Over the past year, the major Manhattan real-estate brokerages have released a fusillade of market reports proclaiming that the “average” price of a Manhattan apartment broke $1 million for the first time in New York history.
Most recently the Corcoran Group, in its 2004 midyear report, stated that the average sales price for a Manhattan condo soared 38 percent over the same period in 2003, while co-ops rose 19 percent. The report was peppered with florid terms like “feverish,” “soaring” and “intense demand.”
The result: Today, the concept of the $1 million apartment-much like the $50 foie gras burger at DB Bistro Moderne and the $18 cross-town cab ride-has become an accepted fact of New York consumer culture.
But like the Internet bubble of the last decade, the escalating rhetoric about Manhattan real-estate values has some brokers and analysts worried: Is the Manhattan real-estate market a similar bubble, inflated with reports and analysis that are little more than hot air?
A series of interviews with brokers, brokerage heads and analysts conducted by The Observer suggests that most buyers in Manhattan are finding apartments for far less that $1 million. And several brokers and real-estate analysts, worried by the hypercharged publicity, are starting to promote a more sober outlook. Several suggested that the median price for Manhattan apartments-which represents the exact middle of the market, with an equal number of properties priced both above and below the median-may be a much better gauge of the market’s true value. That figure, as reported in the second quarter by Miller Samuel, an independent Manhattan appraisal and consulting firm, was $674,000-far below the $1.047 million reported as the average price in the same period.
“What’s so dangerous is all the averaging that gets touted by these reports,” said Leonard Steinberg, a broker at Douglas Elliman who focuses on luxury properties. “There is no such thing as an ‘average’ New York apartment. What does ‘average’ really mean? You have ultimate luxury and more affordable properties. The middle of the road is beginning to disappear. And it’s the hype right now of this $1 million ‘average’ that concerns me. It’s the same bubble talk as when people said Yahoo would reach $350 a share.”
Defining an exact average for the diverse real-estate market has always been a shaky proposition. Prices are indeed up now, and the current real-estate market-buoyed by Wall Street bonuses and the lowest interest rates in a generation-is one of the best in recent history. But according to the brokers and experts who tabulate the market statistics, never before have market reports burrowed their way so deeply into the collective psyche of Manhattan real-estate buyers, creating the potential for a hypertrophied market.
And the danger in overstating the market’s growth has in many ways been triggered by the public’s fascination with-and reliance on-the “average” $1 million price reported by the major brokerage houses, and eagerly repeated by the media as news.
Manhattan firms calculate the average apartment price by including every sale in a specified period. Yet the island’s dense residential mosaic and massive price spreads-$30 million triplexes sit only blocks from $300,000 studios-skew the average toward the upper end of the scale.
Indeed, the phalanx of luxury projects flooding the market in the past year-including 300 apartments in the $1.7 billion Time Warner Center, 120 apartments at Trump Park Avenue, and 170 apartments in the Trump Place building flanking the Hudson River west of Lincoln Center-have augmented the perception that the going rate for a Manhattan apartment hovers at $1 million or more. Throw in the celebrity flotsam clogging buildings like the Richard Meier towers on Perry Street-which adds to the media hype-and it’s no wonder the average Manhattan real-estate buyer in 2004 expects a condo to go for eight figures.
But a look behind the numbers presents a more nuanced picture.
Given that the apartments sold in any given quarter represent a mix of different properties, and that an epic sale-such as the $45 million penthouse at the Time Warner Center, which closed in July 2003-can pull the average price upwards, proclamations that average prices have risen significantly may just mean more luxury apartments are being sold, rather than an aggregate price increase for apartments in general.
“It’s always dangerous to take data for a particular quarter-one huge sale can skew it,” said Frederick Peters, the president of Warburg Realty Partnership. “If the average condo seller thinks he can charge 50 percent more than one year ago, his condo will be on the market for a long, long time.”
