True Gotham

Well I knew that the day would come when a voice on the other end of the phone would say, "We're in a holding pattern because my bonus wasn't anything like I thought it would be."  That day has indeed arrived as one of my team members informed me that he received just that phone call last week from one of his buyers who was in line to purchase a $2,900,000 property at The Rushmore.  This particular buyer was looking at a $2.2M property and based on his bonus expectations increased his budget  more than 30%.  His expectations were not in line with those of his bank and he and his wife have now decided that 2008 may not be the year for them to buy their dream apartment.

The question that lingers in many of our minds is how many "casualties" like this will we see in 2008?  On the flip side of this story are buyers who have received record bonuses but wait patiently to see how the market shakes out in the coming weeks instead of jumping on whatever inventory exists at whatever price.  The psychology seems to have shifted significantly from the same period last year when money seemed to be burning holes in people's pockets and they just couldn't wait to snap up whatever suitable inventory they could find.  This year is different.  Although inventory remains incredibly low, buyers are exercising more patience.   There are still a plethora of buyers ready, willing and able to purchase a new home but there are many fewer who will settle for simply "suitable" as they appear ready, willing, and able to wait for the "right" home that more completely suits their needs.

For sellers of special properties (ex. Prewar Classic 6, 7, 8, and 9's), don't worry!  Your homes are exactly those for which these patient buyers wait.   Just be smart when you bring them to market and price them attractively to appeal to the broadest pool of buyers.  For these sellers and those in the ultra luxury market ($5M+), 2008 should be another solid year for Manhattan real estate.

I truly feel that even those who have a healthy bonus this year but don't have an 8 figure net worth will conserve this year's bonus to see what happens next year. Too many unknowns. That said, I agree with you about the prewar apartments. Rare commodity.

Consistent to the the first response, and inline with friends/customers who work at investment banks that have a similar conservative mindset I think we may all see a slower first/second quarter at least in the mid market i.e. $1.5mm-$3mm market. A contrarian may see this as a solid entry point, which remains to be seen.

First time home buyers are still there and have very little reason to put off a purchase due to market/bonus concerns, there is still the rent vs. buy debate and if you plan on living in your purchase for 3-5 years then again no need to panic or worry (this applies to recently closed too) and the qualified ones will obtain financing (as a recent customer of mine did as of last week no problem) she is the epitome of a perfect first time buyer. Point being, the quality market below $600k i.e. anything other than postwar upper east alcove studios/1bdrm's is just too thin. (yes these are the worst investments in manhattan/my opinion of course)

Pre-war is the hot ticket in town. I have a $3mm buyer sitting on the sidelines waiting for a West Village Meatpacking authentic loft. (we maybe sitting a while:) and condo too. Let me think that leaves umm..just 155 perry.

Good point anon. My friend Noah at UrbanDigs.com blogged about conservative bonus spending today. great post. Check it out.

Thanks for sharing Michael.

Anon here - that's what everyone in finance is thinking about bonuses (people with net worth <10m and who are not rising superstars). If you're worth more, then spending 5m for an apartment is no big deal. If you're a superstar, your income stream is also guaranteed one way or the other. I am so glad I traded a postwar apartment for prewar a couple years ago.

We're now in a freaking recession.

I'm sorry, but the rent vs. buy didn't make sense 6 months ago, now it will make even less sense given you'll have to factor in 5-10% decrease in market value this year and next.

Get ready for the pain. Most folks haven't seen a real crash and all I can say is WOW are most folks not expecting it..

Eddie,

Agreed buyers need to consider depreciation of ultimately 5% - 10% over the course of 24 months. 08/09. Will it happen? Likely.

There are many factors to address in this market. Factors that I think many of us are new to. Markets are cyclical. Please always consider this. We will not see an epic meltdown nationally. We are midst a major correction. There is enough date to support the FOMC is now on the case despite dropping the ball in previous months. Major players have stepped in whether it be vesting capital into investment banks or the bank of Sam creating some type of re-financing tool for the ones most in need. Equally I do have that fear of what still lurks in mainland America. Has the tree fully shaken off all the dead leaves? No not by any means but that time will come soon.

I think most alarming factor is the stalemate we are in btw buyer/seller. The times article was very informative to the general public regarding this a few Sundays ago. Sellers who offer nothing unique to the market (again perhaps something like a post-war alcove studio on East 88th street) must listen to their brokers, and these sellers must also evaluate where they are personally. Do you want to sell or not. I think the velocity of units TOM will exceed substantial price reductions in the short term. Consistent to what Douglas mentioned above "Your homes are exactly those for which these patient buyers wait. Just be smart when you bring them to market and price them attractively to appeal to the broadest pool of buyers." is so true.

