The Year of the $15 Million Apartment

It was the year in Manhattan real estate that the celebrities were humbled, and the billionaires couldn’t buy whatever they wanted. It was the year that Harrison Ford hunted up and down Carnegie Hill just to end up acquiring the neighbor’s place and expanding. When Calvin Klein, after a fruitless search, landed back in his old bachelor’s pad. When financier Bruce Wasserstein, for all his apparent willingness to pay whatever it took to have the most socially unassailable address in town, had to settle for an $11 million Fifth Avenue apartment that was merely huge. The year that Madonna tromped all over the island, from Duane Street to the Upper West Side, one step ahead of the gossip press, and finally gave up and stayed home.

“This is the best time we’ve ever had,” said broker Edward Lee Cave of the last 12 months, during which he has racked up five sales over $10 million, including a half-gutted house off Fifth Avenue, once owned by Chris Whittle, for an estimated $11 million. It didn’t even come with any toilets or sinks. It was the year a Goldman, Sachs & Company managing partner signed a deal to pay $9.5 million for an unrenovated apartment at the San Remo–the highest price ever for an apartment on Central Park West. And, after 11 years on the market, it was when the Biosphere-esque penthouse-on-stilts atop the Galleria on East 57th Street was sold to David Copperfield and Claudia Schiffer for $7.4 million. They just couldn’t find anything else.

The reasons for the real estate crush have been pretty well gone over: In a city where most of the economic growth is tied to conditions on Wall Street, the Dow’s been consistently giddy. Prosperity and the Mayor’s triumph over crime have encouraged those Wall Street-enriched young families to stay in town. And changes in city regulations have made it easier to combine apartments, so people have been gobbling up the place next door. The perceived safety of the streets has marked the comeback of the town house. Overall, the city’s just a better place to be rich in these days. Everybody wants in, and they’ve been getting competitive.

After a year of heedless, auctionlike frenzy that’s broken all sales records–Manhattan property values have shot up 17 percent in the last six months–co-op boards now wield their unchecked power with freewheeling brutality, and sellers are convinced they’d better ask 50 percent more than their neighbors got, or they’re going to look foolish in three months. And the real estate priesthood is richer but on edge. There is a growing list of properties on the market for $10 million and over, and the new status-property price tag is $15 million. Still, the brokerage elite have been complaining for months that there isn’t enough for their buyers to choose from. Why? Some people are afraid to leave their houses because they fear they won’t be able to find a new one. At the start of the summer, when the pace of sales usually slackens, a kind of frozen, anticipatory calm has spread over the city’s aspirational housing stock and those who tend it. The question everybody wants answered is: Where do we go from here?

‘Anything Will Sell’

“This recovery’s been a classic one,” said Kirk Henckels, director of the private brokerage division of Stribling & Associates Ltd. on Madison Avenue. He parachuted down to Palm Beach to sell real estate when the market took a downturn in 1989, but returned in 1993. “There’s decreasing supply and increasing demand. It started at the high end and filtered down.”

Brokers will reel off those golden, high-end moments of the “recovery”: When Ron Perelman paid a record $10 million in 1997 for a town house at 11 East 82nd Street for an employee (who’s since resold it for $14 million). Or when the third floor of 620 Park Avenue sold after a decade on the market. Or Billy Joel’s town house at 49 East 67th Street, described by one witness as “a normal 20-footer that’s kind of tacky,” which spent over a decade in purgatory before being sold early this year for $4.2 million. Now it’s for sale again at $9 million. But the grand finale was film producer Lester Persky’s legendary penthouse at the Hampshire House–the building’s home to all three Tenors–at 150 Central Park South, which closed June 15 for just over $4 million. He’d been trying to unload it since 1987, its price veering from $3 million up to $5.8 million.

“Anything will sell. It doesn’t matter what,” said Corcoran Group strategist Scott Durkin. “Prices have gone well beyond the 80’s.”

Sharon Baum of Corcoran, who is so busy these days she brings her cell phone into the ladies’ room with her, said it’s an “unprecedented market.” She’s marketing a $30 million house at 11 East 62nd Street. Michael Jackson’s already passed. William B. May Company’s Roger Erickson, Madonna’s broker, recently put an $18 million “For Sale” sign in the ninth-floor window of producer Peter Guber’s four-bedroom, six-and-a-half-bath apartment at 944 Fifth Avenue. “It’s being sold completely furnished,” he offered as a kind of apology to common sense. “With a couple of million dollars of Art Deco antiques.”

