Friday, March 27, 2015

Could the Dollar/Euro Trade Bring Inventory to the New York City Real Estate Market?

Russia is in disarray, China is slowing, and Europe has been a basket case since the Great Recession. The one thing these regions have in common is that they have all been big investors in New York City real estate for the past decade. One major difference between now, and the last 10 years is that the US Dollar is the strongest that it has been since 2003. The difference is extreme. The dollar has rallied nearly 30% in the past 12 months. Between 2006 and 2014, the Dollar ranged between $1.20 to $1.59 per Euro, but on average was around $1.40 or 30% weaker than it is today. So, if you are a foreign investor in New York City real estate, without price appreciation, you are up on average 30% if you bought any time in the past 9 years. Add in price appreciation, which widely varies, but is almost universally positive, and you have some staggering returns! Those returns are even more substantial if you managed to use leverage (a mortgage) in the process. So, what is to stop foreign investors from shaking their New York City real estate piggy banks? Let's take a look at a couple of scenarios:

Investor A from the Eurozone purchases an investment property in Manhattan in late 2010 for $2,000,000 and uses all cash. The investment costs him 1,428,000 Euros at a $1.40 exchange rate. Over the past 4 years his property appreciates 25% net. At the same time, the Dollar appreciates 28%. Investor A sells his property today. So, investor A nets $2,500,000 and converts the dollars back to Euros. Thus, his net is 2,293,000 Euro, or a tidy 60.5%.

Investor B makes the same Manhattan purchase in late 2010, but manages to secure a mortgage of 75%. Investor B's investment is $500,000 or 357,000 Euros. Assuming that carrying costs and gain of equity on the mortgage are a wash, the apartment appreciates the same 25% net and he decides to sell. The proceeds are $2,500,000- $500,000 of which is a profit, $500,000 is his recouped down payment and $1,500,000 go back to the bank. Investor B coverts his $1,000,000 back to euros and ends up with 917,000 euro. You can see how much this leverage helps. The profit on the initial investment is 560,000 euro or a whopping 156%!

Under either scenario, the profit is tidy. What would stop the foreign investor from selling? Some ideas:
- Capital Gains Tax
- Possibility that the dollar rallies further with Fed increasing rates later in 2015
- Possibility of losing future appreciation in the NYC market
- The US as safe haven, concerns that Europe, Russia, China economies worsen

All things considered, New York City will likely remain an attractive investment regardless of currency trade. The chances of net outflow of foreign real estate investment is highly unlikely. However, if you happen to be an oil baron from overseas and times are tough, you can bet that the NYC piggy bank has to look awfully tempting.

Wednesday, March 25, 2015

From the Ashes of Gasoline Alley 372 Lafayette, 22 Bond aka 25 Great Jones Rise

372 Lafayette (3/2015), Rendering (inset)
A walk up Lafayette from Houston towards Astor Place is a far cry from what it was just a couple of decades ago. People once bought gas and had their cars tuned up on this wide but previously very quiet stretch of Noho. If I recall correctly, I believe I had my car serviced at the site of 10 Bond Street just 10 years ago which is now the site of a luxury condo. Next door, 372 Lafayette, a former Meineke Muffler, is taking shape and has reached its mature height. The building is expected to be rentals, as that was apparently the best way to clear landmarks. The building by architect Morris Adjmi seems to fit well in scale with the surrounding buildings, and integrates an unusual glass element on the top floor which acts as a veil for the setback 6th floor apartments.

(L) 25 Great Jones, (R) 22 Bond St
Across Lafayette we find 25 Great Jones, the partially built, former hotel project that has been sitting largely untouched (to the dismay of neighbors) for as long as I can remember. Originally planned as a hotel, the plan was scratched in favor of mega-lux boutique condos which will combine the project with 22 Bond Street to it's immediate south. The good news here is that things finally appear to be moving along. The building that once stood on Bond has been demolished and will eventually house an entrance lobby and small courtyard. On the north side of the project cinder blocks have been knocked out of the side of the building (presumably to shore up the supporting beams) and several workers were on site. There are rumors of an offering plan out there somewhere which prices six 3 bedroom/3 bath duplexes between $9M and $20M
One small parcel just to the west of 25 Great Jones with frontage on Lafayette, 363 Lafayette (former home of the Great Jones Diner), is still inactive. Plans for a 5 story retail and office building were scrapped a year or two back. The property was last indicated to be on the market for around $35 Million for a potential 8 story, 32,000sf building.

