Sunday, May 3, 2015

178. Manhattan Real Estate: a Bubble?

     In two previous posts, #161.5 and #162.5, I wondered if the current real estate market in New York City isn’t a bubble destined to burst.  I am no expert in matters of real estate, but the market’s soaring values, soaring high-rises, and soaring aspirations make me nervous.  

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From left to right: 277 Park Avenue, the Helmsley Building, and 270 Park Avenue.

     Adding to that nervousness now are three recent items:

1.    A glossy insert in the New York Times of Sunday, March 22, by real estate broker Brown Harris Stevens with six big pages – and I do mean big – listing residences on the market in Manhattan, plus a few in Brooklyn and in the Hamptons on Long Island.  The first item listed is a “SUNDRENCHED  2BR  DUPLEX  PH” (translation: sundrenched 2 bedroom duplex penthouse) on East 74th Street, “meticulous and chic,” with a south-facing terrace with city views, no pets, going for $5.7 million.  But that’s just a penthouse in a condo.  The next item is a 15-room, full-floor residence on Fifth Avenue facing Central Park, “grand and gracious” and “sun-flooded,” for $85 million; since they don’t say otherwise, maybe the lucky buyer can have pets.  No need to go further.  Brown Harris Stevens boasts of dominating the high end of the market, stating that in 2014 they sold 80% of the top 5 sales, 60% of the top 10, and so on.  On average each of their agents had annual sales of $12,117,579.

2.    A full-page color photograph in the Times Magazine section of Sunday, March 29, showing a breathtaking view of the whole of Central Park, all the way to 110th Street, and in the foreground a soaring, skinny edifice topping all the others in the area.  Since the opposite page gives the address 111 West 57th Street, this must be the view from a soaring high-rise at that address, presumably the skinny edifice in the photograph, available from JDS Development Group & Property Markets Group.  The high-rise in question is so soaring and so skinny that just viewing it in a photograph makes me nervous.

3.    An article in the Metropolitan section of the Sunday Times of April 12 noting that the bloated figures of real estate sales in Midtown Manhattan have raised values in other less pricey neighborhoods as well.  A full-floor, 20-room co-op at 404 Riverside Drive was recently listed on the market at $16 million, which one appraisal firm terms “ultra luxury,” reserving “super luxury” for properties going for under $10 million.  But there’s hope: a “modernist pile” in Brooklyn that arrived on the market over a year ago at $30 million is now asking a mere $17 million, and for a two-year period ending in January 2015, the Manhattan sales of condos and co-ops over $10 million constituted only 1 percent of the market.

My tentative conclusion: if it looks, sounds, and smells like a bubble, it probably is one, and bubbles have a way of bursting.  Time will tell.

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Construction cranes tower everywhere in Midtown and on the Upper East Side.

     Now I shall repeat comments from the earlier posts and then add some further reflections.  In one of those posts I mentioned hearing something on WNYC  that caught my attention.  The station had been doing a series on the local real estate scene and its skyrocketing prices entitled “Who’s Buying New York?”  On this program, of which I heard only the very last part, a real estate agent being interviewed said that real estate in the city in 2014 had been “on steroids.”  And 2015, she confidently predicted, would be even hotter.  And 2016?  “Don’t ask.”

     Curious, I Googled “real estate bubble, New York” on my computer and immediately came up with a bunch of reports.  For instance:

  •      On November 6, 2014, the New York Daily News quoted Ofer Yardeni, CEO of a prominent real estate development firm, as saying that the New York residential property market is a bubble about to burst.  “I would very happily short 57th Street,” he said, referring to the high-end towers surging up along 57th Street’s “Billionaires’ Row.”  Super luxury apartments are multiplying, but no one knows if there are enough wealthy foreigners out there to buy them.
  •       On August 5, 2014, hedge-fund manager Todd Schoenberger announced that the New York real estate market, fueled by foreign buyers, was hot, hot, hot – a bubble waiting to pop.
  •      On April 15, 2014, real estate broker Robert Knakal said that he was frequently asked if the commercial real estate market had become a bubble.  Acknowledging arguments both pro and con, he concluded, “The jury is still out.  Only time will tell.  Until then, let the fun continue.”  (This, of course, was months ago, well before the preceding two observations.)