The spate of closings in Manhattan’s newest luxury buildings may have contributed to the rapid price growth in the past quarter-most prominently on the West Side, now home to the Time Warner Center and Donald Trump’s signature developments. In describing the torrid 42 percent growth on the West Side in the past quarter, the Corcoran Report attributed some of this growth to such “luxury properties.”
“All these measurements are saying is that this group of sales are higher than another group of sales,” said Michael Martin, the managing director for research and marketing at Mitchell, Maxwell and Jackson Inc., the largest privately held real-estate appraisal firm in New York and Connecticut. The firm provided the data for Corcoran’s report. “If you look at the market from quarter to quarter, you’ll have a shift of more expensive apartments to less expensive apartments. That will skew the average sale price. But to group them all together and give one universal figure as an indicator that the market is way up-that doesn’t give you an accurate picture. It’s more of a marketing tool than a useful gauge of what’s going in the market.”
Jonathan Miller, the author of the Miller Samuel report, made a similar point: “If you hang your hat on one indicator, such as average sales price-which is a natural tendency for the public to do-you can be misled.”
Market data is clouded further by the fact that New York City doesn’t subscribe to the multiple-listing system used in virtually ever other real-estate market in the country. With co-op sales often withheld from the public’s view, some brokers and experts argue that though data on real-estate sales are collected by managing agents and the brokerages’ individual listing systems, it is impossible to fully report how much, and when, a property was sold-and by extension, just how fast the market is rising. New York may be the last speculative real-estate market in the United States.
“In a perfect world, like the stock market, you would want every transaction accounted for,” said Mr. Miller. On the Miller Samuel Web site, the firm acknowledges the limitations of reporting methodology: “Since the data is dependent on how well the brokerage firms manage their data, it can not be assured that the results are absolute,” the firm states.
Brokers share this view.
“I would say the market is up maybe 10 percent this year-but not the 30-plus percent we see in the market reports,” said one top broker at a major Manhattan firm.
Of course, applying an average price to the Manhattan real-estate market is nothing new. In 1981, Barbara Corcoran issued the first assessment of the Manhattan real-estate market-a move that has since become known as one of the industry’s most brilliant P.R. coups. With only 11 apartments in her study, Ms. Corcoran released the report to The New York Times , which subsequently published the findings. Many credit this as the birth of Manhattan’s real-estate-addled citizenry.
“I needed publicity, so I calculated the average price of all the apartments on my books-which was 11, although I didn’t mention that-and sent it to The New York Times ,” Ms. Corcoran told the Times of London in June, in an interview illustrating the marketing power of real-estate reports. “People started ringing me for comments, and all of a sudden everybody in the business knew who I was.”
Since then, market reports have become increasingly potent marketing tools wielded by New York’s largest real-estate brokerage firms, eager to capitalize on consumer demand. Every major Manhattan brokerage now issues its own assessment of the market. Corcoran has a six-figure budget allocated to the Corcoran Report; the firm has a staff of three working on each document, including an in-house copywriter, and hires an outside creative agency to design the layout. Each print run totals nearly 300,000 copies, in addition to being linked on Corcoran’s Web site and promoted in press releases shuttled off to the media.
“Back before Barbara launched the Corcoran Report, no one talked about apartments,” said Scott Durkin, chief operating officer of the Corcoran Group. “But now a market survey is something every important firm needs to have in their marketing efforts.”
“Reports are definitely a publicity tool-I send it out because newspapers want it,” said Dottie Herman, the chief executive of Prudential Douglas Elliman. “It’s what people want to know. I think people always like to read information-and today, there is a much greater awareness about real estate.”
Others sound a more cautionary note. “You can skew the figures and statistics into a good marketing tool that has a vague relation to market conditions, but the reports in and of themselves are not an accurate tool,” said Bruce Ehrmann, a broker with Stribling and Associates. “Every market report is somewhat artful.”
All this comes at a time when the New York media has reinvigorated its real-estate coverage and found a readership hungry to know more about the latest gyrations in the Manhattan real-estate market.
As Mr. Trump put it ever so clearly: “New York is real estate, Texas is oil.”