Tuesday, March 24, 2015

Whole Lotta Terra Cotta at 10 Bond Street!

Starchitech, Anna Selldorf's 10 Bond Street is nearing completion. I haven't been on the block since the terra cotta was generously applied to the facade. It is a striking feature, and also reminds me that it is almost time for spring gardening! The terra cotta itself seems a little darker in person, more of a mahogany than an orange. The new development condo on the now famed strip of Bond Street seems like a relative bargain in this market at $2300-$2500 per square foot for the couple of remaining units (the whole building is just 11 units- 1 penthouse, 1 townhouse, and 9 2-3 bedroom units). Thanks for making my day 10 Bond! I will be back with more on the areas rapid growth in the next couple of days....

Special shout out and inspiration by: "Zippy The Chimp" at Wired Forums
Curbed Files for 10 Bond (Curbed)
10 Bond, Project By Selldorf Architects (Selldorf)

Monday, March 23, 2015

45 East 22nd Builds Foundation, Sales Impressive, Cantilever Too!

(L) Render, KPF (R) One Madison Still Stands Tall

The Pit, 3/2015 (AFB)

While I might not be the first person to suggest a 777' tower on a side street on the border of Gramercy Park and the Flatiron District, the rendering of the flaring tower by Kohn Pedersen Fox at 45 East 22nd Street are impressive, and so are the sales! A quick look at Streeteasy shows that at least 20 of the expected 83 units, ranging in price from $2.5M to $20M, are in contract already in contract. Buyers are not even batting an eyelash at the $3300/sq ft average sale price. Then again, why should they? Every new luxury tower is commanding these prices, and here you have the opportunity to tower over neighbor One Madison, The Met Life Building, Madison Square Park and virtually everything else in sight.

While a foundation has just taken shape, the finished product will feature a "manor house inspired" granite base which will blend with the existing streetscape. The base reminds me of a handle to a very long sword which takes the form of glass protruding skyward. The most interesting feature to this building, in my opinion, is the creative use of cantilever. Unlike numerous cantilevers that simply hang horizontally over neighboring buildings, 45 East 22nd builds gradually larger and larger as you ascend the structure. I find this pleasing to the eye, architecturally intriguing, and less abrasive than the straight horizontal efforts.

Previous Press for 45 East 22nd:
The Curbed Files for 45 East 22nd (Curbed)
Demolition Update (7/2014- NY YIMBY)
Irregular, In a Good Way (The Real Deal)

Previous Cantilevers from A Fine Blog:
The Isis (1/2009)
Linden 78 (8/2008)
Georgica (3/2009)
Brompton (11/2007)
Cooper Square Hotel (11/2009)

Friday, March 20, 2015

Blog Improvements, New Instagram- "nycrealestatemaven"

Fruit Truck, East 84th (A. Fine, 3/2015)
Hey all. You might notice some subtle improvements in the blog today. Thanks to the help of Vincent D'Agostino, the webmaster of my corporate mothership, Terra Holdings, we now have a new and larger font for ease of reading, and, most importantly, working "sharing" buttons! The share buttons have been a nagging issue for quite some time and I am thrilled that they are fixed.

I'm also happy to announce that I have created a new Instagram account for everyone to follow. The name of the account is "nycrealestatemaven". The account will be a running collection of real life and real estate scenes in NYC. The account will have two purposes. First, it will chronicle every day life in NYC. Second, it will follow changes in our real estate landscape.

I hope you enjoy the improvements. Fell free to "share" since the buttons actually function now!

