The Massey Knakal release noted that 221 First Avenue had just sold for $1,112.80 a square foot—the most ever paid for a retail and apartment building in the East Village (city records confirmed the price).

Less than a week later, The Wall Street Journal summarized a housing report by boutique brokerage Olshan Realty. The report contained this dynamite factoid: During the week ending Feb. 13, buyers signed contracts on 31 New York apartments with asking prices of at least $4 million, generally considered the threshold for the luxury market; it was the highest weekly total since the Lehman collapse in September 2008.  (The previous post-Lehman high was 27 contracts during the week ending Nov. 22, 2009.)

Also: Sellers are getting what they want. The report showed that the spread between a seller's first asking price and the final one was narrowing.

So is this a new bubble/boom upon us? Not really. New York never exited whatever frenzy we were in four or five years ago. Things just kind of slowed a bit, and are now picking back up volume- and price-wise. The bust/burst of late 2008? Almost like it never happened—at least not here. To prove my case, we'll take building sales first, and then apartment sales.

Robert Knakal, the chairman of Massey Knakal and The Commercial Observer's Concrete Thoughts columnist, explained his firm's statistical take on 2010 a couple of weeks ago.

Interestingly, while the dollar volume of sales nearly tripled in 2010, the number of buildings sold revealed a much smaller yet impressive increase over 2009 totals. In 2010, there were 473 buildings sold, a 47 percent increase over the 322 sold in 2009. While this increase created a positive psychology within the market, the 473 buildings sold was still 53 percent below the 999 buildings sold in 2007, and well below the 860 sold back in 2005.

... In conjunction with these, we've seen the average price of a property sold in Manhattan nearly double, from $12.9 million in 2009 to $25.3 million in 2010. The 2010 average was slightly less than half of the $52.5 million average in 2007, and was only slightly below the $28.5 million average in 2005. Not surprisingly, the $25.3 million average transaction size in 2010 is nearly four times the citywide average of just $7.2 million.

So while building sales and prices are not up to 2005-through-2007 levels, they were up against 2009 numbers (and, largely, against 2008 as well). And they are trending upward still. And... and! They are, most importantly, doing so against an economic backdrop that is not necessarily supposed to foment brisk sales at increasing prices.

What brokers call fundamentals—jobs and the lack thereof being No. 1 in this case—are not as strong as they should be to warrant such sales and pricing activity. In other words, who knows, really, why things are improving? There are theories—foreigners parking money in New York City property, rules changes involving refinancing (kicking the can, a rolling loan gathers no loss, etc.)—but none really nails why, with the rest of the nation and much of the world still mired in fiduciary quicksand, New York would be recovering so quickly (I have a pet theory, and it's not mind-blowing, but more on that later).

As far as apartments go, the picture of improvement is clearer, though the reasons for it are just as opaque. In the fourth quarter of 2008, in the shadow of the Lehman collapse, 2,282 condo and co-op deals closed in Manhattan, according to appraisal firm Miller Samuel, which produces a much-watched quarterly housing report for Douglas Elliman. In the fourth quarter of 2010, 2,295 apartments traded, a nearly identical number. In the two years in between, quarterly Manhattan apartment sales spiked as high as nearly 2,800 and never dropped below 1,500. In short, Manhattan was never in danger of not reaching its typical apartment-trade volume of 9,000 to 10,000 annually.

On the luxury end, as we've seen, the steadiness was even more pronounced. Crash? Puh-leeze. In the fourth quarter of 2008, 228 luxury apartments, according to Miller Samuel, traded in Manhattan. Two years later: 230. There was a dip in early 2009, as the total descended to 150, likely an effect, indeed, of the Lehman collapse, as the quarterly numbers refleted deals negotiated months before. But, still, you get the picture. No cliffs dropped off from; no tumbles taken; no nosedives executed; your cliche here. (As Jonathan Miller, the author of the Douglas Elliman reports, has aptly put it on several occassions, the New York—or larger nationwide—housing boom was never really a housing boom but a credit boom as mortgages were cheap to come by.)  

Why, though, no nosedives? Why do nondescript East Village walkups trade for records and luxury apartments sell voluminously amid double-digit real unemployment, cable-news-ready recriminations over states' ballooning deficits, and an era of collapsing Western economies (Ireland, Greece, Italy)? Wasn't the city, Manhattan in particular, supposed to have been awash in a distressed-assets wave? Isn't it supposed to be cats and dogs living together by now?

It can't just be the cheap money; mortgage rates, after all, are creeping upward, and the commercial mortgage market has yet to return to pre-2008 fluidity (Scott Singer wrote about the slow return to normalcy in this newspaper a couple of weeks ago).