Mentioning a top listing agent in Manhattan she and her team listed a condo on West 9th about 3/4 weeks ago. Gorgeous pre-war option. 1bdrm, reasonable common charges and taxes, and renovated. Only negative that I can see was being a top flr walk-up but again this could be considered a positive for some seeking ultimate privacy. Asking $599k. It was gone in 2 days. That is what I call a perfect sale (provided it does close) it was a win win for all parties. I could go on and on about this. Point being it is a tremendous investment. Even at $635k call it. We assume above ask. Location, Location!

Furthermore, the top end of the market will be fine, just less activity but the properties will change hands. If the net worth is say something like $20mm and you buy a $6mm-$8mm property your risk is low correct? If net worth is $5mm and you buy something for $1.5mm the risk is low? If you're net worth is $550,000. Then buy something for $400k-$500k. Put 30% down; put balance of cash in some type of fixed income product. I mean to have a monthly of approx $3k pre-tax and have $400k in cash accruing an average of $20k (4.1%-4.5% seems to be the median) interest annually is a very comfortable situation to be in. Cash is king, and if you are savvy buyer you can offset any market resistance with a strong cash position and still build equity, then I do not see a problem.

I think the Manhattan family with assets (lets say $300k) and perhaps a joint income of $200-$250k which seems to be safe numbers maybe the hardest hit in this time. Very tough to consider a correction and purchase a logical home based on size and location. My best advise to them is really consider options outside the city (perhaps a suburb 3 year plan). Jersey, etc. This is if you must have space. Numbers for this demographic can really capitalize in this market outside the city right now.

People these days need good agents/brokers to advise them on this. There are plenty of logical solutions in Manhattan but renting still is not my favorite option. I am a renter for many years. Looking to buy and I just got a rent increase of 8% and this is my 8th term here. Go figure. Rather build equity and have a defined residence in my life. Regardless of what the future brings. Gotta run and I admit my reasoning may not make sense too many but call it a gut feeling? But this is just one opinion on what we all consider table talk these days. Just buy the right apartment. Ask for comps..All comps.

Had dinner with a benefits consultant to Wall Street. He noted that there has been a major acceleration in the trend of paying a significant percent of bonuses in restricted stock and that restricted stock now accounts for up to 50-70% of a bonus. Given that much of the remaining cash portion will go into paying taxes, there would seem to be a major reduction in cash/liquid bonuses even if bonuses remain flat. Any thoughts?

One of my clients is on the management team responsible for allocating bonuses at a large bank and he has shared similar info regarding payment in stock and he added that they are delaying reporting because it's not good news. I just want to add here that there is a lot of money out there that has nothing to do with Wall Street and those people seem to be coming out of the woodwork right now. Perhaps they are revelling in the fact that they may not have to compete with all those big bonuses this year.

Yes, the New York City real estate market is very difficult for real estate developers and sellers and in all likelihood will become progressively worse throughout this new year. In our case, we started to develop a medium sized property in a secondary area in Queens, when the market was still sizzling hot. Unfortunately, as the building neared completion, the bottom fell out. In our case, we hired an outside real estate consulting group which provided us with a very interesting perspective and ideas which greatly helped us sell the units. For example, our showroom had been in a temporary structure and while it was well built and representative of the apartments, the location and the temporary nature of the structure was akin to a trailer home. What they suggested may seem obvious now, but it was not when they presented it to us. We were told to rent a temporary showroom in the best area of the borough, hire well dressed, very attractive and more importantly, professional sales people and then provide limousine service from the show room to our yet unfinished building. Further, the limousine was only to come to the building at certain times, when the lighting was just right, when traffic was minimal and by a particularly scenic route, all the while having the sale person explain all of the interesting things in the area. This worked well and we were able to quickly sell almost all of the remaining units. The consulting group that we dealt with consisted of a former public relations executives and several former developers. They also revamped our sales literature and advertisements to reflect a new vigor. Their website is www.LastLifeboat.com, though there is not much information on it. My advise to other developers is to rethink and regroup your marketing strategies.

I appreciate the insight Dave but in all honesty, I checked out that websitre and it would give me NO faith in a company that claims to be PR and marketing specialists. It's almost laughable. That said, you obviously had a positive experience but I'm curious as to exact location of your project versus the "best location in the borough" where you chose to set up a sales office. Doesn't seem terribly transparent. I only hope that buyers were savvy enough to do more research on the hood than simply what was provided by your tours and "professionals."