Co-op Clearance Coming Draining Portfolios Flood City in Inventory: Real-Estate Pros Girding for a Bubble-Burst

On the 22nd floor of the Pierre hotel, the co-op apartment of Harrod’s owner Mohamed al-Fayed is on the market for $25 million. Mr. al-Fayed, the father of Dodi al-Fayed, the late Princess Di’s flame, set the lofty price in midsummer, at the tail end of a New York City real-estate market that demonstrated its hubris by defying national downward economic trends.

His apartment is still up for grabs, which wouldn’t be remarkable-except that since Sept. 1, four more luxury apartments have come on the market at the Pierre, adding to the 13 that were already for sale.

Though you’ll hear arguments to the contrary, any way you look at it, the uptick in inventory is bad news for Mr. al-Fayed, and good news for anyone interested in his apartment.

“More inventory and more choice,” said Sami Hassoumi, a top luxury real-estate broker at Brown Harris Stevens. “This is what’s going to force sellers to reduce their prices.”

Ashforth Warburg Associates managing director Richard Steinberg, who sold Alexandra von Furstenberg her townhouse, said: “It’s a buyers’ market now, but sellers don’t realize it yet.”

No one will deny that inventory is up-in some cases, way up. And while the real-estate market in Manhattan seemed to recover from a post–Sept. 11 malaise as the rest of the city was just getting its grim prognosis, the spontaneous bidding wars on overpriced property that characterized the unlikely first half of this year in real estate appear to have been an anomaly.

A recent market report prepared by Larry Sicular for Brown Harris Stevens concluded: “We are in a slower, more cautious market. Some say it began this summer, another indicated September, but the consensus appears to be that buyers are waiting, while motivated sellers are reducing their prices.”

With more to look at, buyers can afford to shop around-which may put an end to seller’s irrational exuberance.

“Somehow, people just got completely carried away, thinking they could ask anything [for their property],” said Roger Erickson, managing director of William B. May, who sold Nicole Kidman her apartment. “In the days when the Nasdaq was riding high, it didn’t seem like money mattered. Now, people are much more cautious-everyone has suffered the consequences of the lousy financial market.”

Though inventory typically surges each year after Labor Day and the Jewish holidays, last month’s surge was particularly pronounced. A spokesperson for Insignia Douglas Elliman, the city’s largest brokerage firm, said that while they normally expect to receive about 50 new real-estate listings every day during this part of the year, they’ve been receiving over 100 daily for the past month.

And while Brown Harris Stevens president Hall Willkie cautioned that it would take a much larger surge than the present one to truly dampen real-estate prices, he did say that in a “tightening market” like the one we’re experiencing, “it’s worse now than ever” to shoot for unrealistic asking prices.

If that seems obvious, try to remember where we were six months ago, when buyers-buoyed by low mortgage rates and a boomingeconomy-pushed real-estate prices to levels undreamt of only a few years ago.

“Now reason is creeping in again,” said JoAnne Kennedy, president of Coldwell Banker Hunt Kennedy. “Brokers routinely tagged on 15 percent to whatever the last comparable in the building traded for. You would up it because of competitive price pressure.”

Jonathan Miller, president of Miller, Samuel Inc., concluded in a market report released Oct. 21: “Despite rising prices and the number of sales in most apartment-size categories in recent quarters, the Manhattan market is returning to more normal activity levels.”

“What we’re really saying,” Ms. Kennedy said, “is that you can’t just pick a price out of the air-meaning high in the stratosphere-because there are going to be 10 other apartments the customer can buy, and they’ll go buy somewhere else.”

Louise Phillips, a senior vice president at Halstead, said that she expects the slowing of the sales cycle to force a return to real-estate fundamentals.

“The art of negotiating, the art of selling, of pricing things appropriately-those things are all going to become increasingly more important. The things that are moving are properties that are priced appropriately.”

Whence the deluge?

Brokers pointed to any number of factors to explain the recent surge in inventory. Pam Liebman, chief executive of the Corcoran Group, attributed the jump to sellers who have gotten “far ahead of themselves.” Six months ago, she said, sellers would price their apartment a month ahead of the market and then make good on their gamble four weeks later, when prices caught up with that asking price.

“When you have a market that’s flattened out-which it has-and sellers are still pricing ahead,” Ms. Liebman said, “then the market never catches up, and you have increased inventory.”

Alexander Peters, a broker at Ashforth Warburg who recently scored the highest sale in the history of the Upper West Side, said the mentality of pricing ahead of the market simply won’t work in the current economic climate.

“You can’t just sit around thinking that sooner or later, that person is going to walk through the door and pay hundreds of thousands over comparable [apartments],” he said. “That market is well over.”

Of course, inventory always ebbs and flows. But the Manhattan real-estate market has often shown a resiliency even as housing markets elsewhere have twitched in response to poor overall economic indicators. In the last few weeks, however, it seems that the national economic free fall is starting to ruffle the Manhattan market’s feathers.

“Every portfolio is down approximately 20 to 25 percent,” said Mr. Peters. “So, to now reach that asking price of $1.3 million, you have to cash out a larger portion of your securities, because you’re not worth as much any more.”

