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

His mansion’s tag was cut in February from a city-leading $75 million to $65 million. Last month, records show, it quietly left the market.

“I think the era of mega-sales is definitely over; we all know that by now,” Brown Harris Stevens managing director Sami Hassoumi explained this week. Three years ago, he sold the city’s most expensive townhouse, the $53 million Harkness Mansion, which he’s reportedly now marketing for millions less than it cost.

Kirk Henckels, the bow-tied director of Stribling Private Brokerage, calls it the end of the trophy: Prices are plummeting for New York’s most hilariously expensive listings, like his Astor duplex at 778 Park Avenue, and the wildly rich, even the billionaires, are buying prudently, if at all.

But along with top brokers’ stoic acceptance that the good days are over is a grinning confidence that they’ll be back. The almost needlessly titanic trophy sale will return, they say, but it will take years.

THINGS WERE DIFFERENT VERY recently. Last year, a hedge fund manager and his young wife spent $46 million on a duplex penthouse at 1060 Fifth Avenue, more than a New York City co-op had ever cost. It’s not that the place was even in pristine shape—its two levels were uncombined—it’s that New Yorkers were clamoring to pay awesomely unreasonable premiums to own glittery Manhattan real estate, even as the national housing market collapsed.

The sums were literally unprecedented. In July, without doing major work, the couple sold the penthouse for $48.9 million, retaking the co-op record from a $48 million deal at 2 East 67th Street that had closed two weeks earlier. At that sumptuous apartment house, three apartments are now on the market asking a total of $103 million. A fourth was pulled last month without a closed sale.

“Money had no meaning,” Mr. Henckels explained Friday. “You had to club them away. And now you’re out there pulling them in the door.”

John Burger, who listed the 1060 Fifth apartment when it sold for $46 million, pointed out on Friday that hugely posh buildings used to have only one apartment on the market at a time—“and the buyers would be lined up at 30-minute intervals in the lobby waiting to see it.”

It was the magical tautology of New York luxury real estate: Supremely grand homes sold grandly because they were supremely grand homes! Humdrum technicalities like price per square foot were beside the point: Proper co-ops don’t even share square footage numbers. “If somebody loved something, and the asking price seemed 5 or 10 percent too high, they didn’t care,” said Mr. Burger, who was talking in a Hamptons garden where blue jays and cardinals and catbirds were chirping. “Time would solve the fact that they were paying a premium.”

But that’s not what happened. The week that Lehman collapsed, the high-end Brown Harris Stevens broker Kathy Sloane told 20/20 that Manhattan’s finest co-ops “may have already lost a fourth of their value as a result of the financial crisis.”

Not only were brokers panicking, but there was panic about their panic. Even before Ms. Sloane’s interview aired on television, Brown Harris’ aristocratic president Hall F. Willkie issued a press release calling her comments “completely speculative, and at times factually incorrect.”

As it’s turned out, any high-end New York apartment that’s lost only a fourth of its value would probably be considered lucky. This month, deeds show, a 26-foot-wide, 20-room mansion at 18 East 82nd Street sold for less than half its original $29 million asking price. Even if brokers are now mostly serenely acknowledging the market’s downfall, one of the city’s top townhouse brokers heard about that sale and said, “Fourteen point three million for that building? You’re positive?”

EVEN BILLIONAIRES ARE BUYING modestly. So far this summer, the pharmaceuticals mogul Michael Jaharis has paid $6.7 million for an apartment on Fifth Avenue, a weirdly paltry sum for the neighborhood; and the family of hedge fund billionaire Steven A. Cohen bought a downtown duplex for $2.7 million, about a third of what he spent on Damien Hirst’s shark piece.

“No matter how many billions you had, you have fewer billions,” said Richard Wallgren, the sales director at Robert A. M. Stern’s limestone-caked 15 Central Park. The broker said he’s been dealing with tycoons who are suddenly asking for comparable sales figures. “They don’t want to pay too much. It’s that simple.”

“Some people are concerned; some people are concerned what others will think,” said Paula Del Nunzio, another broker who worked on the record-holding $53 million Harkness deal. “If you work for a public company, you’re damned scared. You’re very, very careful, because you don’t want it to become an example of gross greed inadvertently.”

Mr. Wallgren briefly listed a 15 Central Park West penthouse last year for $80 million, even though it had been bought for $21.5 million. It was taken off the market in October, listed again in February for $47.5 million, and, records show, taken off the market in early May. Mr. Wallgren would not comment, except to say that it hasn’t been sold or rented.

Last week, The Observer reported that only one of the 10 Manhattan residential properties asking over $45 million in late 2008 has sold. (The $80 million Central Park West listing wasn’t included in that tally because it had been temporarily taken off the market. Nor was Mr. Arader’s mansion, which had been marketed chiefly as an art gallery.)

On July 16, a duplex at 1030 Fifth Avenue that had come on the market at $47.5 million was reportedly cut to $19.9 million. A day after that, the $51 million tag for Trump Park Avenue’s duplex penthouse was chopped $20 million to $31 million.

WILL THE ERA OF the deliberately conspicuous trophy sale return? “Just sit tight and wait,” Mr. Hassoumi said.

“Every 25 years, cycles come and people say, ‘That’s it! It’s not happening again!’ said Leighton Candler, who worked on both of the record-setting deals at 1060 Fifth Avenue. “But of course it will.” Ms. Candler was raised in a 38-room mansion, but her family moved out when her father, an eccentric Coca-Cola Company heir, went bankrupt. “Everything comes around again and again.”

“The market readjusts,” Mr. Burger said. “The question is, will it take three years or will it take five years?”

“The euphoria has passed—for a very brief period of time. And when it comes back, we’ll put it back on,” Mr. Arader said about his Madison Avenue mansion. “I shouldn’t have said ‘clubbed to death’—they’ve been clubbed unconscious for a few years. And they’ll be back. And they’ll be bidding on properties for their trophy wives again.”

mabelson@observer.com