A week before Tax Day 2010, this newspaper neologistically labeled the continued faith of lenders in the Manhattan commercial market as "boomism," an addiction to belief in the redemptive power of walk-up portofilios and troubled landlords of midtown south Class B buildings. (We also referenced the last Bourbon king of France—extra points!) From the piece by Dana Rubinstein:  

Has New York real estate learned anything over the past two years? Anything at all?

"Nope," Mr. Durst said. "Nope. Nope."

"This is my third cycle," [Douglas] Durst, co-CEO with his cousin Jody of mega-landlord the Durst Organization, told The Observer, sounding world weary. "And each time we get back into it quicker and quicker. We seem to be getting there fairly fast already. Some of the things that have been done don't make a lot of sense."

So, that's it, really: A few down quarters in 2008 and 2009, and a gradual, then quick, ratcheting up to where we stand now on both the commercial and residential sides. All, I think, based on the conviction among investors and homebuyers that any money to be parked in real estate should be parked in real estate in New York, America's only true world city on par with Tokyo, London, et al. That conviction kept the boom from every really going bust, the bubble from ever bursting.

Does that mean, of course, we're still in a bubble that could pop at any moment? Well...

tacitelli@observer.com 

New York City's rents, relatively speaking, are too damn high. Most New Yorkers, native or transplants, feel that reality at some point, some way, whether personally or through the horror stories of family and friends.

But what makes the rents too damn high for New Yorkers? And are they, in fact, even so, all things considered?

A few theories:

Rents Are Too Damn High Because of Stabilization

It's understandably propogated by landlords and some brokers (and some right-leaning thinktanks), and seems intuitively to be true. After all, flood the market with the 1 million (or thereabouts) stabilized apartments in the city and that's 1 million more apartments available to the populace at large, rather than held closely by stabilized tenants only. More supply slakes demand. Prices come down.

But! Beyond intuition, the theory doesn't hold practical, real-world weight. I wrote a column in 2007 about a study of the end of stabilization throughout the Boston area last decade. The results, for tenants, those formerly stabilized and those always market-rate, were not pretty. From my column:

In 1994, Massachusetts ended rent regulations on most apartments. Boston and its suburb Cambridge were among the state's few municipalities that still had wide-scale controls on apartments that kept rents below market. In Cambridge, two-thirds of apartments in buildings with at least four units were regulated.

Within a few years of deregulation, rents were way up, especially in Cambridge, a city of about 100,000 where tenants are similar socioeconomically to those in New York and where the housing stock is also similar. ...

Five years after Massachusetts voters ended rent regulation ... in Boston, Brookline and Cambridge," began a New York Times article from July 2000, "rents have taken sizable jumps, the cities are spiffier and less pockmarked by deteriorating neighborhoods and many poorer people have been forced to move to communities farther from the urban core. ... [A] leading landlord in Cambridge found that rents for his company's formerly controlled apartments have doubled.

Please remember: I'm not debating whether ending stabilization in New York would improve buildings, neighborhoods, etc. I'm arguing that ending it would not, in fact, lower rents. Think about it in that Freakonomics sort of counterintuitive, everything-you-thought-was-right-was-wrong way: Landlords, given the opportunity, would understandably up rents. And why not? Demand would likely remain high, stabilization or not.

Which leads me to a second theory....

Rents Are Too Damn High Because of a Scarcity of Housing

This is a perennial problem in New York and the fault of no ... well, many people, actually, including insurance firms, landlords, incompetent mayoral administrations of the past, criminals, etc. It's an old tale familiar to most New Yorkers: The city entered a steep and, at the time, seemingly irreversible (even inevitable) decline in the 1960s and 1970s, and that decline took the rental housing stock down with it. "The Bronx is burning" and all that jazz as landlords torched buildings to collect insurance rather than maintain what had become moneylosers.

The thing of it is, though, is that research has emerged that this was no inevitable housing-stock decline. Landlords and insurance companies deliberately disinvested in several parts of the city, in what turned out to be a successful attempt to drive residents to the suburbs, where newer, more expensive housing was going up like mad. Yes, yes, it sounds so conspiracy theory. But it's not. (The latest research comes in Jonathan Soffer's new bio of Ed Koch, which I will review in next week's Observer. In that, Mr. Soffer explains how not only the private sector pulled out of places like the South Bronx and central Brooklyn well before crime started to spike, but that mayoral administrations abetted the flight of capital--and people--by letting services slide.)

Well, however the city got to where it got, there were and remain too few apartments for too many people. Note, I'm not talking about for-sale housing, like the co-op conversion wave of the late 1980s or the condo-building boom of the middle of this past decade. The fact is new rental development remains an event in New York City (look at the hearty reception of Bruce Ratner's Frank Gehry-designed 8 Spruce Street in Manhattan--by the way, love seeing that as I go over the Manhattan Bridge in the mornings; a beautiful skyline addition!), a rarity that developers are skittish to undertake because of the costs and the paltry returns relative to building condos.

