Three guests arrived for the recent opening of a three-bedroom rental in the Sutton Place neighborhood of Manhattan, with an asking price of $12,589 a month. But no one brought a checkbook — likely on account of the yoga pants.
The visitors were there for a pop-up fitness class led by hOM, a start-up that holds social and wellness events in unused office spaces and vacant apartments.
Such is the state of New York’s luxury housing market, where repurposing, rebranding and, crucially, re-pricing luxury apartments has become the new normal.
Amid a glut of new inventory, deals are still happening, but not before buyers and renters exact their pound of flesh. And with continued uncertainty about the economy, rising mortgage rates and the prospect of higher taxes looming, the market isn’t likely to improve soon.
So what hath the buyer’s market wrought?
Price cuts are deepening, and agents expect more sellers to bend next year. Some developers are negotiating sweeteners, like offering to pay transfer taxes or common charges for a year or more. The rental market shows improvement, but uncertainty remains.
And the slowdown has convinced a growing number of developers to get creative with empty apartments — enlisting tech start-ups that flip unleased rental units for extended-stay travelers or turning unused living rooms into makeshift amenities. Others have doubled down on high-end marketing, while some have delayed listing properties altogether. Even film and TV crews are in on the act, as location scouts turn increasingly to empty luxury apartments for inspiration.
Primps and Cuts
Through the first three quarters of the year, 84 percent of ultraluxury listings — the priciest 10 percent in Manhattan — sold below the original asking price, up from 65 percent in 2015, when the market was riding high, according to StreetEasy. The median price cut remained unchanged at $500,000, which could suggest sellers need to cut deeper still, said Nancy Wu, an economic data analyst for the company.
“It feels worse when you’re out in the trenches,” said Donna Olshan, the president of Olshan Realty, which puts out a weekly report on contracts signed on properties seeking $4 million and up. That segment has taken an average of 441 days to go into contract so far in 2018, the longest stretch since at least 2013, when similar homes spent 172 days on the market. Through Dec. 2, $4 million-plus homes were reduced on average by 9 percent before a contract was signed, but Ms. Olshan believes that after sellers make additional concessions, the actual discount is closer to 15 or 20 percent.
She predicts that 2018 will finish with 6 to 10 percent fewer $4 million-plus contracts signed than last year, when 1,172 were signed, and roughly 20 percent fewer than during the peak year of 2013.
The broader Manhattan sales market has also shown weakness. In the third quarter, resales, which make up about 85 percent of sales, spent an average of 104 days on the market, 11 percent longer than during the same period last year, according to a report from the brokerage Halstead. The median sales price fell to $1.1 million in the third quarter, down 4.5 percent from a year earlier, according to Douglas Elliman. Overall, there were 6,925 units for sale, up 13 percent from a year ago.
Some are taking aggressive steps to jump-start sales. Last month, the luxury developer Extell announced that it would pay three years of common charges on its one- and two-bedroom apartments and up to five years on three- to five-bedrooms that go into contract before the end of the year — a sizable incentive, considering the company owns some of the most expensive condos in the city, including the upcoming 179-unit Central Park Tower in Midtown. Prices there are expected to start at $1.5 million for a studio, according to filings with the state attorney general’s office. The most expensive units have not yet been revealed, but the annual common charges for a five-bedroom asking $78.1 million would be $127,596, according to the filing, or almost $638,000 over five years.
Extell ran a similar promotion in some buildings last year, but has since extended the offer to its entire portfolio, said Tamar Rothenberg, a senior vice president with the company, adding that the push was partly prompted by a “significant amount of product” on the market.
The great room of the triplex penthouse at 212 Fifth Avenue, where the price was reduced to $62.8 million, an $11 million cut. Millions of dollars were spent staging and furnishing the 10,000-square-foot apartment.Credit…Robert Wright for The New York Times
In many cases, however, winning concessions from sellers is like pulling teeth.
