Will prices drop in Zone A?

Buildings along the southern lip of Manhattan are still pumping water from their basements almost two weeks after Governor Andrew Cuomo led a chorus of voices warning that violent storms and extreme weather patterns are the new normal. But the market for residential real estate seems, by and large, completely unphased. Hurricane Sandy may have flooded the city, but she has not dampened the desire to buy real estate in Lower Manhattan. At least not yet.

It is, of course, still early to judge what effect, if any, the hurricane will have on the Manhattan market, but real estate professionals say that cold—and wet—feet have not been an issue in showings and closings during the weeks since Sandy hit. (Banks, on the other hand, are feeling less confident, with a number insisting on inspections to rule out structural damage for loans on buildings in Zone A, even those that have long been in contract.)

In fact, some buyers were so unconcerned about the approaching storm that they actually insisted on closing the morning of the hurricane. Town Residential broker Michelle Bourgeois said that she spent that Monday in Tribeca, helping two clients seal the deal on a 4,000-square foot spread on North Moore Street. As winds picked up and final warnings sounded for residents to leave nearby Zone A in advance of the many-foot-high storm surge, she helped to mobilize both attorneys and find an open bank in the mostly-shuttered downtown.

"With the lack of inventory downtown, there's a huge demand for properties of that size in great condition," said Ms. Bourgeois. "When you get one that you love, well, you don’t want to risk losing it."

Ms. Bourgeois added that the unit had been in contract since July (for around $9 million) and the closing had been delayed on several other occasions so the owners were particularly keen to close the deal. Even if it meant taking ownership of a property not far from streets that became a de facto flood plain. Nor did seeing the damage wrought by Sandy, and the lingering power outages that left Lower Manhattan in the dark for nearly a week, give them any second thoughts.

"They did a drive-by, they checked everything out, they’re happy where they are, they’re not on the edge of the water," said Ms. Bourgeois (the property is in Zone B). "They have no regrets."

Despite the fact that she hadn't yet fielded any questions about flooding from other buyers, Ms. Bourgeois did expect that they would be asking more questions in the future—particularly about generators, building mechanicals and whether a building was considering the costly proposition of moving them in the near future.

"Now when buyers go into buildings, they want to know where the gym is, where the laundry room is. I think in the future, people will be asking where the generator is."

Appraisal guru Jonathan Miller of Miller Samuel said that he didn't anticipate that there would be any appreciable effect on property values in Lower Manhattan—the damage to the bottom of the borough may run into the billions, but he doesn’t see a single hurricane causing any psychological aversions to the neighborhood, even if more are expected.

"Are people going to shy away from the waterfront? I suspect not," Mr. Miller said. "After 9/11, a lot of people sort of wrote Lower Manhattan off and in the last decade it ended up being one of the strongest performing housing markets in Manhattan. We're amazingly short-sighted."

The real consideration, he said, was frequency—whether or not the neighborhood gets hit with another storm any time soon, resulting in high premiums for flood, hurricane and homeowners' insurance, but even that was unlikely to have "an astronomical impact." Mr. Miller said that the biggest change he expects to see in the near future is on the lending side. With a super tight credit environment, lenders are looking for excuses not to lend, and a mortgage for a flood zone apartment could sink an already weak application.

Speaking shortly after the storm blew through New York, Citi Habitats president Gary Malin expressed a similar sentiment. A Long Island resident, Mr. Malin knows how attached people can be to their waterfront properties, come hell, or quite literally, high water.

"I think people have short memories. There's always people who are drawn to the water and willing to take the risk," said Mr. Malin.

After all, if the beachfront communities of Florida and the Carolinas rebuild and repopulate year after hurricane-struck year, why wouldn't one of the most sought-after cities in the world?

"I am confident that the storm will not have a negative impact on overall property values," Brown Harris Stevens broker Hall F. Willkie wrote The Observer in an email. "It may effect specific homes within buildings or locations which were severely damaged by the storm but not on the long term market as a whole."

And it seems like even those whose properties sustained significant damage from Sandy have not been spooked from returning to their low-lying homes.

Harold Kobner, a broker with Argo Residential, said that a former client's first floor condo at Washington and Canal Streets had flooded badly when water spilled over the deck and into the living room.