Which leads me to a third theory, which likely explains everything better than anything...

Rents Are Too Damn High Because People Love New York City and Keep Moving Here

Here's some stats from another column I wrote in 2007 (whatta year!):

These permit numbers at least look impressive. In 2006, 30,927 housing units were green-lighted; in 2005, 31,450. These were the busiest years since 1972-and that year, as City Hall points out, was busy only because of subsidized-housing construction.

But even the heartiest home-permit numbers pale against New York's population growth. So hold the champagne: The home-building boom isn't nearly loud enough.

In the six years from 2000 through 2005, the city added more than 205,000 New Yorkers, according to city estimates based on census data.

In the seven years from 2000 through 2006, 159,209 home-building permits were approved.

It's supply and demand, kids. The surest way for rents to come down in New York is for New York to stop being a desirable place for the young and the restless. You want cheaper rents, move to a dying city (Philly, Detroit); or to one woefully unpopular with creative types or with little FIRE in their economic bellies (pretty much the entire country west of here, east of California and south of Chicago); or to a city that doesn't welcome creative types (one of those mid-size ones with an alt-weekly and a couple of music clubs, maybe a craft beer bar, but little else to do on the weekends save get the Sunday Times).

That, ladies and gentlemen and Mr. McMillan, is why the rent is too damn high in New York: It's a popular place to live, but with not enough housing, really, for everyone who wants to live here (and a big reason for that is the deliberate disinvestment of the 1960s and 1970s).

But that does not answer the original question: Is the rent too damn high?

Comparatively, hell no. New York is a world city and in debates like these has to be compared to other world cities; and not necessarily to other American ones, even big ones like L.A. and Chicago.

World cities like Moscow, Hong Kong, Tokyo and London routinely dwarf New York in surveys of apartment rents. In the Russian capital, for one, half of available apartments might rent for more than four grand at any one time.

KVARTIRNAYA PLATA SLISHKOM VYSOKAYA, CHERT VAZMI!

Right on.

tacitelli@observer.com

Talk with some of the market’s pros—including top executives and brokers—and you will quickly encounter a common refrain: Things are bad, sure, but they’re getting better. “What we’re seeing is much more activity and interest,” said an exec this month at one of New York’s biggest brokerages.

But the evidence is scant and almost always anecdotal, and the statements of confidence usually bland and noncommittal. For now, the numbers on the ground suggest rising vacancy rates, dwindling rents and very little in the way of big-time property sales.

They also suggest the worst is yet to come.

Pick your stat, pick your market part. In a report earlier this month, Jones Lang LaSalle predicted a 20-percent-plus vacancy rate in Lower Manhattan within the next three years; the same report saw average rents there dropping to near $30 a foot. Research from Real Capital Analytics shows that the top five sellers in Manhattan traded a grand total of $1.071 billion in commercial property during the first quarter of this year, less than during the same period last year, and a total weirdly buoyed by the New York Times Company’s sale-leaseback of a part of its Eighth Avenue headquarters—no Masters of the Universe sales here.

It should be noted, too, that some of the same commercial execs and brokers sounding positive tunes about the market now were either mum or actively participating in the heady run-up to the crash, when highly leveraged deals were highly praised. (Some, of course, were more sober and sounded alarm bells—which were promptly ignored.)

None but the most morose would think the local commercial market won’t recover, though only the most irrepressible would expect a return to a 2007-like market of $180-a-foot office rents and multiple $1 billion building deals.

But the numbers suggest a complete write-off of 2009, when it’s not yet half over, and a 2010 that may very well be only prologue to the market’s roughest times. (Another stat, after all: the Deutsche Bank report from late April predicting a $410 billion nationwide refinancing crunch that will undoubtedly ensnare several top-flight Manhattan properties. That crunch is not expected to manifest fully itself until 2010.)

One wonders at the staggering optimism, then, of some in the industry. It begs the question, going forward: Can’t we be a little more pessimistic and, therefore, more cautious in the next heady go-round?

tacitelli@observer.com

The statistics underline just how far New York’s property sales market has fallen, and not just since Lehman Brothers’ September 2008 collapse. The biggest deal in the first quarter of 2009 was CB Richard Ellis Investors’ $355 million buy of 1540 Broadway’s office condos. The biggest of the same quarter last year was Altria’s sale of its 120 Park headquarters to Eyal Ofer’s Global Holdings for $525 million.

Neither are anything close to the gargantuan billion-dollar deals of the boom. When will those return, if ever?

“There’s so much capital on the sidelines!” That’s the de facto mantra now among the city’s commercial sales brokers, with the idea being that more deals like 1540 Broadway will encourage further capital investment.

