New York City Real Estate forecast for 2012

Ah, 2012. Mayan scholars predicted the world would end in December. Nostradamus pinpointed it as the year when a comet would collide with earth, causing Armageddon.

I’m far less pessimistic.

The upcoming year won’t end life as we know it, nor will it crush New York City’s real estate market. Rather, the recession-depression-downturn-stagnation-retrenchment of the American economy will, I believe, leave things looking a lot like they do today.

 Interest rates: Bizarrely low for the last few years, interest rates are likely to remain at rock bottom levels through 2012. The only possible change would be a slight increase.

Unemployment levels: New York City seems poised to hold on to its unfortunate place in the national unemployment picture. At present, the jobless rate hovers around 8.9 per cent in the five boroughs, well above the statewide average of 8.0 per cent. (The full statistical details are at: http://www.labor.ny.gov/stats/pressreleases/pruistat.shtm.)

Bonuses: With employers reluctant to add new positions in an unpredictable economy, bonuses won’t increase. Plus, the European Crisis and other global economic uncertainties keep wages at current levels. Read that: less money to spend on housing.

Inventory: With sellers hesitant to enter a market that may be near its absolute bottom, inventory is tight. I wouldn’t be surprised to see prices climb in 2012 as demand inevitably rises.

It may all sound dismal, but I see a silver lining.

New York City boasts a thriving rental market. With a vacancy rate of less than one per cent, sellers willing to lease their abodes while they wait for the rebound could do quite well.

Plus, high-end properties – listed for $5 million and above – are strong and healthy. After all, housing looks like a great investment when measured against other financial instruments. 

And, at some point, fence-sitting buyers will likely act on a hard, cold fact, that in 78 cities it is now cheaper to buy a house than to rent.

So 2012 doesn’t sound too horrible. Definitely not Armageddon.

Happy New Year.

RENTING the future, at Stuyvesant town

What’s the best way to own reasonably priced Manhattan property? Rent.

It’s not a riddle, it’s a reality -- or it could be, if a current downtown effort succeeds.

Just last weekend, the tenants of Stuyvesant Town/Peter Cooper Village – the biggest apartment complex in Manhattan – took another step towards ownership of the mammoth lower east side complex.  If their proposal succeeds  (as tenants are determined it will) the 56 buildings from 14th to 23rd streets could bring thousands of affordable condo or coops to the New York City real estate market, And with renters expected to qualify for attractive insider prices, the ‘village’ could become a good place to rent

But before all that, there are many – and big - hurdles to jump.

Public support

Public sentiment, potentially a big hurdle, is already on the side of the residents.   Such prominent leaders as U.S. senators, Charles Schumer and Kirsten Gillibrand are firmly behind the proposal. But the proposal faces numerous obstacles involving many stakeholders, as tenants determine how to structure the deal, set the prices, handle current renters, and, basically, make everyone involved reasonably happy. Brookfield Asset Management, the development’s financial backer, and CW Capital, which assumed control after the former owners defaulted in 2009,  are the most important players.

To understand the significance of this 80-acre slice of Manhattan real estate, you have to travel back in time, to the days when the blighted blocks of New York’s ‘gas house gang’ were an urban no-mans-land.

The beginnings

With WWII returning soldiers clamoring for housing, Robert Moses undertook a private-public partnership to the gas storage towers that gave the area its name. The construction of brand-new, multistory buildings immediately transformed the rough-and-tumble neighbor into a booming residential enclave dotted with parks and playgrounds. Coveted from the start, the property established long waiting lists, popularity that would endure for the next 50 years.

By the late 1990s, skyrocketing New York City housing values made the entire S/TC complex resemble low-hanging fruit for hungry developers. It took Tishman Speyer Properties LP and BlockRock Inc. to pluck it, acquiring the complex for $5.4 billion.

As it turned out, their timing couldn’t have been worse. Having bought at the very peak of the real estate market, sponsors found themselves unable to go thru with conversion. Many were offered for rent, prompting resident complaints about the ‘transients’ with no stake in the community. Owners were soon accused of improperly raising rents on long-term tenants.

Defeated, the owners finally defaulted putting Stuyvesant Town on the top of the CNNMoney’s  list of biggest commercial real estate busts in the nation. They left billions in debts that nearly decimated such investors as the California Public Employees’ Retirement System and the Church of England.

Tenants attempted to organize as buyers, but again the situation - a national economic disaster - made the timing wrong. 

This time, the stalwarts among the residents say they won’t let the plan fail. If they make good on their word, it will represent a very fitting milestone for a particularly historic slice of the Big Apple, Stuyvesant Town and Peter Cooper Village occupy the area where the last Dutch Director-General of the colony of New Netherland, Peter Stuyvesant, built his home – and started the whole New York City real estate thing.

A mortgage boon for New York real estate

Consider it an early Christmas present for New York real estate buyers (and those elsewhere, too).

A newly passed law raises the so-called ‘conforming loan limit’ for borrowers seeking Federal Housing Administration (FHA) insurance for their mortgages. That means that more condo, coop and home buyers will be able to quality for conventional mortgages, which traditionally have lower interest rates than the jumbo mortgages. Specifically, the new law increases the ceiling from for FHA-insurable loans from the current $625,500 to $729,950 and keeps it at that level through 2013.