And there’s more where those come from. The 14th and 15th floor of 828 Fifth Avenue are available for $15 million (four-beds, five-baths, 5,200 square feet.) There are two apartments listed at $15 million at 740 Park Avenue. Steve Jobs wants to sell his tower-top penthouse at the San Remo for $15 million, which he spent seven years renovating and re-renovating after buying it for $2.5 million. At the very tippy-top, you’ve got former arms dealer Adnan Khashoggi’s 18,000-square-foot condo with a pool at Olympic Tower, 645 Fifth Avenue, for $25 million, and Australian newspaper heiress Lady Fairfax’s penthouse with a ballroom at the Pierre, 795 Fifth Avenue, for $28 million.

Still, There’s Nothing to Buy

“We refer to our clients as the homeless,” said a high-end broker of her buyers–people willing to pay millions but unable to find a new apartment.

“It’s very hard to spend $5 to $10 million dollars these days,” agreed Edward Lee Cave broker Linda Stein. “There is a tremendous shortage of park views. If you could find 6,000 square feet with ceilings over 10 feet, fireplaces and terraces on Central Park West, you could sell it for $12 million easily.”

The problem is that you can’t build new prewar buildings. “You have to deal with what’s existed for 60 to 80 years,” said Michele Kleier, president of Gumley Haft Kleier Inc. “You can’t create terraces and views. People think they can give you a wish list, but what they want doesn’t necessarily exist in New York City.”

“A lot of them decide you’re not good enough to get what they want,” said a broker of this phenomenon. “They want Saul Steinberg’s triplex or Mort Zuckerman’s triplex. And they’re very frustrated because they’re used to getting their way.”

Some people, like Mr. Wasserstein, who, despite being willing to pay and pay, got turned down twice by market-emboldened co-op boards and ended up spending about $11 million for 14 rooms at 927 Fifth Avenue. He settled. Madonna wouldn’t, and after schlepping all over town and coquettishly stringing John McEnroe along for six months–he wanted to trade apartments with her–she wouldn’t go all the way.

“It’s amusing that some intelligent people just accept it,” said another broker. “But some more demanding nouveau riche people say, This isn’t big enough, this terrace isn’t big enough. I told him to call a developer.” Not that there aren’t some people doing that, too. A small co-op at 64 East 86th Street is selling a 5,000-square-foot pillow of air above them for $1.25 million through Stribling. The ads read: “We supply the roof, you supply the apartment!”

“The slack is gone,” said one broker “Properties that couldn’t be moved a couple of years ago are selling.” Often what’s left is “really the dregs of the market.”

And the frenzy has been building; people are starting to crack. “A broker came into the office literally crying yesterday because she couldn’t find anything to sell a client,” said a broker. “It’s really getting to be a problem for everybody.”

Keep Your Millions

With the market past the boiling point, brokers have been unafraid to approach owners with guarantees that they could double or triple their investment in their property. But now, some brokers say, it’s gotten to the point where people are afraid to sell. “They say, Where am I going? Where are you going to move us?” said a broker of her skittish multimillionaire charges. It’s why Madonna, despite her multibrokerage phalanx of highly motivated house-hunters, didn’t accept her most recent full-price bid: no place to move.

“There’s no pressure or sense of urgency to sell big apartments” on places like Fifth Avenue, said Mr. Cave. “I know people who only live here three months out of the year and spend the rest of their time in Palm Beach who don’t sell. Because they know they’re not going to get it back.

Adding to the problem is that 1997 changes in capital gains law made it impossible to roll over the kinds of profits you’d make from selling an apartment into the new place without taking a titanic tax hit.

“I lost three exclusives the day that law went into effect,” said Mr. Henckels. “It really seriously damaged the high end … Some of these people have $9 million in capital gains” and only $500,000 of it is sheltered under the new laws (a problem when you consider lots of these co-ops traded in the $200,000-range in the pits of the 1970’s).

“You don’t have a lot of willing sellers right now; they’re all afraid that next year their place will be worth even more,” he said.

“The sellers are getting nuts,” said a high-end broker. “They don’t want to hear the truth,” about pricing. “They think they know better.”

The $15-Million Apartment Club

With so little to sell, brokers are hiding their listings from each other and trying to trip up each other’s deals. Then there’s the problem of too much money being thrown around.

“If somebody has a billion dollars, it doesn’t matter what they pay,” said Michelle Kleier, who unwittingly brought a customer up against Microsoft Corporation co-founder Paul Allen for real estate developer Marty Raines’ apartment at 4 East 66th Street last year. The $14 million sale was mentioned by many brokers as the beginning of all this madness.

