low. I’ve redacted everything that would reveal the parties but you get the point. The letter conveyed the reality of selling co-op apartments in today’s market.
Here’s my message to all co-op boards who do this – THE MARKET DOESNT CARE WHAT YOU THINK. By killing sales you think are too low, you are violating your fiduciary responsibility to the shareholders by acting this way. Co-ops that do this are damaging shareholder equity as brokers steer would-be buyers away from boards that are violating their fiduciary responsibilities.
October 28, 2019
Board of Directors
New York, N.Y. 10128
Re: Apartment [redacted]
Dear Board of Directors,
I am writing to provide context for the sales price of $[redacted] million of apartment #[redacted] located at [redacted].
Before being listed for sale, the apartment was professionally staged and refreshed at great expense to [redacted]. Additionally, a professional photographer was hired to insure the portfolio of listing photos were just right. (Please See attached photos):
On May 22, 2018, the unit was listed in the multiple listing service run by the Real Estate Board of New York (REBNY-RLS) and disseminated electronically to its approximately 12,000+ residential members. The original listing price was [redacted]. The apartment was shown numerous times however the owners received no offers and by the end of December 2018, the unit was withdrawn from the market so the listing did not appear as stale.
On March 13, 2019, it was relisted at a reduced price of [redacted] million in the hopes that listing earlier in the Spring at a lower level would draw buyers. It did not.
On May 6, 2019, the price was lowered to [redacted].
By August 2019, a contract was signed at [redacted] million.
This was the ONLY offer that the seller received during the entire marketing period.
The current market has been on a consistent downward swing since Congress changed the tax law at the end of December 2017 when the deduction for state and local taxes (including real estate) was capped at $10,000. The mortgage interest deduction was also reduced to a maximum of $750,000. Since 2018, the pool of buyers has shrunk and there has been an increase in inventory. Unit [redacted] was caught in a downward cycle and by any metric available, the market continues to head south. Below is a 3rd quarter report written by the appraiser Jonathan Miller for Douglas Elliman. Jonathan is considered the dean of appraising in the industry and is frequently cited in mass media and is consulted by various institutions:
I have been a professional in the real estate business since 1980 and my career spans many markets, properties and clients. I am very experienced in the market and conditions and can confidently state that the price achieved is fair market value and the unit has been thoroughly market-tested.
Very truly yours,
Len Kiefer ‘s Chart Handiwork
At just under 5 million home sales through November, U.S. existing home sales in 2019 are running at the lowest rate since 2015— 📈 𝙻𝚎𝚗 𝙺𝚒𝚎𝚏𝚎𝚛 📊 (@lenkiefer) December 19, 2019 
However, buoyed by low interest rates U.S. housing has been gaining momentum in recent months
Not unreasonable to expect modest growth next year pic.twitter.com/U41aIh7LW6 
Somewhere someone is blasting Mannheim Steamroller pic.twitter.com/uTHttNx2S3 — 📈 𝙻𝚎𝚗 𝙺𝚒𝚎𝚏𝚎𝚛 📊 (@lenkiefer) December 19, 2019 
(For earlier appraisal industry commentary, visit my old clunky REIC  site.)
Happy Holidays From Appraiserville
May your holiday gifts include the perfect comps…
OFT (One Final Thought)
I once read that the Washington Square Park Arch was made of wood. Apparently not.
UPDATE A loyal Housing Notes reader tells me today:
You confused washington square arch with the victory arch.
See link below .
You almost had a perfect year!
Brilliant Idea #1
If you need something rock solid in your life (particularly on Friday afternoons) and someone forwarded this to you, or you think you already subscribed, sign up here for these weekly Housing Notes . And be sure to share with a friend or colleague if you enjoy them because:
- They’ll clean their carpet;
- You’ll be more into pudding;
- And I’ll write a letter about the market.
Brilliant Idea #2
You’re obviously full of insights and ideas as a reader of Housing Notes. I appreciate every email I receive and it helps me craft the next week’s Housing Note.
See you next week.