We asked if the owner was staying in the building. Or even the neighborhood.

"Oh, absolutely!" exclaimed Mr. Kobner. "He's a trooper. Before he even had electricity, he told me he was going to have Thanksgiving in the apartment."

Mr. Kobner told us that his downtown clients spent the days following the storm filing insurance claims from their smartphones. He said that he's spoken to several potential buyers who even want to leave their homes in New Jersey and Westchester to move into Lower Manhattan—as soon as they can finishing cleaning up the tree damage and preparing their properties for sale.

"I think this storm has made people who live in the outer boroughs and suburbs, who were on the fence about selling their houses, want to move back to Manhattan," he said.

kvelsey@observer.com

The Studio apartment, an extinct species?

“This is an incredible thing. It’s new. No human society in all of history has organized life in this way,” enthused NYU sociology professor Eric Klinenberg. He had met The Observer at Jacques Torres in Hudson Square to discuss his new book, Going Solo, which investigates what Mr. Klinenberg sees as a desire of a large number of people to live alone. In the book he coins the term “singleton” for this supposed emerging group—take that, BoBos!—and he calls Manhattan “the capital of singletons.”

“The typical New Yorker gets married after 30 these days,” said Mr. Klinenberg, “and they have children even later. We had a huge number of years where we used to live with other people. Now we’re free to do what we want to do.” In his book, Mr. Klinenberg cites numerous statistics over the past 50 years that do show a gradual shift in this direction, from the standard (expected) nuclear family to the rise of what he calls “the cult of the individual.”

“Most people we interviewed said that after a few years of living with roommates they are ready for a place of their own.” Mr. Klinenberg said. He has a whole host of reasons why: “Roommates who don’t pay rent on time, roommates who don’t like the person you are dating …” etc., etc.

The idea of the New York loner is as old as the city itself. Look no further than the solemn, solitary Statue of Liberty. But recent trends actually point away from a city of “singletons,” not toward one.

In recent years, as housing prices have skyrocketed, it has made it harder and harder for singletons to afford their own space. Meanwhile, gentrification and reverse white flight have made more and more middle class couples decide to start families in the city. This has led to a concerted trend on the part of developers to build bigger apartments and more of them, often with two to four bedrooms, rather than the one-bedrooms and studios that used to dominate. The trend is the same for poorer New Yorkers, be they multigenerational minorities in the South Bronx or struggling creative types in Greenpoint who must double- and triple-up just to find space in the city’s outer-lying districts.

Consider the example of 607 Hudson Street, a former senior center in Greenwich Village. Once home to 200 rooms for the elderly, it is undergoing conversion into 10 massive multiroom condos, all costing millions of dollars—perfect for a banker or actor and his burgeoning brood.

“I know that development,” Mr. Klinenberg said of 607 Hudson. “You’re saying they are family housing, but I think some singles will move into them.” Really? “This is a city of incredible concentrated wealth, so people who can afford to live alone here are people who are doing well in the marketplace.” But this is just his hunch.

“There are a lot of people trying to find that trophy apartment, but I personally don’t get the sense that people have a desire to live alone,” said Gary Malin, president of brokerage Citi Habitat. He did say it was possible particular kinds of clients might be buying these apartments for themselves, thought it was not whom Mr. Klinenberg might have in mind. “A lot of overseas people buy a property as a stop-off place,” he said.

That’s Mr. or Ms. Russian oil-rich czar, but what about Mr. or Ms. 30-something professional? “There has been a trend that people no longer want to move to the suburbs like they used to,” Mr. Malin said, “people who were living in Manhattan and single now aren’t as willing to move to the suburbs like before, and developers are trying to cater to these, and trying to find them bigger places.”

The U.S. Census Bureau shows an almost insignificant increase of 0.1 percent, from 2000 to 2010, of those living on their own in New York City. This is not to say that Mr. Klinenberg is wrong, just that he is not right right now: from 1980 to 1990, the rate of singletons grew 6.5 percent. Things are disproportionately female, as any Sex in the City fan could tell you, where women (18.5 percent) out number men (13.5 percent) living alone in New York.

“If personal income was flat over the decade, and housing prices, adjusted for inflation, were not flat, that means affordability went down, so you likely have fewer people living alone,” said Jonathan Miller, the real estate state guru behind appraisal firm Miller Samuel. “It’s not uncommon, but as it gets more expensive, you have more doubling up.”