But that deal’s now over two months in the market’s rearview mirror, and another one of similar scope has yet to appear. It’s fear; it’s here; get used to it.

After 1540 Broadway, the biggest commercial deal of ’09 so far was Sotheby’s auction house buying back from Aby Rosen’s RFR Holding its old headquarters at 501 East 71st Street for $135 million, plus assumption of the mortgage. 

After that, the drop-off becomes steeper and more illustrative of New York in the Great Recession: the 122 East 58th Street sale for $28.5 million; 482 Seventh Avenue for $20.3 million; a vacant lot at 122 East 32nd Street for $15.8 million.

In the first quarter of 2008, the top 10 New York commercial property trades amounted to $1.639 billion. In the first quarter of 2009, the top 10 came to less than half that amount—a sizable chunk, by any individual market’s standards. But by New York’s? Not cool at all.

tacitelli@observer.com

Statistics from PropertyShark, www.propertyshark.com

It’s not so much the dollar amounts—everyone knows things are bad—it’s who’s doing the spending. Gotham’s bigger property gobblers are increasingly domestic, privately held and from around these parts.

In those pre-Lehman months, the 15 biggest investors included one publicly traded REIT—Mort Zuckerman’s Boston Properties—and two sovereign wealth funds from the Middle East—Dubai and Abu Dhabi (remember them?). In the six months post-Lehman, there were zero sovereign wealth funds and zero traded REITs.

Before September, one-third of the 15 biggest investors were from firms headquartered outside the U.S., including three in Germany—the Paramount Group, Allianz and Jamestown. Since then, all are headquartered domestically.

And those headquarters are in New York: Of the 15 biggest investors post-Lehman, 10 hail from the city, including the No. 2 on the list, Lloyd Goldman’s BLDG Management, a landholding concern that ballooned locally in the 1960s and 1970s.

Most of the investors, too, like BLDG Management, are privately held; these include New York University, the bright green Jonathan Rose Companies, and RLJ Development, the equity firm run by BET founder Robert Johnson. 

But the biggest commercial property investor in New York in the six months from October through April was not only publicly traded, but from … Los Angeles. CB Richard Ellis Investors, the independent investment arm of the brokerage services giant, chaired by California Senator Dianne Feinstein’s husband, Richard Blum—he stood behind President Obama at the inauguration, wearing an appropriately blue scarf—is headquartered in L.A. (though it does have a formidable New York presence, to say the least).

IT'S WHAT CBRE INVESTORS did to reach the top spot after the fall of Lehman that brings us full circle to the dollar amounts. In early March, the firm closed on the majority of the condo interest in 1540 Broadway, the 44-story Times Square tower, for $355 million, the biggest commercial investment trade so far this year.

The kicker: Harry Macklowe bought the tower in spring 2007 as part of his $7 billion Masters-of-the-Universe portfolio buy that soon went right into the hands of his creditors. In that 2007 deal, 1540 Broadway was valued at $950 million. The biggest investment of the pre-Lehman months was the $2.8 billion deal for Mr. Macklowe’s GM Building, led by REIT Boston Properties, with the help of Middle Eastern firms and Goldman Sachs—an investor amalgam that’s a perfect snapshot of those times if there ever was one.

Do the numbers portend the future?

The single biggest story in Manhattan, and national, commercial real estate over the next 18 months will likely be defaults—the Deutsche Bank report from two weeks ago predicting a $410 billion refinancing crunch nationwide was only the latest grim number, and TALF will not right this ship. There will be little ink spilled reporting mega-deals.

Rents are dropping; commercial investments can’t claim the same returns; REIT shares have tanked; tenants are hassling landlords for concessions; landlords are begging brokers; lenders are white-knuckled. It’s an upended scene compared to last spring, as though someone yanked the plug on the DJ and the party just stopped.

Think it’s hyperbole? Pre-Lehman, Goldman Sachs and JPMorgan Chase accounted for nearly one-fifth of the deals among the top 15 investors. Post-Lehman, there’s not a single investment bank as buyer among the top 15. 

Come to think of it, there’s no big investment banks, period, unless you count Uncle Sam LLC. Welcome to the rest of 2009.

tacitelli@observer.com

Statistics from Real Capital Analytics.

“You could feel the tension in the brokerage community, because it was the first issuance of bad news after a huge run-up from 2003 to 2005,” Mr. Miller, president and CEO of appraiser Miller Samuel, said.

The quarterly housing reports wield an oddly powerful grip on the public’s perception of the market. Even though the data is partially dated by the time the reports are released, they are really the only documents that diagnose the state of the real estate market writ large.

During the housing boom, the reports were a broker’s best friend, and with the documentation of quarter after quarter after quarter of historic growth it’s not hard to see why. But now the bloom is off the rose, and analyzing the reports has become as joyless for brokerages as reading election polls was for McCain supporters last fall.

