New York Property – Why not Diversify Your Portfolio with a Bite of the Big Apple?

New York Property – Why not Diversify Your Portfolio with a Bite of the Big Apple?

But Bottom of Manhattan Housing Rung Increasingly Heading North of $1 million

America’s Most Expensive – Postcode, That Is

If, back in the 1960s say, when every well-to-do American home would have one, you wrote off for your copy of the Sears Catalogue and wrote down 10065 as your postal code, you could – and probably would – have given yourself a little congratulatory pat on the back. For living in one of the most well-to-do places in the entire United States.

The Sears Catalogue is long gone – since 1993 in fact – but ZIP code 10065 remains amongst America’s priciest residential real estate on a per square foot basis. Indeed, according to Forbes magazine’s latest rankings, the priciest. The 10 blocks of elegant New York City property, from 60th to 69th Streets and flanked by Central Park and the East River, had a median asking price of $6.5 million (£4 million, give or take) in October this year, putting Manhattan’s Upper East Side at the very top of the Forbes ranking of the 100 most expensive ZIP codes in the United States. No less than 50 condos are currently on the market in 10065 with seven – in a few instances, eight – figure price-tags. And one New York property – a five-floor townhouse crammed into a narrow lot on 62nd Street E – is being touted for sale at $40 million, though it won’t even be built until it sells ‘off the plan’. At a claimed 8,724 square feet, that works out at nearly $4,600 (£2,850) per square foot.

It sounds a lot but compared with absolute prime London housing – in the West End – it’s a steal. In a piece on 11 November headlined ‘Move over New York, London is world’s super-prime capital’, The Telegraph noted that in October this year buyers shelled out up to £6,000 per square foot in the much easier to remember ‘ZIP code’ of W8.

New York Real Estate – Get It While It’s ‘Cheap’

Which perhaps helps in part to explain the apparent resurgence of foreign interest in New York property. Relative to London – and Hong Kong for that matter – a little slice of New York real estate is quite cheap to foreign investors. In June of this year, the NAR – National Association of Realtors – issued its latest survey on foreigner investment in US housing, reporting that foreign nationals accounted for $82.5 billion, or 8.9 percent, of the $928 billion spent on American residential real estate in the 12 months from April 2011, an increase of 24 percent on the estimated $66.4 billion the previous year.

And the NYC borough of Manhattan is getting its fair share of that investment. The buyers who make the headlines tend to be of the Russian oligarchical persuasion, a case in point being fertiliser billionaire Dmitry Rybolovlev.A year ago he ponied up $88 million (£54.5 million) for a condo at 15 Central Park W, so his daughter would have somewhere nice to stay when visiting NYC during her varsity hols. At around $13,000 per square foot, that price remains an ‘outlier’ –the interesting term chosen by Jonathan Miller, chief executive of property valuers Miller Samuel, as reported by Forbes. We looked it up, just to be on the safe side – in statistics, it’s an item ‘numerically distant’ from the rest of a set of data. It’s even more than they’re paying across the water in W8.

US Residential – Canadians Lead The Charge

But it’s not just fabulously wealthy Russian gentlemen who’re buying up upper Manhattan and it’s not necessary to pay tens of millions of dollars. The bottom rung on that particular property ladder, whilst too high for most ordinary folk to reach, is within the grasp of a growing number of nouveau riche from the Old, the Newer and the Newest Worlds. And the NAR data for foreigner purchase of US residential property in the year to March 2012 shows interest coming from across that broad wealth spectrum. The dominant country of origin – perhaps not surprisingly – was Canada. Some 24 percent of all foreign purchasers of US housing were Canadian, dropping to less than half of that share – 11 percent – for Chinese buyers. Mexico came in third with eight percent and in equal fourth place at six percent were buyers from the United Kingdom and India. Despite the media interest they tend to attract, Russian buyers accounted for just two percent of US housing purchases in 2011-12, fewer than from the Old World’s Germany and France and the New World’s Brazil.It’s interesting to note that whereas Canadian buying activity has doubled from five years ago, the number of buyers from the UK has halved in the same period. In 2007, British buyers accounted for 12 percent of total foreigner purchases, second only behind Mexico’s then 13 percent. A likely explanation for the reversal is that whereas the Canadian housing market remains buoyant – even bubbled in the view of many observers – the British market has tanked since the onset of the global financial crisis. By some order of magnitude, many fewer Britons today are able to contemplate an offshore residential property investment and with New York property among the most exclusive in the world it seems to be proving too much of a stretch for the average portfolio.