According to Mr. Miller’s statistics, the number of one-bedroom apartments has held steady for the past decade, falling from 36 to 35 percent of Manhattan’s housing stock. Studios, however, a product of the 1980s and ’90s booms, have fallen from 18 percent to 15 percent of the housing stock. Two-bedrooms have dipped, from 41 percent to about 36 percent in the past few years, perhaps underscoring Mr. Klinenberg’s point. But the really hot properties are the biggest. Three bedrooms have gone from 4 percent a decade ago to 10 percent and four bedrooms from 1.5 percent to 3 percent.

Just look at all the townhouses that had been cut up after World War II, with eight studios, two to a floor. They have since been converted by the wealthy back into expansive single-family homes, full of boarding school-bound youths.

“There is a huge mismatch between how people are living and what types of housing are available,” said Sarah Watson, an analyst at the Citizens Housing and Planning Commission. She cites developers, building to match what government regulations urge, as the reason for a big housing discrepancy. “It’s not necessarily the market’s fault. Look at the government—it clearly prioritizes the 1950’s idea of the family.”

So, are the days of the bachelor pad over? Mr. Klinenberg remained adamant that they are not. “Developers are continuing to build for singles,” said Mr. Klinenberg, ignoring the fact that they are doing so less frequently. “The new Related building, MiMA at 42^nd and 10^th, is disproportionately single—around the 55 percent mark for single occupants.” Mr. Klinenberg also cited the Frank Gehry tower on Spruce Street as an enclave of singles. But might there have been even more single units in the past? He could not say.

“I don’t think it’s about people having a right to live alone,” Mr. Klinenberg continued, “but developers are not turning away singles, singles who are willing to pay the rent. These people exist and the city is not discriminating against them.”

If only you can afford it, that 10-by-10 urban oasis is still within reach.

sduffy@observer.com

That was old New York, though. This is new, diversified, smart New York, where the FIRE has been put out and it's up to everybody (especially the foreigners) to pitch in. State Comptroller Thomas DiNapoli released a report Wednesday that announced, to the mild dismay of some, that Wall Street bonuses were down 8 percent last year.

"It's still the fifth best year on record," Upper West Side ace Lisa Lippman, a Brown Harris Stevens director, told The Observer from Colorado, where she was on a skiing trip.

"One hundred thirty thousand dollars may not be $140,000, but it's still a lot of money," Gary Malin, president of Citi Habitats, said while riding in a crosstown cab.

Really, things are pretty darn good. Maybe not great, but getting there. "Some people are still sitting on the sidelines, maybe there are a few who would like a little more cash," Malin said. "But I think people understand the dynamic of the new Wall Street. It's not all cash, but there's some cash, it's not like things went down to nothing. And these guys are very savvy investors, their portfolios are probably way up, too, and they know that that's where the market is headed."

Brokers agree that with supply tightening up and interest rates still low but bound to rise, people--not just bankers, but everyone it seems--are really ready to buy. Lippman spoke of watching numerous bidding wars take place, driving units over ask, including one $4 million listing her clients won and a $3 million one another client lost. Neither were bankers, but the latter was scooped up by one.

"No matter what, for purchasing power and liquidity, it has a positive impact on the real estate market," Brown Harris Stevens Wall Street specialist Leslie Singer said. "In general, consumer confidence is surging, and we're seeing a lot more activity because of it."

"It has had a positive impact on our business and I think it will continue to have an impact, in terms of driving confidence," her partner, John Venekamp, said.

"People know the deals, what's left of them, are not going to last," Lippman said.

In other words, the sky is not falling. No, the clouds have, in fact, cleared. The bump is back and the boom continues.

mchaban [at] observer.com | @mc_nyo

Yes, it’s not as easy to find renters as it used to be, but brokers and other industry professionals are still confident that the Manhattan rental market will steady itself in the near future. “The fundamentals of the rental market are strong,” Citi Habitats president Gary Malin said.

But what if, like John McCain—who uttered something very similar about our national economy the very day Lehman Brothers filed for bankruptcy—Mr. Malin is wrong?