     A bubble?  Some knowledgeable observers say yes, some say no, and some say maybe.  And who is buying these properties, or putting up new ones?  It’s not easy to say, since often the listed owner is a shell company that conceals the names of the buyers, nor do the real estate agents, title brokers, lawyers, and condo boards seem to care, as long as the money keeps rolling in.  It is commonly believed that the boom is fueled above all by foreign buyers, especially Chinese, since Chinese investors are now allowed to take money out of the country and are eager to invest abroad.  Many of these buyers don’t live here and don’t pay personal income taxes, and their eager buying, usually for cash, is driving prices constantly up.  Some of these absentee owners keep the property as a “pied-à-terre” where they can rest their weary bones during brief visits to the city, while others simply rent the property out.  Since the owners, without paying income taxes, benefit from city facilities like the fire, police, and sanitation departments and everything that makes the city a desirable place to reside in, they are seen by some as sponging off the city.  To make them pay their fair share, there is a bill now pending in Albany that would impose an annual “pied-à-terre” tax on properties worth $5 million or more, but the odds are against its ever being enacted.

     Symbolic of the current boom is a skinny 89-story building at 432 Park Avenue that, when completed this spring, will soar 1,397 feet, making it the tallest residential tower in the Western Hemisphere, topping both the Empire State Building and the recently completed One World Trade Center minus their spires.  Visible from almost anywhere in the city, this new building has been described by local journalists as a “dried piece of spaghetti,” a “giant matchstick,” and a “cornstalk in the middle of a vegetable patch” – one worthy of a “toothpick award.”  All of which suggests a less than enthusiastic reception.  It’s offering luxury apartments, of course, with breathtaking views.

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432 Park Avenue, soon to be completed.  To my eye, just plain ugly.
Louis Brickman

     Though I’ve been a resident of this city for decades, I had never heard of the Real Estate Board of New York, which goes to show how New York’s immensity and diversity can leave one totally unaware of vital aspects of its economy and culture.  In the New York Times of January 15, 2015, the Board sponsored a 24-page section, discreetly labeled “advertisement,” celebrating its presence and significance.  “200 hundred years of experience,” it declared, “and we’re just getting started.”  So what is this outfit?

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Their plaque at 570 Lexington Avenue (the General Electric Building).
Leonard J. DeFrancisci

     The Real Estate Board of New York (REBNY), with 16,000 members and dating back to 1896, is the real estate trade association of New York, promoting the industry’s interests and voicing its needs and opinions.  Needless to say, it advocates lower real estate taxes, less regulation, and more development.  And REBNY and the industry it represents are BIG.  For while tourism and fashion and publishing and the media and Wall Street are essential to the city’s economy, real estate is tops.  Says Steven Spinola, REBNY’s longtime president, “The most important industry in the city is real estate.  Commercial real estate taxes bring in almost twice as much as the personal income tax in the city.  These are the taxes that pay for the services that make this city humane, caring, and livable.”  So if we deplore Wall Street’s outsized bonuses but have to acknowledge that, through taxes, they boost the city’s revenues, there’s no denying that real estate’s earnings do the same.  And it’s worth noting that among the guests attending REBNY’s 119th annual banquet on January 15 at the prestigious New York Hilton Hotel were Mayor Bill de Blasio, Senator Charles Schumer, New York Attorney General Eric Schneiderman, New York City Comptroller Scott Stringer, and other officials, whose illustrious presence there cast over the whole affair a significant glow.

     And what is REBNY’s outlook for 2015?  At the annual banquet Mr. Spinola announced, “Last year, I characterized the mood of the industry and the city as ‘reserved optimism.’  This year, I will drop the ‘reserved’ and say the mood is optimistic.”  He notes that occupancy rates are rising, new development is taking place, and brokers are making deals, all of which indicates great confidence in the city.  So if some observers suggest that New York real estate is a bubble about to burst, the industry itself scoffs at such a thought.  New York City, it asserts, is at the center of a global economy, attracting investors because of its real estate market’s size and diversity, and that market’s quality, stability, and liquidity; above all, foreign money is flowing in.  So for 2015, full speed ahead.

     And what do those 24 pages of advertisement show?  Pictures of towers vaulting into the stratosphere, and glowing messages from real estate firms with captions like these:


The “towering achievement,” by the way, is One World Trade Center, whose soaring edifice is visible from my bedroom window by day, and whose presence lights up the sky by night.  So even if I’ve been woefully ignorant of REBNY and its doings, those doings have discreetly attained my abode.

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The Freedom Tower under construction in January 2014.

     So REBNY is all about BIG, BIG, BIG, and BIG at its most modern and blatantly daring, BIG that dwarfs us mere individuals, that seems to leave us out.  For those office and residential towers have nothing to do with you or me; they are intended for corporations and individuals who, having billions to spend, are in tune with these heady times. 

