Manhattan Real Estate On Sale

ON A RAIN-DRENCHED AFTERNOON LATE last week, Michael Shvo, a renowned megabroker of Manhattan apartments, showed up at 20 Pine Street to answer our questions about the troubled development.

A stone's throw from the New York Stock Exchange, 20 Pine once seemed a symbol of the area's post-9/11 renaissance, sprouting Armani-designed apartments with oversized windows, exotic woods and recessed, virtually silent shower heads. Where Chase Manhattan built a vault for its first headquarters, there is now a swimming pool and Turkish bath. But for all its virtues, 20 Pine is starting to look like just another victim of New York's luxury-housing bust.

Reports have circulated that the owner of the 409-unit building, Boymelgreen Developers, may unload 80 apartments for just $652 per square foot, about half the current asking prices. Shvo, 36 and perfectly coiffed, acknowledged the existence of "20-25 offers from bottom fishers," some as low as $600 per square foot. But the offers didn't seem to concern him. "The developer," he sniffed, "isn't interested."

Not yet. First came Miami, Las Vegas and Phoenix. Now Manhattan's high-end housing market is cratering. With Wall Street firms stepping up layoffs, and money for big-ticket mortgages drying up quickly, prices for new york apartments and townhouses of $5 million or more have been falling and may well drop by another 30% before finally bottoming out. That could help turn the Big Apple into the ugliest housing market in America.

While Barron's reported three months ago that the New York luxury market was headed for trouble ("Sand Castles," Nov. 24, 2008), the outlook has become notably worse, with some experts citing the bankruptcy of Lehman Brothers as the breaking point.

The local economy is reeling as the securities industry moves to cut some 46,000 jobs by the summer of 2010. Affluent investors have pulled back from house shopping to nurse wounds inflicted by the stock market. Even that most voracious of buyers -- the hedge-fund manager -- has lost his appetite, as angry investors yank their money from his funds.

PRICE CUTTING HAS BECOME SAVAGE. The 14-room Park Avenue apartment of the late socialite Brooke Astor -- which Barron's highlighted in that earlier story after its price had been cut from $46 million to $34 million -- is now down to $29 million and probably has to be cut further.

But even with dramatic reductions like that, the inventory of unsold luxury housing is ballooning. Streeteasy.com, a Website that pulls together listings and insights from a variety of brokers and buyers, now shows 795 New York apartments offered for $5 million or more, up from 518 a year ago.

Detailed data on that top tier of sales are hard to come by, but the price trends are thought to be similar to those in the mainstream luxury market, defined as the top 10% of home sales. Using that yardstick, the median sales price of a Manhattan luxury apartment topped out at about $5 million in the first quarter of last year -- well after the national housing market came unglued -- and then fell nearly 20% by the end of the third quarter, according to Miller Samuel, a real-estate appraisal firm.

In December, says Jonathan Miller, the firm's president, contract prices were 20% lower than in August, all but assuring sharp drops in closing prices in the months ahead. Nowadays it isn't unusual to hear anecdotes about potential buyers backing out of deals and abandoning down payments as large as $500,000, worried that a property's price could fall by much more.

Buyers clearly were wary of signing on the line. The number of new contracts for luxury properties dropped 40% in the fourth quarter, says Sofia Kim, research chief of StreetEasy. At the same time, inventory rose 65%. "We're years away from full recovery," Kim says.

MAKE NO MISTAKE, PRICES are still staggering. The average Manhattan apartment -- counting all price levels -- sells for $1.6 million. The most expensive for sale, at least publicly, is a penthouse at 25 Columbus Circle, otherwise known as the Time-Warner Building. This is listed for $65 million by the brokerage Brown Harris Stevens. But that doesn't include so-called quiet listings, like the apartment of a Nu Skin Enterprises executive, who wants to sell her penthouse for $80 million through Sotheby's, as the New York Observer recently reported.

Realty brokers, the industry's natural cheerleaders, are now unabashedly glum about the high-end market. "The $5 million-and-above market is inventory-rich and buyer-poor," says Dolly Lenz, a broker to the stars and vice chairman at Prudential Douglas Elliman.

The price of a property, she says, "has to be 25% off the last sale for it to be a bargain. People have no sense of urgency. A sense of urgency is what the real-estate market needs as a stimulus."

In short, the market is almost unrecognizable from a year ago. "People used to call and say 'I have a Russian,' and that meant you were supposed to drop everything," says Leighton Candler of Corcoran Group, another top broker. That's changing: The ruble buckled and so did oil. And the dollar is up sharply, making U.S. prices all the more expensive.

Says marketing chief Louise Sunshine of the residential developer Alexico Group: "We have definitely noticed a switch from international buyers to more of a U.S.-based and local purchaser base."

The damage in Manhattan is spreading well into the suburbs-from Saddle River, N.J., to Greenwich, Conn., to South Hampton, N.Y.

In 2008, the median price of a single-family home in Fairfield County -- Connecticut's most expensive locale -- fell 12.8% to $522,000, while sales plunged by 31%, according to Boston-based Warren Group. On Long Island, the median price fell 10% just in the fourth quarter, including a 14% drop in the Hamptons region, reports Miller Samuel.

In New York's Westchester county, sales of single family homes fell 30% in the fourth quarter, and the median sale price fell 11%, according to the Westchester-Putnam Multiple Listing Service.

The high end of the greater New York market "has been holding up better than that in many of the larger metro area markets," says Celia Chen, the housing economist at Economy.com. But she sees continued drops ahead for luxury and other housing in and around the city.

"House-price depreciation in New York will likely be greater than the national average this year, as the impact of the lost jobs on Wall Street hits" the local economy, Chen says.