In the past two years, both the New York Post and The New York Times have revamped their real-estate sections with color photo spreads, sunny portraits of smiling New Yorkers recounting their successful apartment hunts, and continued coverage of the market’s unimpeded march upward. The Times even features its very own celebrity real-estate gossip column.
Trish Hall, who has been at The Times on and off for 17 years, has been editing the paper’s redesigned Sunday real-estate section since June.
While The Times has appeared enthusiastic and responsive to market reports issued by brokerages, Ms. Hall said, the paper is aware of their limitations: that the information on the market comes from brokerages with an interest in pumping up the market.
“It would be ideal if the reports were independent-if we didn’t have to factor in which brokerage is sponsoring which report,” she said. “But that doesn’t exist. The reports may increase anxiety in the public; they can affect readers’ emotional tenor, perhaps. But they can’t create a market.
“One thing that happens is, when the first report gets released, everybody publicizes it,” Ms. Hall added. “I would like to get to know the reports better, and how they compile their data.”
When one factors in the importance of brokerage advertising for New York City’s newspapers, the relationship between the real-estate market and the media that reports on it becomes even more complex.
“Real-estate advertising makes up 9 percent of all The New York Times’ advertising revenue,” said Times spokeswoman Catherine Mathis. She said The Times doesn’t release specific dollar amounts for advertising revenue.
“Real estate is definitely an important area of advertising,” she continued. And that has fueled the paper’s expanded coverage of the market.
“We thought that both readers and advertisers would benefit from a redesigned and expanded real-estate section,” Ms. Mathis said. “And we also expanded and enhanced our real-estate coverage on nytimes.com. The response from readers and advertisers has been positive. Anecdotally, in conversations with readers and advertisers, they have been enthusiastic.”
But sometimes that enthusiasm doesn’t translate into close reading-a factor that Ms. Hall acknowledged.
“Clearly, you just want as much information about how the numbers are calculated,” she said. “But that amount of information is not all going to be in the headline. To a certain extent, it depends on people reading the information.”
The ever-tightening confluence of media and marketing has some in the real-estate industry worried that the reports are fueling unstable growth and playing off consumers’ mistaken notion that “average” means “typical.”
“Averages are the wrong number to look at. The public loves averages, but people on the street don’t know what the media really means,” said Paul Purcell, the former president of Douglas Elliman, who now runs the relocation and consulting firm Braddock and Purcell.
“I went on a television program recently and talked about the possibility of a bubble in the market,” Mr. Purcell continued. “I was able to say that for the first time. I never could say things like that when I had a Douglas Elliman hat on. I had to listen to shareholders and my bosses on the one hand, and my brokers on the other hand. When I see something now, I can say it.”
“The reports in the past couple of years have pushed buyers sitting on the fence, off the fence. They have stepped up to the plate and bought,” Corcoran’s Mr. Durkin said. “If you examine the price increases in the past year, they have been a sounding bell to get on the bus.”
“Obviously, [these reports] drive the market forward,” said Michele Kleier, the president of Gumley Haft Kleier, an independent firm on the Upper East Side. “If an apartment sold for $1 million two months ago, anything new that comes on-after reading the latest reports-now comes on at a higher level than they would have. A lot of people wait to see before they price.”
“The reports are boosting the anxiety and people’s desire to buy,” said Michael Shvo, an Elliman broker who has sold 30 apartments in the Time Warner Center. “There are definitely people influenced by the reports. They say, ‘I’m missing on the market and want to buy now, and I’m missing on my chance.’ You have to educate them a lot.”
All of these complicating factors have yet to be absorbed by New York’s real-estate-obsessed populace, which after being battered by Wall Street, has now taken to the gospel of the Manhattan real-estate market.
“The public has become attached to the idea of the $1 million apartment. It lends a certain cachet to the Manhattan buyer,” Mr. Durkin of the Corcoran Group said. “Overall, people start wearing the price on their shoulders. They think of themselves as million-dollar buyers.”