Glass Action: The Condo Since 9/11

They live with us—and we in them

The Fresh Direct fridge goes here.

One winter evening in 2006, host Martin Bashir’s voice intoned over the opening of Nightline: “Meet the brash, young real estate assassin, selling lavish dream apartments to clients with money to burn.”

The TV screen bled to an earnest-looking Michael Shvo. “When you see a photo of the New York skyline,” the 32-year-old informed us, “these are buildings I made happen.”

And what made Mr. Shvo happen?

The New York condo boom, in no small part a product of 9/11. For several years during the last decade, he ran at the vanguard of a marketing movement for thousands of new condo units, one that emphasized Fresh Direct, spa treatments, 5 percent down for multi-million-dollar properties—and sex. Andre Balazs and partners pitched a steel-and-glass tent at a corner of the financial district, and called it William Beaver House; ostensibly after the corner’s cross-streets but the marketing was all about the middle word’s ribaldry.

Similarly lascivious condos popped up from Harlem to the Lower East Side to Long Island City, changing neighborhood demographics—everyone was to have the tastes of a 27-year-old VP at Goldman Sachs, it seemed—their scaffolding a ubiquitous symbol of the city’s slog back from the terrorist attacks.

Those attacks rendered an already recessionary economy supine. Most tellingly, companies fled, especially from downtown; and borrowing money became much easier for both home buyers and the people building the homes—the Fed, for instance kept the capo di tutti capi federal funds rate at 0 for nearly three years after the attacks.

“What happened was that it created this unnatural affordability for housing,” said Jonathan Miller, C.E.O. and president of New York appraisal firm Miller Samuel. “If we did not have 9/11, we would have probably gone into an expanding recession; and the Fed would have probably lowered rates to respond to the recession. But I think the symbolism of getting the economy back on its feet led them to keep rates at 0 for too long.”

Through this combination of cheap cash and vacant property, more than 6.5 million square feet of office space in lower Manhattan alone was converted to condos in the decade after the attacks, according to brokerage Jones Lang LaSalle—more than three Empire State Buildings’ worth. Much more commercial space would follow, perhaps most tellingly in the old warehouses of the Brooklyn waterfront.

Within a few years, condos were routinely outselling the co-ops that had dominated the city’s for-sale housing for as long as anyone could remember (today co-ops still outnumber condos 3 to 1). In 2006, 57 percent of all Manhattan apartment sales were just newly built condos, according to Miller Samuel. And they were going in Manhattan for well over $1,000 a square foot on average, more than co-ops. Buyers were often allowed to borrow up to 95 percent of the price (a mortgage share most co-ops would never permit). Everyone was winning.

And now? Condos still sell, though at a leaner pace—they accounted for 48 percent of Manhattan apartment trades in the second quarter of 2011. And development has slowed considerably amid a tighter lending climate since the late 2008 collapse of Lehman.

Manhattan condos, looking back, burned brightest between 2004 and 2008, in tandem with the rapid development, the loose money and the seminal marketing. All of that’s over now.

The 200-plus unsold condos at William Beaver House are rentals, acquired through a loan sale late last year by CIM, an L.A. outfit that loves distressed assets. And Mr. Shvo, the “real estate assassin?” Emails to an account that The Observer knows was once hopping were not returned. And a phone call to his offices was answered thusly: “At the subscriber’s request, this phone does not accept incoming calls.”


Glass Action: The Condo Since 9/11