“It’s very hard to tell an owner who wants $8.5 million that it’s worth $6 million,” said Frances Katzen, an agent with Douglas Elliman. “They don’t want to hear it, and they usually end up firing the agent.”
But cut they must. Nikki Field, an agent with Sotheby’s International Realty, represents the second brokerage to work on selling the 10,000-square-foot, triplex penthouse at 212 Fifth Avenue, in the NoMad neighborhood of Manhattan. In 2016, it languished at $68.5 million. Ms. Field and her team came on the following year and raised the price to $73.8 million, but by this November they had re-listed it for $62.8 million, an $11 million discount.
In addition to lowering the price, they furnished the formerly raw space with more than $5 million in furnishings and art, from luxury brands like Fendi Casa and Bugatti Home to works by Carroll Dunham, the painter and father of the actor Lena Dunham.
“And I’m pretty confident this purchaser will buy every inch of furnishings,” said Ms. Field, adding that she has seen strong interest since the price drop. If the property sells for close to the current asking price, the sale will top the downtown record of $59 million, set earlier this year with the sale of a West 24th Street penthouse, said Jonathan Miller, an appraiser.
“However you boil it down, it’s all about price,” said Robert Dankner, the president of Prime Manhattan Residential, who notes that most new units on the market would benefit from a price cut of at least 10 percent. At 100 Barclay, an Art Deco condo conversion in TriBeCa, where sales began in 2015 and where the developer is still unloading new units, Mr. Dankner is listing a three-bedroom resale for $4.09 million.
His clients, who bought the apartment in 2017 for $4.35 million, will be taking a loss at that price, but they have agreed to Mr. Dankner’s strategy, because they are competing with similar but more expensive new units in the same building, not to mention the broader market.
“You have to be nimble enough, and eat some humble pie,” said Mr. Dankner, who first listed the unit in September for $4.65 million, and has since dropped the price four times, by increments of 3 to 4 percent. He said he was confident they would have a deal in the next few weeks.
With new competition coming to market, coupled with general buyers’ hesitance, time is of the essence for sellers. “Asking too much and passing that three-month point is death,” said David Walker, the chief executive and a founder of the brokerage Triplemint.
His agency has recently urged clients, especially those with homes priced over $4 million, to hold off officially listing their properties for about a month, while Triplemint quietly builds interest and gets feedback from prospective buyers. The hope is to get qualified bidders, and a sense of the property’s real worth, before wasting days online.
To find motivated prospects, the agency aggregates user data from its website and pulls from a mix of third-party subscription services to narrow down a list of likely buyers. Mr. Walker would not reveal the sources of the data, but similar strategies have mined consumer purchases to find people who might be more likely to buy real estate because of a major life event like marriage or pregnancy.
“None of these things mattered in 2017, when the market was stronger,” he said.
A New Lease on Empty Apartments
Softness in Manhattan’s luxury market has helped the rental market in recent months, but there is still cause for concern.
In October, the rental vacancy rate fell to 1.49 percent, the lowest level for that month in nine years, according to a Douglas Elliman report. But that also marked the 41st consecutive month in which the share of landlord concessions had increased over the previous year. Some 41 percent of leases included sweeteners for renters, like a month or more of free rent, up from 28 percent in the same period last year. And over the next several years, more than 22,000 rentals are expected to be built in Manhattan, about half of them currently in some stage of construction, according to Nancy Packes Data Services.
In some cases, hard-to-sell condos are seeking renters in the short term, which adds more competition to the rental market, said Jennifer M. Stutz, of Olshan Realty. While the rental market improved last quarter, she said, heading into 2019 “it’s still up in the air.”
The uncertainty has allowed companies like Blueground to get a foothold in New York. The company signs one- to three-year leases on luxury apartments, many of which would have otherwise sat vacant on the market, and then flips them, fully furnished, at a premium for the traveling business class. Blueground, which was founded in Athens, Greece, near the height of the country’s economic crisis in 2013, already has 230 units in New York, from major property managers like Rose Associates and Related Rentals, and up to 20 units in a single building.