Wednesday, March 18, 2015

Fed Flash: Rates Remain Unchanged

Fed Flash: The Fed voted unanimously today to hold rates steady at 0-.25%. While there was plenty of correct speculation that the Fed would remove language reflecting "patience" in regards to a rate increase, the rest of the statement reflected that they will be very patient. A summer rate hike seems to be off the table, and in the short term, both equities and treasuries are rallying. The labor market is robust, but overall economic growth if facing headwinds, most notably the rapid rally in the US Dollar. The Dollar, bad weather, and job losses in the energy industry are digging into the boost in consumer spending resulting from lower energy prices. The new conventional wisdom is that the Fed will increase rates 1/4 point twice between September and December. That sounds reasonable to me, but if I had to guess, I would go with one increase of 1/4 point between now and year end. Economic news tends to lag, and the 1st Q GDP looks like it is going to show very soft growth. A rebound is widely expected in the 2nd Q and beyond. As for NYC real estate, a Goldilocks scenario continues for the time being. The highest risk segment of the market, in my opinion, is the ultra-high end. With sky high prices and mounting economic pressure abroad, you would have to consider whether a few oligarchs abroad might consider cashing in on a much appreciated US Dollar.

Monday, March 16, 2015

Garbage Problems on East 86th Street Recall Bad Old Days

A whole lot has changed on East 86th Street in Manhattan. What once was the famed hub of Germantown (1900-1960's), later a center of dereliction (70's/80's), has been on the move up for decades. High end condos have sprung up as have high end retailers. There is new street furniture, a new subway on the way, new energy, and even new (reproduction of old) "Bishops Crook" street lamps. However, if you pine for the days of old, the true grit of East 86th Street, no worries, it is strewn all over the street in the form of......garbage!

86th Street bet Third and Lexington
We've all seen the internet meme in the past couple of weeks: pictures of garbage revealed as our 2 month old piles of frozen snow melted off the streets. Sure, those pictures are a cumulative illustration of how sloppy we are as a people, however, I would argue that East 86th Street absolutely took the cake (and the Snapple bottles, coffee cups, cigarette butts, newspapers, etc..). Items as random as infant booster seats and cat scratching towers were being unearthed next to the ubiquitous denuded bike frames more common throughout the city.

I've spoken to numerous neighbors, some of which have come to my unsolicited, and the consensus is unanimous- we are all frustrated and disgusted! Yes, there are plenty of slobs that transit 86th Street, but I would argue that there are other factors at work that contribute to this being one of the nastiest stretches in the city.

1- Street Vendors. Any of you who follow this blog, or know me well, knows that these Cretans are the bane of my existence! Aside from taking up parking spots, three quarters of the sidewalk, and looking like junk, these people have an absolute disregard for the garbage that their business creates. Wrappers, tags, and paper associated with pashminas, cell phone covers, and counterfeit handbags are all over the place. And frankly- they don't give a crap. When I was a kid, in the bad old 70's, if they saw a cop approaching they would grab all of their wares and run for it. Now, it is like they own the place and consider it a campground. Don't even get me started on the food trucks!

2- Sanitation Fail #1. No enforcement of sanitation laws for merchants and landlords. Is it me, or isn't there a law that if you have a store, or own a building that you are responsible for the cleanliness of the sidewalk and curb? If that is still the case, there is no evidence of enforcement.

3- Sanitation Fail #2. Garbage cans overflowing. Day and night you see it here. People want to throw things away, but the garbage cans are all full! When that happens, the top of the can becomes a pyramid and everyone is trying to add that one last piece of garbage that will balance on the top without falling off. Problem is, it usually falls off, and if it doesn't, a slight gust of wind is all it takes to clear the pyramid onto the streets and people start again. Others simply place their garbage next to the garbage can- like that helps! Where are those huge recycling cans they have up on Lexington? How about those gigantic solar powered compacting cans they have in Union Square Park? All we get is one pint sized, ages old can per corner. No wonder it's a mess!

