Each year, Manhattan’s high-end brokers dream about Wall Street bonuses streaming into the real-estate market. But this year, the typical end-of-the-year buzz has reached a near frenzy.
Since early October, when quarterly market reports indicated a 12.7 percent drop in the average apartment sales price, brokers have been waiting for the potentially record-breaking bonus season to heat up.
“The bonus season is coming, and all the reports that we are hearing is that the number will be much higher than last year,” said Michael Karp, co-founder of the Options Group, an executive-search and strategic-consulting firm based in New York.
From high-powered executives snug in their corner offices to the frantic young masters of the universe pacing the trading-room floor, bonuses provide the bulk of many New Yorkers’ annual disposable income. This year, total compensation is expected to rise 20 percent, according to the Options Group.
Current estimates indicate that the 2005 bonus pool could reach the feverish level of five years ago: That’s a possible $19.5 billion pie ready to be sliced up.
Around mid-December, the New York State Comptroller’s office will release its annual report of preliminary bonus figures. By Dec. 20, Goldman Sachs, Morgan Stanley, Lehman Brothers and Bear Stearns will announce their bonuses, with Merrill Lynch, Citigroup and J.P. Morgan expected in January, according to Mr. Karp.
But that’s only the formal announcement. Most Wall Streeters already have a very good idea about their forthcoming earnings, and according to some luxury brokers, the eager ones have begun sizing up sleek condos, townhouses with ample space for growing families and even summer homes in the Hamptons.
“Black Friday for them is not about going to Wal-Mart, it’s about buying designer apartments,” said Dennis Mangone, a top earner at the Corcoran Group.
In recent weeks, Mr. Mangone has noticed a sharp increase in requests from Wall Street, and he’s recently sold apartments in buildings prized by many finance professionals, including the Time Warner Center, 15 Central Park West, the Sculpture for Living at Astor Place and 55 Wall Street—a full-service condominium development by Giuseppe Cipriani and Steven Witkoff that came on the market in early November.
Also, Mr. Mangone is already fielding requests for 40 Bond Street, a (very hush-hush) boutique condominium being developed by Ian Schrager and Aby Rosen. Designed by the Pritzker Prize–winning team of Jacques Herzog and Pierre de Meuron—known for upscale projects like the Tate Modern and Prada’s Tokyo store—the ritzy downtown building is expected to offer just 30 lofts.
“I think what [finance professionals] are responding to are specific types of inventory on the marketplace,” said Mr. Mangone, who likened the frenzied speculation to the long waiting list for Kelly bags at Hermès. “All that designer stuff is what these hedge-fund and Wall Street guys want.”
“I’ll be lucky if I can get all the apartments I need at Herzog and de Meuron,” he said. “The big brokers are going to be jockeying to get the proper inventory for their clients.”
And if Mr. Mangone’s recent surge in Wall Street clients is proof that the hype is real, then highly coveted new developments could move fast.
“When Wall Street bonuses are strong, that certainly helps the higher end of the housing market,” said Jason Bram, a regional economist at the Federal Reserve Bank of New York. “More generally, a good year on Wall Street translates into a nice boost for New York City’s economy. That’s not just housing, but housing is a nice beneficiary.”
Not surprisingly, the securities industry impacts New York far more than other cities nationwide. Specifically, Mr. Bram likened Manhattan’s reliance on finance earnings to the film industry in Los Angeles, high-tech companies in San Francisco or, in decades past, automobile manufacturing in Detroit.
“If you look at total compensation in all industries, what percent of that is coming from the securities industry? In New York City, it’s about 20 percent,” said Mr. Bram, citing 2004 statistics. “Nationally, it’s about 2.5 percent.”
Although traders should have more money to boost the local economy, there is still the chance that they could shy away from big real-estate purchases.
“Are they just going to buy?” asked Jonathan Miller, the chief executive of Miller Samuel, a real-estate appraisal firm. “The real-estate community has this foregone conclusion that they’ll be buying with their proceeds. The initial takeaway is that it appears to be happening.”
However, anecdotal evidence notwithstanding, the champagne should remain corked until at least the end of the first quarter of 2006.
“Typically, many people buy in mid-December,” said Mr. Miller. “Just before the holidays, they have a pretty good idea, or are told, what their bonuses are going to be. They are usually paid out in mid-January to late February. It is not unusual to see people buy properties before they even have the check in hand.”
“I have a number of people who would commit now and close in February,” said East End broker Gary DePersia, of Allan M. Schneider Associates. “We won’t know if there is any major change until March. All indicators, from my point of view, look to a very good first half of 2006.”
While hopeful, Mr. DePersia admitted that the current frenzy among brokers from the tony enclaves of the Upper East Side to East Hampton can be overwhelming.
“As much as you hear about the bubble bursting,” he said, “you hear about the buzz of Wall Street bonuses.”
“It’s about social confidence—climbing the ladder,” said Bridget Restivo, a senior vice president at Alice F. Mason Ltd.
Ms. Restivo has witnessed both sides of the bonus-buying spectacle, having worked previously as an associate at Lehman Brothers. Although Ms. Restivo believes many Wall Street types will splurge on that amenity-filled apartment as a tangible demonstration of success (and to cause envy amongst lower-level colleagues), the buyer’s choice of residence may be somewhat limited.
“You get a guy in the trading room, and he’s probably not getting into 740 Park,” said Ms. Restivo. “That’s why you see the townhouses and condos. Nine-tenths of them are not going to qualify [for the choicest co-ops], so they go out and shop.”
One 20-foot-wide townhouse listing has been getting plenty of attention, according to Richard Steinberg, a senior managing director at Warburg Realty.
“I’ve gotten three calls this week from young Wall Street families that want to take a look at it, but wouldn’t be able to close until after the first of the year, when they get their bonuses,” said Mr. Steinberg.
The prospective buyers are all executives from top Wall Street firms, such as Bear Stearns. Each has young children and is moving out of approximately $5 to $6 million apartments.
Four weeks ago, the 71st Street townhouse, with over 8,000 square feet, entered the market with a $13.25 million price tag. Currently being renovated, the six-bedroom home will be ready on Jan. 15, just in time for the bonuses to kick in. And, of course, there’s no rigid co-op board to get in the way.
“With co-op boards, even if they get their bonuses, it takes a substantial amount of time,” said Mr. Steinberg. “These young Wall Street families, in my opinion, are leaning towards high-end condos and townhouses because it’s new money.”