The numbers are what the numbers are.

Last week’s reports were the first to recount a post-Lehman Manhattan. Shocking absolutely no one, virtually all of the important sales metrics were moving in the same direction: down.

There were fewer sales, with Corcoran reporting a 52 percent annual decrease in quarterly closings from 2008 to 2009; and apartments that did sell went for far less than last year, with a 20.8 percent drop in the resale market’s median sales price, according to the Elliman report. And with few analysts predicting a hasty recovery, these housing reports are quickly turning into trimonthly bulletins of the industry’s interminable slog back to simply normal.

But if the reports lose favor among the brokerages, they are likely to pick up interest among consumers, who, for the first time in forever, are finding that the data tilts in their favor. The reports were viewed with more than a healthy bit of skepticism during the boom—or, at the very least, treated voyeuristically as financial pornography, for the vast majority of New Yorkers could never hope to afford what the reports dryly called the average-priced apartment.

“During the upside, I would chuckle because commentators on Curbed would call me part of the real estate industrial complex,” Mr. Miller said.

During the boom, it wasn’t just difficult for the data-heavy reports to get a fair hearing in public; judging from some of the comments from public forums, it was impossible. The reports, and the industry behind them, were viewed too much like cheerleading.

“Is there any source of accurate information regarding NYC real estate sales? Asking [real estate] firms about the state of the market is like asking Bernie Ebbers how WorldCom is doing,” wrote one anonymous Curbed commentator in response to the 2008 second-quarter reports.

“This ‘report’ is a joke,” wrote another. “It’s propaganda designed to increase buyer interest. There is no standard of accuracy or integrity whatsoever.”

Accusing the industry of Pravda-esque propaganda was easy when the markets shot ever upward, especially since three of the major reports are published by brokerages and much of the data compilation takes place behind a Vatican-like veil.

But the validity of the reports in the public’s eye has been proven now that, hey, they actually do show negative numbers. The industry, after all, has little to gain from touting misery.

According to industry analysts, more consumers are perusing Web listings, perhaps an indication that bad news is actually good for business. “Since January of this year, there has been an increase in traffic on our Web site,” Sofia Kim, the vice president of research at real estate Web site StreetEasy, said. “We are continually breaking our own records, which I think is due to a lot of latent demand out there.”

And what if brokers are indifferent to their firms’ reports? Is that so unbelievable? “Professionals want to see accurate information,” Gregory Heym, in-house author of Halstead Property and Brown Harris Stevens’ reports, said. “People have this notion that the reports are beneficial only if they are positive, but that’s simply not true because if a report is inaccurate, it doesn’t benefit anybody.”

Either way, the reports have leap-frogged in prominence since Barbara Corcoran started what was probably the first regular one, during the 1981 recession (the Corcoran Report was released every six months then). The reports, like houseguests and fish, have been around so long they’ve started to smell. But the public has warmed to the whiff, oddly enough, in these troubled times; others have, too, apparently. 

“I have gotten a lot more interest in the reports this time around,” PropertyShark founder Matthew Haines, who collaborates with the Corcoran Group, said. “Only it’s from the press.”

ohaydock@observer.com

So add doormen, especially those working in rental buildings, to the list of luxury amenities that New Yorkers are no longer eager to pay for, along with rooftop decks, in-house recreational facilities, haute design fixtures and indoor swimming pools.

“Tenants are sacrificing living conditions,” Marc Lewis, the president of Century 21 NY Metro, said. “They are leaving doorman buildings and going into elevator buildings.”

Formerly the white-gloved vestige of an antiquated Upper East Side lifestyle, uniformed doormen spread during the boom to every corner of Manhattan, their most familiar habitat being the new-development building in Manhattan. But because of falling rents and increasing vacancies, landlords are looking at tighter balance sheets, and that just might mean a thinning of the ranks in the doorman brigade.

So far in 2009, 32BJ, which also represents cleaners, porters, supers and security guards, has implemented approximately 70 workforce reductions, which is roughly the same amount as in all of last year.

Troubles in the market for doormen rental buildings were evident as early as last February, when this very column noted that “Manhattanites are ditching doorman buildings.” A year and several economic crises later, and you can only imagine how things have worsened. From September 2007, around the time the rental market peaked, to February 2009, mean rents for apartments in doorman buildings plummeted faster than anything this side of Citi stock.

In the span of 17 months, rents on doorman-building studios fell by 15 percent; rent for doorman-building one-bedrooms dropped 13 percent; and rents for doorman-building two-bedrooms slipped 9 percent, according to statistics from the Real Estate Group New York.

According to that firm’s COO, Daniel Baum, landlords of doorman buildings are more vulnerable to a slumping real estate market. “At luxury buildings or doorman buildings, they have to take aggressive action,” Mr. Baum said. “Because of their added costs, they have more exposure to vacancy rates.”

