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When the city’s top real estate executives do lunch, expect a dishy reveal of Manhattan’s hottest luxury property trends.
“New York is permanently global now,” says Henckels, LEFT, with with Leonard Steinberg, Richard Steinberg, and Jasmine Taskanikos of Warburg Realty.
Inspired by what he saw at the Aspen Ideas Festival, where real estate power brokers sat down with the world’s key influencers for a discussion of market trends, Richard Steinberg, executive managing director of Warburg Realty, invited some of the city’s top real estate executives to compare notes on Manhattan’s hot, hot, hot luxury real estate market. Kirk Henckels, vice chairman of Stribling & Associates; Leonard Steinberg, president of Urban Compass; Nikki Field, senior vice president at Sotheby’s International; and Adam Modlin, president of The Modlin Group, recently joined Steinberg and Gotham magazine for a lively lunch discussion about all things real estate at the Core Club. Their observations are sure to surprise you.
So how’s New York real estate?
RICHARD STEINBERG: People are always asking us that. There are so many different tiers, you can’t have a blanket statement.
KIRK HENCKELS: There’s enormous disparity between markets.
How do you define the luxury market—what’s the threshold for that?
KH: We use $5 million; some people use $4 million. Jonathan Miller [president of real estate and consulting firm Miller Samuel Inc.] uses the top 10 percent. The public thinks this market is crazy on fire, but it all depends on what you’re talking about. You have all of these contradictions.
NIKKI FIELD: And not just price points and locations. We’re seeing a transitional period that’s actually endangering a lot of co-ops. The press hasn’t picked up on that. If you look at the resale as well as new-sell price data on condominiums, they are rising 30 percent over co-ops. Co-op boards are not pivoting; they’re not analyzing, recognizing, or endorsing the fact that their share values are starting to see a decline. We need smart co-op members to look at how they adjust their apartments, as well as their attractiveness to people, significantly.
LEONARD STEINBERG: The next layer of wealth is not into snob appeal, and they don’t appreciate the scrutiny [of finances required by co-ops]. The eye of the luxury consumer has changed radically, too—the modern eye is demanding a new aesthetic.
NF: If I may say in defense of great architecture, taste is cyclical. When people are so inundated with this modern glass-wall look, there will be some very bright, young, wealthy souls who say, “I want heritage and architecture.” It will come back; it’s not dead forever.
KH: Poor co-ops! They are stylistically and locationally unpopular; the structure of the deal is unpopular—they don’t have a thing going for them at this point. I know that several of us have been approached by top buildings, asking us how they can change. So there is a willingness to do this.
RS: Why couldn’t a co-op turn into a condo?
KH: One way of doing that is to change the tax structure, which frankly I’m surprised we haven’t seen proposed. It is really a capital gains issue, and they could do a ruling. We’re putting together an initiative [that] would include top brokers from around the city making a proposal to co-op boards, hopefully with the advice of the managing agents.
NF: There are incentives on both sides. It would require educating co-op boards to consider adapting, adjusting, and coming into the 21st century. Who can do this? I really feel the people at this table could do it. I believe that our credibility with many boards across the city and our success in sales, [combined with] our current challenges in sales, [creates] the right moment to say, “Okay guys, let’s look at what you’re doing, let’s adjust, and let’s be a bit more competitive and attractive.” If we all reach out to the boards we’re most comfortable with, or that we have friends on or sit on, then send the same message and let them know all other boards are receiving this information, I think they’re going to feel comfortable with the group as well as with participating.
ADAM MODLIN: I want to take the opposing point of view. I don’t think there is going to be an opportunity for co-ops to change their ownership structure to condos. I think it’s the premise of the private country club—people want to belong to a club that not everyone can get into.
NF: Here’s the message that we’re sending out right now—the deals are in co-ops.
AM: If you look at the condominium market, you’re competing on a global platform. If you want to compete in the New York local market, stick to co-ops. RS: What you are going to see, though—[even] if there isn’t a complete conversion from a co-op to a condo [structure]—is a change in the next decade, because the “Masters of the Universe” who bought the $20 million to $30 million co-ops on Park Avenue are all financially minded; they come from hedge funds and banking. They’re going to realize that their co-ops have not appreciated the same 20 to 30 percent that condos have. When the 60-and 70-year-olds move out of these apartments and they’re bought by 20-, 30-, and 40-year-olds, [these younger buyers] are going to initiate change because their friend has a condo that has gone up 30 percent in three years and the co-op has gone up 4 percent in three years.
AM: What we haven’t touched on are single-family townhouses, the hottest property of the moment. There are a handful of houses on the Upper East Side that are being shown for anywhere between $100 million and $200 million. [Townhouses offer] the ultimate in privacy, seclusion, and anonymity.
RS: I had customers who wanted to buy a very large house. A 17-footer came on the market for $20 million, but it was too small. I had sold the house next door for $7 million and asked its owners if they would move in 30 days for $30 million, and they said yes. I went to the customer and said, “You now have 34 feet in width and 15,000 square feet,” and they responded, “That’s [still] too small.” I knew of [another] house next door, [which was owned by] a developer. He paid $12 million for it two years ago. I said to him, “What if I give you $35 million?” He said he could be out in 30 days. So I went back to the couple looking for the townhouse, and we signed a contract. Three separate deals!
NF: The townhouse market will—and if you don’t know this by now, you should—eventually outperform in resale what we now do in co-ops and condos. That may be 10 years down the road, but that’s definitely the future.
Leonard Steinberg, president of Urban Compass, arrives at the Core Club.
Parts of London are becoming rich ghettos, where enormously expensive pieds-à-terre are purchased but not lived in. Will this happen along Billionaires’ Row?
NF: International buyers want to put their money into safe havens. With 137 ongoing projects and another $50 billion in the pipeline, we are going to see sold but empty buildings in this town.
LS: But I think that is the nature of a global center, because global centers are where people come for moments of their life. They don’t inhabit a place for 12 months of the year; it’s a new way of living. Everything today is very different from what it was five years ago—the way people work, the way companies operate. When I was in fashion 20 years ago, we thought in terms of the Southwest region and the West region; we didn’t think South America, Latin America, Europe, and Asia. But the world has become this one entity, and that’s what business focuses on. Many of the super wealthy are diversifying funds in different parts of the world. In Manhattan, a lot of people are buying into what I consider to be hyperinflation. Because the luxury consumer [sector] is growing so dramatically and their demand [for housing] has grown similarly, luxury properties can raise their prices.
Do you project forward in terms of currency rates, for example, a stronger dollar, which would impact international sales?
KH: New York is permanently global now, but are we at the zenith of it? I’m not sure. At some point, things are going to go against us. I’m always more concerned with the market for the local person who works and lives here. I find what they’re doing very interesting right now. They are incredibly value conscious, and also they want quality. They’ll pay up if that’s what they really want, but how often does that happen? You have a budget and there’s always a compromise.