NYC, LA and Miami – America’s Most Wanted

The stats just quoted are nation-wide. As regards New York real estate, data published by trulia.com for the second quarter of 2012 – for property searches at its website originating outside the United States – shows that NYC is one of the top cities for international searches on the website, along with Los Angeles and Miami in particular. Of the 15 countries tracked by trulia.com as the primary originators of international searches, New York featured in the top five locations for all of them except Mexico.

Yet the NAR data has New York State(it doesn’t do cities) well down the list on actual purchase locations for the March 2012 year. Twenty six percent of sales to foreigners in that period were for housing in Florida. New York came in at 13th place, with just four percent of the total. But these are numbers not values. Nationally, just over half of all purchases were in suburban areas and two-thirds were for single-family dwellings, neither of which factors applies to any extent in Manhattan. And forty five percent of the total purchases nationally by foreigners were for prices of up to $250,000.

How Much Do You Need In NYC?

A quarter of a million is a figure that will buy virtually nothing in the New York borough of Manhattan. According to data just published by REBNY – the Real Estate Board of New York – the average selling price for all housing types in Manhattan in Q3 of 2012 was $1.37 million, a drop of two percent on the same quarter of 2011 (though the median price of $840,000 was two percent up).

So what does it take to wake up in the city that never sleeps and find that, if not exactly top of the heap, you’re in your very own condo? We take a look at what a million dollars could get you and conclude that, in very general terms, it’ll get you into a desirable NYC ZIP-coded condo – or more likely, a co-op – but,at something under 500 square feet for that kind of money, you may not squeeze in much else.

And truth to tell, there are a growing number of Manhattan neighbourhoods where one million United States dollars simply won’t cut it for a property investment. The story is told in the data published by REBNY, namely, its New York City Residential Sales Report for the third quarter of 2012.

Manhattan And The Rest

The first thing we can note from this wealth of information is the extent to which Manhattan dominates the trade in New York real estate. With around 1.6 million residents, Manhattan is only third largest of the five boroughs in population terms – Brooklyn and Queens number 2.5 and 2.3 million respectively – and has just 19.4 percent of the city’s total population. Yet according to the REBNY data, of the $8.6 billion spent on New York residential property in Q3 2012, $5 billion – 58 percent – was spent in Manhattan.

At first sight, the REBNY figures suggest that a million dollars is more than enough to get some Manhattan housing. As noted earlier, the median selling price in Q3 2012 – the most frequently listed price – was $840,000. But a different picture emerges when regard is had to the figures by property specifics and neighbourhood. Let’s say we’re in the market for a decent-size two-bedroom apartment in a desirable ‘nabe’. We’re thinking of something in the order of 850-900 square feet (79-84sqm) – hardly spacious but adequate either for own-use or rented out to, say, a professional couple. Because Harlem and beyond in the borough – Washington Heights in particular – are not for us, we’ll confine our search to the upper West and East Sides, Midtown and Lower Manhattan.

A Million In Manhattan

For $1 million and 850-900 square feet – and ignoring purchase expenses like agent commission plus city and state property taxes, which in aggregate will add something like eight percent to the purchase price – we’re thus looking at an outlay in a range of $1,176 down to $1,111 per square foot.

For this money we can pretty much forget about ‘iconic’ Manhattan neighbourhoods like Greenwich Village (an average selling price in Q3 2012 of $1,321 psf), Midtown West ($1,316), SoHo ($1,324), TriBeCa ($1,333) and especially the West Village ($1,560). That’s a big bite of the Big Apple beyond the reach of our million. And we’re borderline in both the Upper West ($1,186) and East ($1,150) Sides.Likewise in the Chelsea/Flatiron quarter ($1,169), the East Village ($1,147), and Grammercy/Kips Bay in Lower Manhattan ($1,151).

What we’re left with is the likes of Battery Park City – the 90-plus acre ‘planned community’ near the foot of Manhattan – and the nearby Financial and Seaport districts. Apartment selling prices in these neighbourhoods averaged $1,006 and $1,065 psf respectively in Q3 2012. There’s also the Lower East Side at $1,042 psf and Midtown West at $1,050.