It’s no surprise, then, that landlords and management companies might be looking for ways to cut costs, especially since the crashing rents are accompanied by a major reduction in demand and a startling rise in vacancy rates. (Or is it the other way around?)

If less people are paying rent at reduced prices, something has to give. According to Phil Whalen, a principal at Key Real Estate, a real estate firm specializing in property management, landlords are starting to negotiate staff reductions with 32BJ. One landlord, who wished to remain anonymous, has indicated that the union is more willing to negotiate staff levels than in the past.

Unlike non-union workers, the union salary is set in stone—at least until the next round of contract negotiations—so payroll cuts invariably mean job cuts. Members of 32BJ make $18.94 an hour, which translates into $757.60 for a 40-hour work week and a little less than $40,000 in annual salary; employers are also on the hook for about $1,080 in quarterly benefit payments, which include health care, pension payments and other expenses. And it’s getting harder to cover those expenses, according to Mr. Whalen, who is especially concerned about underwriting health care costs.

According to Matt Nerzig, the director of communications for 32BJ, the union is paying close attention to the situation. Unlike, say, the UAW, layoffs and staff reductions haven’t been a fact of life for 32BJ.

“We’ve been unaffected by layoffs for a long time, but they really seem to have started in recent months,” Mr. Nerzig said. So far, most of the staff reductions have been concentrated in Brooklyn and Queens, and whether they jump the river and start becoming prevalent in Manhattan remains to be seen.

ohaydock@observer.com

The soon-to-be-married couple had already signed an offer on a duplex in a prewar building just a few blocks away from the coffee shop, and in less than an hour they were scheduled to sit down with the co-op board for the interview.

The couple have been engaged for two months, and even though they have spent that time looking for an apartment in the city, they aren’t planning on moving in together until they get married later this summer. They’ve both rented in the city, Mr. Palumbo in the Bronx and Ms. Cambareri on the Upper East Side. Their apartment search took them up and down the east side of Manhattan, including stops in the Lower East Side, Murray Hill and the Upper East Side. They started out in the $450,000 price range, but they jumped to $500,000 once they realized how much negotiating room they had.

Finally, they found the duplex on the Upper East Side and decided to move on it. They ended up chopping about $60,000 off the asking price. And they are not alone. Yes, there are fewer people buying Manhattan apartments than anytime in recent memory; a quick look at fourth-quarter figures from appraisal firm Miller Samuel points to a 9.3 percent drop in condo and co-op sales from 2007 to 2008. Yet in the midst of this great thaw, there are packs of savvy property sharks out there, chasing the scent of blood in the water, looking for something juicy to sink their teeth into.

The market has finally flipped—in some spectacular fashion, huh?—and buyers who for years have played the role of the sickly, three-legged antelope are suddenly the top predator on the food chain. Longtime renters who bore the brunt of the bubble market with no long-term asset to show for it are finally having their revenge. Not only are rents falling fast, but sales prices are tumbling also, leaving those renters fortunate enough to be carrying some extra cash with the best of both worlds.

And to think that about a year ago, right about the time Bear Stearns was marching toward oblivion, the market for apartments was a seller’s paradise. Buyers came in swarms, flush with money and ready to engage in price-escalating bidding wars. And as insane as the sales market got, the rental market followed right behind; according to statistics from the Real Estate Group New York, rents reached their highest point around September 2007, when the average rent for a doorman studio in Manhattan reached $2,780. There was literally nowhere for Manhattan denizens to seek refuge from the aggro market forces, and trying to find a cheap place to live was like betting against the house.

But like Bob Dylan sings in Zack Snyder’s beautifully orchestrated montage at the start of Watchmen, the times they are a-changin’. Only, in New York City circa 2009, they actually are (no irony here).

TAKE SARA PORGES, a 34-year-old insurance broker at Marsh who has lived in Manhattan for 12 years, spending the last eight or so in a rent-stabilized apartment on the Upper East Side. In what ultimately ended up being a wise decision, Ms. Porges spent the boom years in her rental, believing the sales prices were too high. She had friends who bought property, though, and she started looking around to see if she should follow suit. “I felt like a big loser,” Ms. Porges said jokingly. “I either didn’t have enough money or it just didn’t seem right because prices were so insane.”

With the market decidedly saner, Ms. Porges has started aggressively looking for apartments and has noticed a sea change in the sales environment: The open houses she visits are decidedly less crowded; the quality of properties on the market has increased; and prices have become imminently negotiable. “Last year, people were paying the asking prices no question, but now I feel like you can be more brazen and negotiate, especially if you’re renting and not in a rush,” Ms. Porges said.