“We bring them a new type of demand,” said Alexandros Chatzieleftheriou, a founder and the chief executive of Blueground, noting that the softening market has been a boon for business.
For instance, the company leased a one-bedroom apartment in Chelsea that might have rented unfurnished for $5,000 a month. It signed a multiyear agreement on the unit, outfitted the space with stylish furniture and amenities like a stocked bar cart and espresso machine, and now rents the space for roughly $6,000 a month. The developer fills an otherwise empty unit, and Blueground turns a profit.
“What I was paying in hotels was substantially more,” said Jared Anderson, 36, who lives in Florida, but travels to New York weekly for his work at a furniture company, and signed a one-year lease on the space.
“I would say it’s pricey, but you get what you pay for,” said Ali Kole, a cosmetics consultant from Boulder, Colo., whose company paid for her one-bedroom in the same building, for $6,450 a month — shorter stays have higher premiums. No complaints otherwise: After a three-month stay, she leased another unit in the building for three more. (The company’s apartments are not regulated like Airbnb units, because the shortest lease agreements are for one month.)
Other start-ups, like hOM, the yoga and social events planner, have given developers and landlords another use for vacant space. At Aalto57, the luxury rental tower in Sutton Place, residents attending an intimate yoga class sat in lotus position, barefoot on the new hardwood, facing an expensive Bertazzoni gas range in a luxury three-bedroom apartment. The unit was listed in November for $12,589 a month, and is offering two months of free rent.
The events are a way to boost tenant retention in the building, said Francesca Loftus, the company’s chief executive. Property managers pay hOM a subscription fee, from $2,100 to $30,000 a month, to plan events for residents in amenity spaces and unused apartments. The company currently holds about 50 classes a day, in more than 50 residential buildings in New York. (The majority of the classes are in residential buildings, with about a third in unused apartments.)
“There’s this sort of word-of-mouth marketing benefit,” said Scott Marino, the executive director of multifamily management for Rose Associates, the property manager. Residents who take classes in such units might someday want to upgrade, he said.
Other builders have developed an affinity for Hollywood. The Durst Organization began fielding requests from movie and TV producers to film in its buildings about five years ago, said Jordan Barowitz, the company’s vice president of public affairs.
“We’re seeing more interest in the residential side, as of late,” said Mr. Barowitz, adding that the company has brought in “well north of seven figures a year” through the agreements.
Recent shoots at Via, the developer’s Far West Side luxury rental tower with an unusual pyramidal facade, have included Bollywood sagas and an upcoming Netflix project. The productions pay from $5,000 for a few hours in an amenities space or apartment to $100,000 for a multiday shoot, Mr. Barowitz said.
Via leased its final units about a year and a half ago, Mr. Barowitz said, but it has had more vacancies recently, as several two-year leases expired. He stressed that the company’s growth in the film world isn’t tied to the strength of the rental market; it is simply an arrangement that has created another revenue stream.
At the Hub, a rental tower in Downtown Brooklyn, a homegrown film director found inspiration in a vacant penthouse.
Spike Lee recently filmed an episode of the forthcoming second season of the Netflix series “She’s Gotta Have It” in a two-bedroom apartment listed for $6,643 a month. That apartment, and the rest of the building, is now leased. Tim Stacker, the location manager for the series, said he had noticed an uptick in developers offering empty apartments for film shoots.
“New developments are attractive to film and TV, because you don’t have to deal with existing tenants, the units are empty, it looks pristine,” said Douglas C. Steiner, the Hub’s developer, who is also the chairman of Steiner Studios, one of the largest film studios in the country.
“I’m hoping not to have empty units,” Mr. Steiner said. But the film business hasn’t treated him poorly either, he added: “It’s found money.”
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