Of course, these are average prices – the median price in many instances is lower – and they’re also listing prices rather than the amounts actually achieved on a sale. Further, these figures lump together all multi-unit housing, whereas typically condominiums sell at a premium over apartments in co-operatively owned blocks.

It’s Not Really Enough

So it’s broad-brush stuff but borne out nevertheless by a sample search on major listings website trulia.com. Entering a price range of $900,000 to $1 million for a two-bedroom condo in New York, NY (read, Manhattan) produced 80 listings, but this dropped to just 14 when the ‘500-1,000 sqft’ range was also selected. By contrast, a search for condos priced at $1 to 2 million, with no size specified, returned 657 listings.

Incidentally, of those 80 listings in our million-dollar price range, just eight were showing as ‘price-reduced’, and then mostly by only one to three percent. So not much indication thereof distressed selling, albeit in a very small sampling.

And it seems that, in Manhattan at least, continuing foreigner interest is helping to prop up prices which in many other major urban areas across the United States have been savaged since the onset of the financial crisis in 2008 and rapid evaporation of easy housing credit. A year ago, in October of 2011, NY residential brokerage Stribling & Associates released data they’d collated which showed overseas buyers accounting for no less than a third of Manhattan condo sales and 15 percent of all Manhattan housing, with the biggest contributors being buyers from Russia, China, Brazil and Argentina.

Condo v Co-op – What’s The Diff?

The preference for condominiums over other types of multi-unit housing – which in Manhattan primarily means co-ops – is very much a function of the availability of each, plus the legalities attending the property type and the implications for renting out the property. As things stand, the bulk of Manhattan apartment housing – an estimated 75 percent – is under co-operative ownership, though the percentage is falling as most new developments are invariably established as condominiums. Apart from differences in the legal tenure acquired on purchase, the main factor for the foreign investor to consider is the extent of control wielded by the building owners’ committee – usually called its board – as regards both the purchaser and a subsequent renting out of the property. In general terms, co-op boards tend to be much stricter and more selective when it comes to approving either a purchaser or a nominated tenant. Ordinarily, the co-op’s rules give the board the right to reject outright either a purchaser or a tenant, whereas condo boards enjoy only a right of first refusal.

In most instances, foreign investment interest in Manhattan residential real estate will gravitate towards the condo market. Many offshore buyers don’t want to submit to the detailed vetting process of a co-op board, and invariably co-ops have rules preventing sub-lets for less than 12 months. Recently – say, in the last two decades – developed parts of Manhattan, with sleek steel and glass high-rises (such as the Perry West towers in the West Village), are likely to be exclusively condo in their ownership structure. But if the foreign investor has his or her heart set on a piece of iconic 1930s art-deco architecture – say the Century or the Majestic on Central Park West –then it’s a co-op with all its rules and regulations, even though the apartment will be called a ‘condo’ in most contexts. And, though the policy varies from one co-op to the next, mostly their boards have an aversion to financed purchases, so the investor should be ready to stump up cash.

The United States residential property market is, compared with many other countries, wide open – anyone from anywhere in the world with the money can buy a piece of it. But with Big Apple apartments – and especially co-ops – a small group of existing owners have the power to exclude you if they don’t like the look of you. Ditto your tenants. The investor needs to be clued up on the niceties of the system.

And Elsewhere

Beyond Manhattan, across the remaining four boroughs, lies a huge swath of residential real estate, some of it in highly desirable areas. Some have always been upmarket – Brooklyn’s elegant Park Slope, for example, with a Q3 2012 average selling price of $1.27 million – and others have come into their own for a range of reasons, not least being access to Downtown ultimately triumphing over the ‘white flight’ which blighted much of the outer boroughs in the 1970s. A case in point would have to be Long Island City in Queens – no relation to the eponymous island –which is experiencing ground-up gentrification and residential conversions.Housing prices in the neighbourhood are second-highest for Queens, at $686,000 on average for all types according to the REBNY data, but you’re just a 15-minute subway ride to the Financial District.

If You Can Make It There …

It may be that London’s W8 has displaced New York’s 10065 as home to the most expensive housing on the planet. That doesn’t make the Big Apple any less desirable as an investment destination for the growing number of financially endowed foreigners who can look to take a slice. Despite its continuing economic woes, the United States continues to lead by a very wide margin global foreign investment per capita of all types. And Manhattan is the epicentre of that investment interest in New York Property. There are worse places to wake up and find the city at your feet.

By Invezz Newsdesk
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