Until 2012, "Ready Willing, and Able" workers were cleaning the streets in and around 86th Street in a $300,000/yr program, but the effort was ended when funds from the "Doe Foundation" were required for Hurricane Sandy related clean-up. The East 86th Street Alliance collected funds to have the street covered by cleaners for 4 hours a day, but that clearly is not enough! The bigger question is why a local organization or foundation has to subsidize garbage clean-up in the first place? Isn't that what the Department of Sanitation is there for? If the three issue I mention above are properly addressed, and that is easy, we can live with the slobs, and a much cleaner East 86th Street!

Wednesday, March 11, 2015

How To Buy An Apartment In NYC, Part One: Preparation

Buying an apartment in New York City is one of the best and biggest investments any New Yorker or investor can make in a lifetime. With so much on the line, the process can feel daunting, intimidating, and often times frustrating. It doesn't have to be. With education, solid partners, and preparation, the experience can be both financially and emotionally rewarding. Okay, but where do you start?

Understanding the difference between Co-ops and condos


-  Ownership structure where apartment "owners" don't actually own the apartment, but own shares in the "cooperative" corporation that correspond to the apartment that you will inhabit as well as your share of common elements. As part of your ownership of shares you are entitled to a "proprietary lease" to the apartment that you are "purchasing".

- Monthly carrying costs called "maintenance" include your portion of the costs to run the building and the monthly real estate taxes associated with your unit. Because taxes are included maintenance is quoted as one gross figure, but a certain percentage, typically between 35% and 60% is "tax deductible."

- Co-ops determine the minimum amount of down payment for buyers of the property. Minimum down payment in co-ops are usually 20% or 25%, but can be 50% or even higher in the most desirable, high-end buildings (think Prime Park Avenue, or Lower Fifth Avenue for example).

- Each co-op has a different set of requirements for acceptance to the building. Co-ops require extensive documentation of income, net worth, and references. A "board package" is the collection of these documents that the board reviews, and if they meet their criteria they will likely ask you to meet them for an interview before granting final approval.

- Co-ops institute policies that can restrict how often and for how long you may rent out your apartment.

- Co-ops tend to have lower closing costs because they are not subject to the 1.8%-1.925% mortgage recording tax.

- Positives to co-ops include that they are generally less expensive than condos, high down payments lessen the risk of your neighbors defaulting, and there is tighter control over who is moving in and out of the building. Co-ops also represent the majority of apartments for sale in NYC.


- Unlike co-ops, you physically own your apartment.

- Unlike co-ops, your monthly charges are divided into two payments called "common charges" and "real estate tax", rather than being lumped into one payment.

- Condos have more flexible financing terms. That means in essence, there is no minimum down payment required by the condo board. That might sound great, but, be mindful, most banks are looking for 15%-20% at a minimum to finance any property nowadays.

- Condos also require a "board package", however, the barrier to entry is far lower. Condo boards can only block approval by "right of first refusal". In other words, they can only deny a buyer if they are willing to do the transaction at the same terms that you are offering a buyer. This rarely happens.

- Condos are far less restrictive in regards to renting out your apartment. Generally, there are no limits outside of "right of first refusal."

- Condos tend to have higher closing costs because they are subject to mortgage recording tax of 1.8%-1.925%, unlike co-ops. If you are buying a new condo from the sponsor you are also typically responsible for the Transfer Tax of 1.825% (units over $500k, otherwise 1.425% under $500k).

So, there are big differences between co-op and condos, and the increased flexibility that condos offer are the primary reason that condos trade for higher prices than co-ops.

Now that we have established the difference between the two ownership types, we can move on to preparation.

Step 1- How much can I afford?

Buying an apartment sounds like a great idea. It is, but sometimes reality can clash with the concept. There are three things to consider. How much can I afford monthly? How much can I afford up front? How much will the condo or co-op (and bank if financing) consider appropriate for the first two questions?