     One photograph, just one, in those 24 pages is a throwback to an earlier age, showing a neo-classical office building at 315 Hudson Street that is only a mere eight stories high – to my way of thinking, human size.  Why is this venerable edifice shown?  Because it’s being upgraded and the upgrading will include installation of a “green roof.”  And what is a “green roof”?  A roof with greenery growing in a bed of soil planted over a layer of waterproofing.  So bravo for the preservation of an old building and the addition of a green roof.  But what really appeals to me about 315 Hudson Street is that I don’t get a stiff neck looking at it; far from soaring, it just sits there, squat and solid.  It doesn’t dazzle, it reassures.

     Yet I can’t deny that those pictures of soaring towers – those glass and steel needles that spike the sky -- do dazzle.  They are today’s expression of Go Ahead, of what I have called the city’s dark eros, its blind urge to push on, its expression of Dream, Dare, Do, the feeling (or illusion) that this city and country can do anything, that the eyes of the world are upon us: the very essence – for better and for worse – of America. 

     Is this hubris?  Let’s have a look at another age of daring and dazzling construction, when the great Gothic cathedrals of northern France were built.  Toward the middle of the twelfth century a fever of construction began in the cities of Sens, Noyon, Laon, and Paris, followed later in the century by Chartres, Bourges, Rouen, Reims, Amiens, and Beauvais.  Great churches with ribbed vaults, pointed arches, and flying buttresses rose, as carts brought in construction materials and the sites teemed with stonecutters, masons, plasterers, roofers, scaffolders, smiths, overseers, plumbers, painters, mortarmen, sculptors, and the architect. 

     At each location all these workers joined together to create the greatest, tallest, grandest building in the city, one usually dedicated to the Virgin, a magnificent structure that would dwarf all other edifices, an enterprise so huge and costly that it required all the community’s resources and could not be finished in one generation, but had to be sustained through many.  The spacious interior was meant to accommodate not just flocks of worshipers, but also citizens who came for meetings and to talk, eat, and even nap there, often bringing their dogs and falcons with them.  The cathedral was the center of the city’s life, hosting secular as well as religious activities, a place where noble, bourgeois, and peasant – and on occasion even the king – might come to pray. 

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Chartres cathedral.  For me, the cathedral of cathedrals.
Robin Poitou
     The most imposing buildings of their time, the Gothic cathedrals soared skyward like prayers to God, so bold and daring that they made the earlier round-arched Romanesque churches look squat.  The area contained by Amiens cathedral – 208,000 square feet – was enough to hold all ten thousand of the inhabitants, should they attend the same service.  But the builders above all wanted ever higher structures and raised them to what were, for their times, astonishing heights.  The vault of Notre Dame de Paris rose 114 feet 8 inches above the floor, then Chartres soared to 119 feet 9 inches, Reims to 124 feet 3 inches, Amiens to 138 feet 9 inches, and finally and climactically, Beauvais to 157 feet 3 inches. 

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The choir of Beauvais cathedral today.
     So lofty was the vault of Beauvais, north of Paris, that its choir could have contained a 14-story building.  Was this hubris, pushing architecture to the very limit?  In 1284 the recently completed choir vault came crashing down.  The vault was then rebuilt with more pillars to support it, but its collapse may have produced a failure of nerve among the cathedral builders.  Be that as it may, toward the end of the thirteenth century the fever of construction abated, the spirit of innovation died down, religious fervor lost its intensity, and builders were content to copy the work of their predecessors without contributing anything new.  The Hundred Years’ War with England (1337-1453) closed the workshops, and despite renewed efforts at the end of the war, no French cathedral was completed.  In 1573 the Beauvais cathedral’s central tower, rising to 502 feet, collapsed: further evidence of architectural hubris.  The Renaissance and the eighteenth century had little interest in the Gothic cathedrals of the Middle Ages; work to complete them resumed only in the nineteenth century, which took a renewed interest in the medieval period and its architecture.

     Is there a lesson here for secular twenty-first-century Manhattan?  The cathedrals were meant for everyone, whereas Manhattan’s skinny high-rises are intended for the privileged few.  But there is the same soaring aspiration, the quest for higher, higher, higher.  I’m not predicting the collapse of these giants, since our engineering skills today are deemed to be prodigious.  But there may be overbuilding, an outstripping of demand.  The construction fever of the High Middle Ages in time tapered off.   Will something happen to stop this modern fury of construction?  In a year or two we should see.  Meanwhile we can strain our neck and eyes as we gaze upward at these towers mounting ever higher.  As always, whether for better or for worse, New York is an exciting place to be.

     Coming soon:  The Village Then and Now: the Northern Dispensary, Julius's, the Judson Memorial Church, Al Carmines, and Joe Cino.

     ©  2015  Clifford Browder


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