Like a lot of other fence-sitting consumers, Ms. Porges is keeping her options open. If she finds the place she wants for the right price, she’ll move on it; if not, she can just go on renting. It’s the sort of flexibility homeowners wished they had these days.

But it’s also unleashing an epidemic of sorts, in which apartment hunters of 2009 resemble nothing more than lobotomized zombies of their former freewheeling selves. “It’s a whole different vibe,” Jill Sloane, an executive vice president at Halstead Property, said. “A year ago, people were paying whatever it took to get an apartment and there were frenzies at open houses; now people have stopped being emotional buyers, and if they don’t get the deal they want, they will walk away.”

Unlike Ms. Porges, Monika Malkowski, a 27-year-old jewelry designer, found her perfect apartment. Sick of “throwing her money out the window every month” on rent for her Chelsea apartment, Ms. Malkowski put in an offer on a one-bedroom Greenwich Village apartment. She is savvy enough to know that the price might drop even further, but smart enough to know that a substantial cut in the sales price is likely to spark the sort of bidding war she wants to avoid.

“The truth is that even if the price goes down a little lower and the apartment gets a little cheaper, I might be bidding against 12 other bidders,” Ms. Malkowski said. Although a few competing offers are in, she got there first and is optimistic that she’ll finalize the deal sometime in the next week or two.

BACK AT Antonio Palumbo and Joanna Cambareri’s board interview on the Upper East Side, things went well. Mr. Palumbo was surprised at how welcoming the interviewers were. “It was much less of a drill-down and an interrogation and much more of a conversation that just let us know that we were welcome in the building,” he said.

They think they’re in for sure.

ohaydock@observer.com

According to Smith Travel Research, an industry research firm based in Nashville, Tenn., the citywide occupancy rate in January was 59.5 percent, an annual decrease of 16.1 percent and the first time the occupancy rate slipped under 60 percent since 2003. Average daily room rates are down, too, falling from $229.10 last January to $199.05 this year. It’s the first time average rates fell below the Mendoza line since February 2006, breaking a streak of 34 consecutive months with an average rate of $200 or better.

Like the office and housing markets before it, the hotel industry is taking its wallops from the financial crisis. Whether it’s increasingly cost-conscious tourists, or a decrease in business travel, or tamer convention crowds, it is a fact that there are less and less people visiting New York these days and the hotel industry is suffering mightily because of it.

“There are two things going on here,” Sean Hennessey, chief executive of Lodging Investment Advisors, said. “First, the industry is suffering from the tremendous losses of the Wall Street community, which the hotel industry has become very dependent on; and, secondly, the strengthening of the U.S. dollar against other currencies has prohibited a great deal of the vacation and leisure demand.”

Ouch and ouch. Of course, the hotel industry has been through some difficult times before, including a short-lived downturn after Sept. 11. Unfortunately, this slowdown is not likely to be such a quick fix.

“This slump is a little broader than what we have seen in the past,” said John Fox, a senior vice president at hospitality firm PFK Consulting. And with the boom over, the industry will have to adapt to life outside the bubble.

That means, practically speaking for the industry and consumers alike, no more boom-time room rates. The city’s average daily rate peaked in November 2007, when it reached $333.73. Who knows how much further the rate—already below $200—will fall, but back in January 2003 the daily room rate averaged a very friendly $156.50 nightly.

Hilton Hotels, to provide just one example, is offering a “New York on Sale” promotion, with rates at six-year lows at three of their city hotels: the Hilton New York, in midtown; the Millennium Hilton, across from the World Trade Center; and the famous Waldorf-Astoria. And the low rates are good all the way through the next Christmas season, when rates are generally higher to match the holiday surge.

And if lowering rates doesn’t work, some hotels offer incentives to lure euro-counting tourists. The Mandarin Oriental, in the Time Warner Center, offers guests a complimentary night with any two-night stay as part of their “Extra Fun-Day Away” promotion. Granted, the nightly rate starts at $765, but a free night is a free night.

THE SUDDEN COLLAPSE in hotel demand comes at a time when thousands of hotel rooms have recently come online and even more are on the way.

In 2007 and 2008, according to Smith Travel Research, 5,018 hotel rooms entered the New York market, including swanky establishments like the Bowery from the tandem of Eric Goode and Sean MacPherson, and Robert De Niro’s Greenwich Hotel. With more than 80 hotels under construction and countless other projects in various stages of planning, there are thousands of more rooms yet to be added to an already oversaturated market.

Of course, the recession may halt many of these projects. Mr. Hennessey, of Lodging Investment Advisors, predicts that the majority of hotels that are not currently under construction may not get built until the next economic upturn, and nobody is offering predictions on when that will be. In the meantime, construction and hotel industry jobs will become less plentiful than in the past.