Housing costs are generally the single largest expense in anyone's monthly budget. As a rule of thumb banks and co-op boards would prefer that your total debt (and real estate taxes) should not exceed 25% of your total income (“debt” would also include additional mortgage you may have and installment items like student loans, car loans, alimony, and the like). I use the word "ideal", because in certain circumstances this can be stretched a little. If a co-op board is more lenient, or if it is evident that you are just coming into your peak income years, you may be able to go to 30%. The same can be said for a condo, so long as your bank indicates that they would approve.

This brings us to the next big question- how much will this cost me up front? To generalize, and this varies, you should be prepared to have at least 25% of the purchase price available liquid in cash or easily converted securities for the down payment and closing costs. And, I hate to add an and here, but you should also have at least 2 years of monthly housing expenses in the bank. Closing cost vary from as little as 1.5% to as much as 6% or a tad more depending on what type of unit you are buying and whether or not it is a resale. Again, there is some stretch, especially in condos. In a condo resale, you may be able to get away with a 10% or 15% down payment and closing costs around 2%, but you also have to convince the bank that they have enough collateral and get them to approve.

Finally, there is the question of how much a co-op or condo deems appropriate for your down payment, debt to income ratio, and post-closing liquidity. For co-ops, each building has a minimum down payment. That number is usually 25%, but if you are looking at very affluent buildings, say on Park Avenue, that number can be 50% or even higher. For the average co-op the minimum down for the building, plus a debt income ratio at or below 25%, and 2 years of post-closing liquidity (mortgage + maintenance) should suffice. Every co-op is different, so, you should ask the listing agent and your agent to gather more information on what the board is looking for before you proceed, especially if you are cutting it close.

Step 2- Assemble your team

There are three critical people that you want to have lined up before you start looking for an apartment- a broker, a banker, and a lawyer.

Real Estate Professionals (I am one) are a critical piece of the team that you assemble. Most importantly, you should look for an experienced agent that works for a reputable firm and has a solid track record. You may have a friend or relative that is new to the business, or moonlight, the best advice there is avoid! A difficult transaction with an unexperienced representative can end a friendship, or make Thanksgiving dinner extraordinarily uncomfortable. Go with a pro! Experience cannot be overstated. As a buyer, you may never have purchased an apartment in NYC, or maybe it has been a while. It is a competitive market, and an experience broker offers many things- understanding of the market and pricing, negotiating tactics and strategy, package preparation and presentation, and working as a buffer between parties that can be very valuable. Remember, buying an apartment in NYC is one of the most complicated real estate transactions in the country. In NYC, the seller traditionally pays the commission making the decision to use a broker one that will have no effect on your finances. Brokers can also be a great resource for the other components of your team- a banker and a lawyer.

If you plan on purchasing and getting a mortgage, you are going nowhere without a good banker. My best advice is to ask around and figure out who is active in the local market. More precisely, if there is a specific building that you are interested in, ask your broker to find out who is writing mortgages in that specific building. It is a great help to work with a bank that is familiar with the building and already has it on its approved list. When you locate a banker, get yourself pre-approved for a mortgage. While a pre-approval letter is far from a guarantee that you will qualify for a mortgage, it is helpful to get an idea of what a bank thinks that you can afford and how much they will consider approving you for. When it comes time to bid for an apartment, having a pre-approval to present with your offer will show that you are more serious than someone without and give you a competitive advantage. Also, in preparation, you should run your credit. If there are blemishes you should address them immediately. Usually if there are a couple of dings, you can have them ironed out over a couple of months, qualify for a lower rate, and stand a better chance with a board.

Finally, you need to find a lawyer. Again, I will warn against what I call using "my cousin Vinny". You may have a friend or relative that is a lawyer, but it is crucial to hire a NYC based lawyer with extensive experience in co-op and condo closings. Your "cousin Vinny" might be a great guy, but if he does not understand the complexities of this specific field, he can blow up your deal pretty quickly. Your real estate attorney is responsible for doing due diligence, reading the board notes and financials, negotiating the contract, and representing you at closing.

Next up, Part Two: The Search...