Is this the beginning of the end?
That creaking sound echoing across Manhattan today? That’s the news of another crack in the overstuffed luxury real-estate market, buckling under its own weight.
On Monday, Bloomberg reported that a developer of a newly built building in the heart of Soho needed to take a hacksaw to the building’s crown jewel, because buyers willing to shell out tens of millions of dollars on an oversize, overpriced pied-à-terre have crawled back into their other multi-million-dollar abodes, clutching their checkbooks tight. As a result, Property Markets Group, the developer behind 10 Sullivan Street, decided to split up its $45 million, 8,400-square-foot triplex into separate units. Kevin Maloney, the group’s founder, told Bloomberg that if the building had not been so far along, he would have split it into three.
“The air is very thin up there in that buyer pool,” he said.
The air has been getting thinner in what was a white-hot market in New York for years, as a glut of luxury high-rises flooded inventory and a slowdown in global markets has forced buyers to retreat.
This is a paradigm shift for the same market that saw record-shattering prices last year, with 40 units selling for more than $20 million each, and billionaire hedge funderKen Griffin shelling out a reported $200 million for combined apartments on what is known as Billionaires’ Row in midtown Manhattan.
But a chill has swept across that row as more and more high-end markets go up for sale at the same time. This year alone, 5,126 newly built apartments will be added to the sales market, the most since 2007, according to Corcoran Sunshine Marketing Group. As sales begin to slow, some luxury developers are starting to pump the brakes. Last week, Extell announced it would scale back condo prices for its new 80-story Lower East Side project, before it even began marketing to U.S. buyers. Late last month, another tower near Billionaires’ Row put its plans on hold entirely, feeling the strain in the market. Extell opted to re-list some of the condos sitting on the market in One57 as rentals, and the developers of one of Billionaires’ Row’s shiniest gems, 220 Central Park South, admitted earlier this month that “the market is slowing.”
This influx of inventory is part of a perfect storm brewing for Manhattan real-estate prices, as the foreign buyers who have been swooping in and scooping up these properties are taking a step back as their economies slow down. Brazil is suffering through its deepest recession since the 1930s. Venezuela is considered the world’s worst economy by some. China is now posting its weakest growth in 25 years, and its Shanghai Composite Index has tumbled 24 percent so far this year. Oil markets have been roiling, currencies are volatile, and central banks are in a bind. Add to this the fact that starting Tuesday, the government will begin tracking all-cash purchases and those made through limited-liability companies on all apartments purchased for more than $3 million in New York, as part of a trial program aimed at cracking down on money laundering. The anonymity these buyers enjoyed while parking their money in the seemingly stable investment market was a huge draw. But with that off the table, brokers told Curbed that they are already seeing buyers take a step back.
The high-end real-estate market still shows signs of life, with dozens of homes listed for more than $20 million in Manhattan. But if the state of the global economic slowdown is any indication, they may have farther to fall.
- Source: VF News Photo: Timothy A. Clary and vanityfair.com