Reads, Listens and Visuals I Enjoyed
- New York Landlords Slow Apartment Upgrades, Blame New Rent Law [Wall Street Journal] 
- Fannie Mae boosts 2020 housing forecast 'significantly' [CNBC] 
- Should we still be building single-family homes? [Curbed] 
- New York Billionaires’ Row Ranked World’s Top Luxury Street [Bloomberg] 
- New York City Suburbs Lure Millennials With Luxury Digs, Ax-Throwing Bars [Bloomberg] 
- SoftBank-funded construction startup Katerra promised a tech revolution. It's struggling to deliver. [The Real Deal] 
- NYC's third $100M+ real estate deal closes at 220 Central Park South [6sqft] 
- US Says Goodbye to the Foot [Newser] 
- The Decade in Housing Trends: Grown-Up Millennials, High-Earning Renters and High-End Apartments [RENTCafé rental blog] 
- Bird-friendly buildings bill takes flight in City Council [Curbed NY] 
- A decade of destruction in New York City [Curbed NY] 
My New Content, Research and Mentions
- Below-the-Surface Struggles in Manhattan Housing Bust Seep to the Surface 
- The 5 most expensive condo sales in 2019 [Yahoo Finance] 
- The M-Word (Mortgage) Returns to the Luxury Condo Market [Habitat Magazine] 
- Mortgages in vogue for Manhattan’s luxury condo buyers [Finance & Commerce] 
- FirstService’s Dan Wurtzel and Marc Kotler on Supertalls & Rent Reg [Commercial Observer] 
- Mortgages Are Now in Style for Even Manhattan’s Wealthiest Condo Buyers [The Jewish Voice] 
- Some Suspect East New York Rezoning has Triggered Speculation [City Limits – March 2016] 
- Spiral staircase alternatives for your NYC duplex renovation [Brick Underground] 
- Mortgages are now in vogue for Manhattan's luxury condo buyers [National Mortgage News] 
- Богатейшие люди стали чаще покупать жилье на Манхэттене в ипотеку | Финансы и инвестиции [Forbes.ru] 
- New York City’s decade of skyrocketing rents [Curbed NY] 
- Mortgages Are Now in Vogue for Manhattan’s Luxury Condo Buyers 
- Queens rental prices rise while the number of available rentals fall compared to last year: report [QNS.com] 
- One of New York’s Widest Townhouses Narrows Its Aim to $50 Million [NY Times] 
- Mayor, Council reach homeless housing deal [Politico] 
- The explosion of alternative data gives regular investors access to tools previously employed only by hedge funds [MarketWatch] 
- Lachlan Murdoch sets LA record with $150M deal for Bel Air mansion [Steelers Lounge] 
- "No Hurry To Buy" – Manhattan Luxury Rents Surge As Buyers Wait For The Crash [TradersZone Newswire] 
Recently Published Elliman Market Reports
Appraisal Related Reads
- Does a Messy House Affect an Appraisal ? [Consumer Home Value] 
- The Golden State Killer’s house, selling lower, & price changes [Sacramento Appraisal Blog] 
- Is Your Birmingham Home Priced Too High? [Birmingham Appraisal Blog] 
- Luxury Real Estate Appraiser Designation? [Jonathan Miller/Appraisers Blogs] 
- Fewer Appraisals Are Mandated, But They’re Still a Good Idea [Banker & Tradesman] 
Extra Curricular Reads
- The Last American Hero Is Junior Johnson. Yes! [Esquire] MARCH 1965 
- TWTR: Enough Already [Scott Galloway] 
- Opinion | How Clint Eastwood blew the story of 1996 [Washington Post] 
- Fed Alumni Fear Crisis Risk in Simultaneous Cuts to Rules, Rates [Bloomberg] 
- Isaac Asimov Asks, “How Do People Get New Ideas?” [Technology Review] 
- America After Climate Change, Mapped [Citylab] 
- Join us live for a view from the top of… – New York City Department of Parks & Recreation [Facebook/Home] 
- The Money Men Who Enabled Adam Neumann and the WeWork Debacle [Wall Street Journal]