Tuesday, January 8, 2008

Dowagers: Co-ops' Reign Over Manhattan Market Slips

The New York Observer
by Tom Acitelli
January 8, 2008
This article was published in the January 14, 2008, edition of The New York Observer.

The average sales price for a Manhattan condo has grown by over $820,000 this decade, marching to $1,750,634 by the end of 2007, according to a report out last week from brokerage Prudential Douglas Elliman and research firm Radar Logic. That’s a nearly 90 percent increase from the year-end average in 2000, and is 17.8 percent above the fourth-quarter average in 2006.

The sales-market share of condos has also increased fairly steadily since 2000, despite condos being outnumbered in Manhattan by co-ops nearly three to one—and despite condos being much pricier than co-ops.

Perhaps it’s the aging of co-op boards. Perhaps it’s the relentlessly sexy marketing for newer condos. Perhaps it’s just easier to buy the real property of a condo than the shares of a co-op. Or perhaps, more simply and yet significantly, the regnancy of condos can be explained as a grand, literally gleaming part of New York’s recovery from Sept. 11.

After the terrorist attacks, much of Manhattan’s residential real estate market softened amid a cascade of pessimism about the city’s ability to fully recover.

It has, of course. And one of the biggest signifiers of this recovery has been the dozens of condos, with thousands of units within, that have sprouted throughout the borough in the past few years. A perfect storm of supply and demand coalesced underneath a reassuring umbrella of an ever safer and robust city to create monuments to home-buyer confidence.

Condos make up about 25 percent of the for-sale housing stock in Manhattan, but they now account for half of the borough’s home sales. In the fourth quarter of 2007, condos accounted for nearly 49 percent of home sales; in the third quarter, it accounted for 48 percent. In five of the past eight years, condos have accounted for at least 40 percent of all Manhattan apartment sales, according to Radar Logic, giving them an outsize slice of the residential pie here.

And some of these condo sales have been titanic. Two of the three biggest apartment deals in New York City history involved newer condos, and both closed in 2007. (The third was Rupert Murdoch’s $44 million co-op purchase in 834 Fifth Avenue in 2005.)

In July, one still-unknown buyer closed on six apartments in the Plaza for $51,539,180; and, in September, the family of former Citigroup CEO Sandy Weill closed on the purchase of a $42,405,000 penthouse at 15 Central Park West, according to city records. (A co-op at 1060 Fifth Avenue was sold in late 2007 for $46 million, but that deal has yet to close.)

It’s such demand at such higher prices—condos, as usual, were much more expensive in the fourth quarter than co-ops, on average—has driven developers to build, build, build this decade. At the same time, the number of new Manhattan co-ops has dwindled to basically zero after peaks in the late 1980’s and in parts of the 1990’s.

The number of condo and co-op conversion plans statewide submitted to the state attorney general’s office, which must approve them before sales can start, increased 300 percent from 2002 through 2006. Most of these plans involved condos. A 2005 analysis by The Real Deal magazine found that developers had submitted plans that year for over 9,000 condo units in Manhattan alone.

There’s several reasons buyers might prefer condos to co-ops, but the two biggest must be financial and personal (and the intersection of the two, for that matter). Condos generally require a much smaller down payment than co-ops (as little as 10 percent vs. at least 25 percent for co-ops); and most condos have no boards as obstacles.

Foreigners in particular like the financially less-invasive ease of buying condos vs. co-ops. The New York Times reported in November that roughly one-third of Manhattan condo buyers in the previous 18 months were foreign.

“Most foreigners do not want to give their financial statements in full,” said Elizabeth Stribling in an interview for a previous story. Her firm markets the Plaza condos, 37 percent of which have been purchased by foreigners. “It’s a requirement of co-op boards.”

Also, it should be noted, Manhattan, like the rest of the boroughs, is getting older, and one has to wonder if co-op boards as a Manhattan species aren’t aging, too. The Bloomberg administration anticipates that the number of 55-and-older residents as a percentage of the population of each borough will increase in the next 25 years. Are the persnickety demands of older boards driving younger buyers to the nonjudgmental embrace of condos?

Whatever the tertiary reasons for the popularity of condos despite higher prices, it’s hard to find weakness in that part of the Manhattan housing market. The median condo price in the fourth quarter did drop slightly from the third, and sales dropped 27 percent (though spiked 25 percent annually). Also, the inventory of unsold condos on the market increased quarterly over 5 percent; and the time it takes to sell a condo rose 12.5 percent, on average, to 135 days.

For now, however—and one need only take a walk around virtually any Manhattan neighborhood and note the scaffolding and the billboard-like ads—condos continue as the residential choice du jour, as symbolic of Manhattan this decade as they are increasingly expensive.

Illustration by Nigel Holmes; Source: Radar Logic Inc.

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