Nearly every real estate brokerage has its own vacancy rates, whether internal or for public consumption, and a quick poll shows a range of vacancy rates from 1.46 percent of Manhattan apartments on the low side to 3.8 percent on the high side. According to yearly rates compiled by Citi Habitats, the Manhattan vacancy rate hit 2.62 percent in 2002, before bottoming out at 0.76 percent in 2006 and rising to 1.71 percent this October.

But Marc Lewis, president of Century 21 NY Metro and a 30-year industry veteran, puts the current vacancy rate closer to 5 percent. Considering that the local economy has imploded, and that everyone from politicians to art auctioneers are bracing for a major economic slump, it’s not heretical to suggest that the worst is yet to come.

Is there anything that can stop the vacancy rate from pushing beyond 5 percent, as Mr. Lewis speculates, to something closer to 9 or 10 percent? Aside from a steep reduction in rents, which for landlords is as appealing as downing a shot of hemlock, the only great hope for property owners to move their product is a swift recovery in the local job market.

In other words, let’s get used to these high vacancy rates.

Analysts take as an article of faith that the rental and sales markets are inextricably linked: The theory goes that if the sales market slows, the rental market will pick up. After all, people have to live somewhere, and if they are not buying, they must be renting. The financial crisis appears to have severed the relationship, as a slumping sales market has yet to manifest itself in the form of a more robust rental market.

And that’s because the rental market’s also closely linked to the city’s economic health, particularly its employment picture. The city’s unemployment rate, however, now stands at 5.7 percent, up from 5 percent last September and expected to rise into 2009. A slumping sales market—Manhattan apartment sales were down 24.1 percent annually in the third quarter, according to appraisal firm Miller Samuel—may not be enough this time to buoy rental landlords.

“Traditionally, that has been the case,” Mr. Malin said, “but with the amount of layoffs taking place, there is a question mark about how much the vacancy rate will rise.”

It’s easy to forget that these are more than abstract numbers, but rather indicators with immense financial ramifications for landlords with slim balance sheets. At a 5 percent vacancy rate, a landlord with 1,000 units would have 50 unoccupied residences; now, if the vacancy rate jumped to 10 percent, the landlord would have another 50 vacant apartments. If the landlord’s apartments averaged $2,500 in monthly rent, the owner would be losing an extra $125,000 a month in income, and $1.5 million annually.

If such economic twists impact enough landlords, the effects will reverberate not only throughout the apartment market, to tenants and to brokers, but will be felt in varied real estate branches like investment sales and commercial brokerage (who wants to buy apartment buildings that aren’t garnering an appreciating return?).

The effects would also fell one of Manhattan real estate’s more cherished conventional truths: that the borough has the nation’s tightest apartment market. It does, for now, according to various reports.

While large-scale real estate rental shops, with portfolios in the thousands of units, like Rose Associates, Rockrose and the Related Companies, could weather such a deflationary storm, small-time outfits and heavily leveraged new developments might end up on the rocks.

“The little guy, with one or two little projects and little track record, is going to be in bad shape,” said Daniel Baum, COO of the Real Estate Group New York. “He will find himself in a very, very precarious situation.”

Brokers are emptying their bag of tricks to try to forestall any significant rent reductions. For the first time ever, Mr. Lewis of Century 21 NY Metro noticed property owners offering tenants incentive packages during the summer, traditionally a busy season of high tenant demand.

Other landlords are freezing rents, offering 18-month leases, and even warehousing some units to create some scarcity and a greater sense of urgency among prospective tenants. While their efforts have prevented large-scale price chops, tenants can already take advantage of falling rents in outlying neighborhoods like Upper Manhattan and even the ever-popular Upper East Side.

The hope is that landlords will be able to survive until next spring or summer, when the seasonal market will drive up business, but even that isn’t a sure thing.

“Next year is where the big question is going to be,” Mr. Baum said.

Two major investment houses, Bear Stearns and Lehman Brothers, no longer exist, and there are doubts that financial firms and other higher-paying industries will have an abundance of job openings to lure those transient young professionals fresh out of college or graduate school. Not even cheap rents can entice apartment hunters if there aren’t any employment opportunities, especially in a city as expensive as New York.

“It’s all going to depend on the hiring for next summer,” Mr. Lewis said.

ohaydock@observer.com