But the indirect effects of a stumbling hotel industry are even more severe than the direct consequences. With less people visiting New York and filling up the city’s hotel rooms, there are less people walking the streets and spending money in Fifth Avenue boutiques and Times Square tourist traps, which partly explains the paltry retail spending toward the end of 2008.

And it’s doubtful that anyone is cheering harder for a hotel industry recovery than Mayor Michael Bloomberg. According to Joseph Spinnato, president and chief executive of the Hotel Association of New York, a trade group, the city is about to embark on an ambitious, discount-based marketing campaign to boost tourism and leisure travel. “Mayor Bloomberg and his staff are very anxious to lure people into the city,” he said.

The mayor should be, since a thriving hotel industry is a bankable feather in the cap for an election season pol. After Sept. 11, George Pataki, facing reelection as governor in 2002, worked fervently to boost the city’s tourism in the wake of the terrorist attacks. The success (or failure) of the city’s current push could have wide-ranging political implications not just for the mayor, but for Governor Paterson as well, who is up for reelection in 2010.

As with most things, there are liable to be a few winners if hotels are forced to further reduce rates. Convention planners must be thanking their lucky stars. If you’re a Ford or General Motors executive, for example, suddenly the trip to the New York auto show in April does not seem quite as onerous.

And brides- and grooms-to-be are perhaps the biggest winners of them all. I know two couples getting married in the city this summer, and it’ll now be considerably cheaper and easier to find places for the wedding party to shack up than it was in 2006 or 2007, when the occupancy rate consistently hovered around 85 percent.

It’s unlikely there will be a market like that for a long time. “I don’t expect us to get back to the mid-80s occupancy rates that we had from 2005 to 2008,” Mr. Fox, of PFK Consulting, said. “It’s unheard of to have that kind of market over a sustained period of time.”

ohaydock@observer.com

Oh, my, how times have changed.

Anecdotes abound about ready-to-negotiate landlords and falling rents. And the old standby economic principles of supply and demand seem surpassed by popular perception. It’s a renter’s market because, well, everyone says and thinks it is.

That’s really only partially true. Yes, the dismal economy has spawned vacancies and caused rents to drop. But the tide has changed so quickly that something else must be afoot.

Call it landlords on early defense, or tenants, long shafted, now terrifically emboldened: Either way, perception, more so than economics, seems the last few months to have been fueling this ship.

Traditionally, the status of the rental market is closely linked to the job market. If unemployment is low, demand for apartments will be high. Conversely, when the job market is poor, demand sags and rents fall. In December, the unemployment rate in New York City was 7.4 percent, a month-to-month increase of one percentage point and the highest it has been since July 2004.

Those jobless figures are starting to carry over into the office market. The vacancy rate in January for top-shelf, Class A Manhattan space tipped past 10 percent for the first time since November 2004, according to Colliers ABR, and there is more square feet available for lease than at any time since December 2003.

Such an unemployment-spurred jump in office vacancy is supposed to impact the apartment market after a few months. Qualified tenants become fewer and farther between, and landlords eventually react by lowering rents.

Not so this go-round: Landlords pulled the trigger quickly, as soon as in September and October of 2008, just on the cusp of the financial crisis. It was a matter of reading the financial tea leaves and knowing that this recession ain’t your grandfather’s. It would be much worse, and tenants knew it, too.

“It’s a psychological thing,” said Maria Daou, an associate broker at Warburg Realty, “because people want deals in this market and unless they feel like they are getting a deal, then they will keep on looking.” 

Ms. Daou has noticed a surge of relocating renters looking to trade down on their apartments and find cheaper places. Mr. Lewis of Century 21 sees much the same thing. “The perception now is that you can move to save money,” he said. It used to be that people moved to Boston or Philadelphia or New Jersey to save money, but now they can stay in the city, Manhattan even, and do the very same thing.

Many landlords, Mr. Lewis said, have already lowered rents to adjust to the grave new world, only to have apartment hunters demand further price reductions or expanded incentives during negotiations. “They can only go so low with their rents until it’s just not worth it to rent an apartment because of all the cost factors involved,” he said.

The worry for landlords now, of course, is how long the perception might last. If the recession continues into the spring and summer, and if layoffs keep pace with December’s frighteningly high unemployment rate, then tenants will just expect more of the same from property owners. A quick rebound in the job market would surely help change the dynamic, but that seems exceedingly unlikely in the short term. Things are bad, and everyone knows it.

The financial crisis destroyed consumer confidence, and as long as people keep their money in their wallets and bank accounts, it’s hard to imagine them spending more to rent when they know they don’t have to. Perhaps the federal stimulus will drive consumer spending; or the banks bailout; or the spring weather. Hope and change, anyone?

Whatever the impetus, until then, landlords might as well get used to seeing a lot more unemployment checks on rental applications.

ohaydock@observer.com