“He was going up in million-dollar increments. I had a very good bid, but there was no hope.”

So many off-the-record discussions of the market revolve around how stomach-churningly overpriced everything is. And everybody uses the same word: crazy. An apartment at 1120 Fifth Avenue that was rumored to have just fetched $8.8 million (in a building where nothing’s sold over $4.5 million)? “Insane.” Recent talk that the 30th floor of the Pierre sold for $10 million (the buyer is rumored to be Mohammed al-Fayed, father of the late Dodi al-Fayed) when the floor below it just sold for $5.5 million is met with “that would be out of the this world, over-the-top crazy.”

A lot of this is driven by the fact that, as 35-year-veteran broker Robert Watt of Alice F. Mason Ltd. puts it, “What used to be rich is only well to do these days.”

After riding the bull through the streets of New York for the last few years, “$100 million dollars makes you poor,” joked Ms. Kleier, noting that it’s not enough to break into the top of the line these days, the $15 million apartment club.

Fifteen million is “the new number,” said Ms. Kleier. “But for that, people want something fabulous. And I can’t blame them.”

“It’s almost like they want the prestige of having an apartment on the market for that much,” said another broker.

“Even if you’re worth a billion dollars, when you get above $5 million, it’s not a cavalier decision. It’s a liquid outlay–it’s cash,” said Mr. Cave. “They may be worth that on paper, but it’s all in shares inherited from Granny, and they can’t sell because of the horrendous tax situation. If their wife wants it, they’ll pay up for it, but they won’t be foolish.”

“Somehow these people have an inner calm,” said Mr. Henckels of the billionaire apartment hunter. “But they’re not willing to overpay. They just look at you like you’re crazy when there are no [comparably-priced sales].”

Mr. Erickson said that he had a “young man who was looking at purchasing my 944 Fifth Avenue exclusive,” which is for sale for $18 million, “then basically, at one minute before midnight, he decided he just couldn’t do it. So he bought the equivalent square footage on Park for $8 million.” But he’s quick to add: “We get offers. I know we’re in the reality zone because we get offers.”

So does Ms. Baum for her $30 million town house, although the owners are holding out, hoping not to discount more than 20 percent.

“This is not happening,” insisted Mr. Cave, who’s trying to put some sanity back in the market. “We’ve reached the ceiling … There are apartments that come on at prices that don’t make sense. Above 10 is O.K., but 15’s a wish price. It has nothing to do with fact.”

“I’ve got a customer from the Middle East who has $15 to $18 million to spend, but he can’t find what he wants,” said townhouse broker Jed Garfield of LesIie J. Garfield & Company. “Everything that’s come available has been too expensive.”

“Sooner or later,” said a broker, “One of them goes, What the fuck.”

So it’s a bad investment when the market crashes. If you’re board holds you to being worth 20 times the price of the unit, that $3 million haircut won’t brain you. “Try living in a stock or a bond,” said another.

The Magician and the Model

As much as anything, the sign that the market had blown through some door of perception was Mr. Copperfield and Ms Schiffer’s purchase last August. The Venezuelan industrial family who’d been using the penthouse as a kind of 18-room crash pad when they were in town had been trying to sell it for 17 years, and about as close as they’d gotten was when a con artist stringed them along a couple of years ago, convincing them that he was going to buy it but always having some convenient excuse for why it never went to contract. With four stories, seven terraces and a lap pool, it was designed as a kind of eco-bubble on stilts (complete with plans for a vegetable garden and cow paddy) by back-to-the-land General Motors heir Stuart Mott. In the bloom of the 1980’s, Douglas Elliman put it on the market for $28 million, but it was soon languishing at prices between $14 and $19 million until the magician and the model came along.

“He was looking for a Hollywood set,” said one broker who witnessed their year-long search. “He wanted space and drama.” They started out looking at prewar apartments, and almost bought Golden Books Family Entertainment chief executive Dick Snyder’s apartment with its 60-foot-long double-height living room at 44 West 77th Street. But it didn’t work out. Dressed down–he usually needed a shave–they trolled the uptown streets–east and west–giving fake names to brokers. “Like they’re not recognizable,” sniffed one broker. After dozens of indecisive trips back to the Galleria, they low-balled the family.

When the sale closed last October for $7.4 million, the brokers were overheard saying, “It’s a miracle! We sold it!”

The Year of the $15 Million Apartment