“There’s a great deal of uncertainty in the marketplace and lack of confidence in corporate America,” said Insignia Douglas Elliman’s outgoing president, Paul Purcell. “When you read the business section, it’s almost like reading the crime blotter.”

One reason that real estate is so resilient is because it’s an emotional investment. Economic indicators are filtered through the media, interpreted by homeowners and then acted upon. But that same emotional pull can drag the market down when all the news about the economy seems to be bad.

Michel Madie, president of Michel Madie Real Estate Services Corp., said that many of his clients decided to hold off on selling until they were reasonably sure that New York had hit the top of the market.

“We’ve all been puzzled by the fact that there wasn’t more inventory,” he said. “And it turned out it was artificial holding-off.”

In the last month, however, with the recent plunge in the Dow-coupled with the seemingly inexorable business scandals and talk of war with Iraq-many of those clients switched gears and are trying to sell before the market tanks.

“Part of what’s happening is that there’s this looming question about whether the market is going to be affected by layoffs on Wall Street,” said Wendy Sarasohn, a broker at the Corcoran Group.

“Whatever is felt now will be confirmed by March,” said Mr. Madie. “When we know about the layoffs on Wall Street, then we’ll really see decisions in terms of top properties.”

Upper East Side

363 East 76th Street One-bedroom, one-bathroom co-op. Asking: $429,000. Selling: $418,000. Maintenance: $767; 38 percent tax-deductible. Time on the market: six weeks.

A BIRD ON THE ARM … The first time this apartment’s new owner stopped by to check the place out, she came arm-in-arm with a very attractive guy. They checked out the convertible two-bedroom’s open views, parquet floors and great closet space. For her next walk-through, the new owner showed up with another handsome man. The apartment’s listing broker, Andrea D’Amico of the Corcoran Group, said she couldn’t help but notice the double dose of hunk. “Geez, each time you come by, you bring a better guy back,” Ms. D’Amico remembers saying. Even as the words came out of her mouth, however, Ms. D’Amico wondered if she should have been a little more discreet. The buyer is in her late 20′s, a recruiter for a financial-services company and quite a catch herself. “I realized afterward that that was a crazy comment to make,” said Ms. D’Amico. “But then I saw her start laughing.” It turned out that the first relationship was totally platonic. But because the other one didn’t know that, Ms. D’Amico’s aside ended up endearing her to the buyer. “I created a sort of jealousy scenario, which I think she wanted,” said Ms. D’Amico. “We always laughed about it afterwards.”

Greenwich Village

396 Bleecker Street Studio co-op. Asking: $299,000. Selling: $300,000. Maintenance: $547; 35 percent tax-deductible. Time on the market: one month.

CAN’T MESS WITH ADAM HOROWITZ Mayo Roe was in a rush to get this Bleecker Street studio off his hands. Mr. Roe, co-owner of the celeb-frequented West Village eatery Paris Commune, had already seen one deal for the place fall through, and the clock was now ticking on the deposit he’d put down on his new home-a neighborhood apartment belonging to Beastie Boys front man Adam Horowitz, a.k.a. Adrock. To complicate matters, Mr. Roe also owned the studio next-door and was trying to sell that as well. Because of the time crunch, he had to sell them both at the same time, to the same buyer, in an all-cash deal. “It got a little hairy at the end,” said Mr. Roe’s broker, Frank Veilson of Insignia Douglas Elliman. Disaster was averted when a father of two women in their mid-20′s-one an aspiring actress, the other a student at N.Y.U.-stepped forward with the cash to buy this co-op (and its twin). Mr. Roe moved into Adrock’s place, and the two daughters are now right across the street from Magnolia Bakery. “You couldn’t have asked for a more beautiful outcome, the way things worked out time-wise,” said Mr. Veilson, who completed the deal with broker Alice Barden, also of Douglas Elliman.

East Hampton

16 Bay Inlet Road Three-bedroom, two-bathroom house. Asking: $975,000. Selling: $957,000. Taxes: $4,400. Time on the market: one year.

IT’S A PAGODA, DARLING While Agnes Moorehead is probably best remembered for her role as Elizabeth Montgomery’s mother on the 1960′s TV show Bewitched , she was in fact an accomplished stage actress, and such an avid theater fan that she took her real-estate cues from Broadway. In the mid-1950′s, Moorehead thrilled to Teahouse of the August Moon , a comic play about inept American soldierswhotryto bring civilization to a post-WWII Japanese island. The play made such an impression on Mooreheadthatin 1960 she commissioned the building of this pagoda-style house in East Hampton. “It so influencedherfeelings about life and architecture that she had this house built,” said the house’s listing agent, Jude(pronounced “Judy”) MacMuro of Cook Pony Farm. The four-time Academy Award–nominated actress died in 1974, and her house was most recently owned by a builder who lives in Westchester. Not that he’s tired of the architectural style: He just wanted a bigger place-this one is only 1,600 square feet-and so he’s constructing a 4,000-square-foot version of the same house in Montauk. The new owners-he’s an orthopedic surgeon-are especially happy about another feature of the house: It borders on both a pond and the beach, and an in-ground pool lies on the water side. That’s a neat hat trick on Long Island, where the topography is not usually so felicitous. In keeping with the Japanese architecture, a thick stand of bamboo trees flanks the house.