The FHA, of course, does not originate loans itself. It provides the mortgage insurance that’s essential for anyone who doesn’t have an adequate down payment to quality for a prime loan. But in the current economy, the FHA is proving to be a real lifesaver, backing fully one-third of all mortgages used to finance homes purchased last year – a dramatic increase from the five per cent it guaranteed back in 2006.

What’s even better: the new provision targets such high-ticket areas as New York City, Los Angeles and San Francisco – also the most desirable places around. Although Manhattan remains healthier than the rest of the real estate world, this new provision could introduce even more zig into a marketplace that’s been threatening to zag. 

Kudos and complaints

Predictably, the National Association of Home Builders (NAHB) were quick to praise the change. As NAHB Chairman Bob Nielsen, a home builder from Reno, NV, said, “Restoring the higher FHA loan limits will help to stabilize home values, provide constancy while private investors re-enter the market, and enable millions of creditworthy consumers to get home loans with the best mortgage rates and lowest fees and down payment requirements,”

There are naysayers, too, particularly among those who oppose government spending. But, since the bill President Obama last week was far less dramatic than the original version, the complaints aren’t terribly loud. The previous proposal would have raised loan limits for the mortgage finance companies Fannie Mae and Freddie Mac, too.

So, for those of us with a genuine passion for real estate in the world’s greatest city, with the world’s most interesting housing stock (no prejudice here, again… just facts) it’s a welcome development – and just the right thing to goose the post Black Friday holiday spirit.

For sellers: Giving thanks means getting ready

There’s another reason to be grateful this holiday weekend: Thanksgiving offers a much-needed real estate respite.

As families experience the joy of togetherness (and massive overeating), few plan to traipse through New York condos or coops - nor do they want strangers witnessing their own (messy) merrymaking.

But down time doesn’t require opting out of the game.  Smart sellers can leverage the holiday lull – and the abundance of extra bodies available – to complete chores that make a coop, condo or home even more appealing.

You can still ply the eggnog, but also be proactive about:

n  Paint:  With the dark winter months upon us, a coat of light colored paint helps brighten up a dingy area.  Consider a glossy finish to impart a sense of airiness, and go for bright neutrals to give your rooms a finished look.

n  Polish:  Most people don’t appreciate the power of sparklingly clean windows.  Arm yourself with rags and glass cleaner or, even better; invest in a window-washing service. The months ahead will literally gleam.

n  Pare down:  Taking stock is a Thanksgiving tradition, and it applies to possessions as well as life plans. Size up your living space and clear the excess.  Sparsely furnished apartments and homes look bigger and brighter to prospective buyers. Clear the walls, and eliminate bulky or unnecessary furniture. The clean-up will uncover forgotten articles of clothing, unpaired shoes and countless odds and ends that may benefit someone else – just in time for the Christmas season.

n  de-Personalize:  You’ve heard it before but it bears repeating: buyers prefer to imagine  themselves living in your space. So may the dwelling less personal by taking down as many family pictures as you can, and eliminating all those awards and trophies. Don’t worry; they can festoon every wall in your new place.

n  Prune:  If you live in a house, denuded trees and scraggly bushes can curb curb appeal, so use this brief period – well before (we hope) another snow storm – to trim bushes, move fallen leaves to plant beds, and/ or add nice holiday touches to your entryway.

n  Plumb:  Track down your leaks and/or invite your friendly neighborhood plumber to do a once-over before the truly cold weather sets in. Neglected pipes have a way of bursting at the most inconvenient times - like when an eager buyer comes calling. A check up before the dog days can keep winter’s bite at bay.

n  Prep:  Once you’ve polished, plumbed and pared down, prepare to ‘stage’ your house. The holiday season provides the perfect excuse to add tasteful touches, yummy fragrances and even soft holiday music. The operative word is ‘festive’ and the operative philosophy is ‘underdo’ rather than overdo it.

n  Pick: If you haven’t already done so, use the post-turkey-day period to select the perfect realtor.  Set your sights on someone associated with an established and reputable organization.  Manhattan buyers are well-advised to seek an agent capable of reaching out to an international audience (the source of many NYC sales). Be sure to check the broker’s collateral to determine if he or she produces high-quality brochures and professional images. Ask if he or she has enough resources and budget to arrange for things like virtual staging, if necessary.

Do all these things – and next year you’ll have something worthy of a major Thanksgiving fete.

The Second Avenue Subway Story: why is it a real estate opportunity

Some people look at Manhattan’s Second Avenue Subway construction project and see grit, grime and galling inconvenience.

Benjamin Kabak sees gold.

“In six years,” the author of the popular Secondavenuesagas.com blog predicts, “business owners will be clamoring for Second Avenue space and property values will climb precipitously.”

Just about everyone agrees. New York City’s Second Avenue Subway (SAS) will bring greater prosperity to anyone with the patience and the perseverance to wait around until 2016.  That’s when the first of four phases will bring three new stations to the transit-challenged Upper East Side.

Last week, as residents once again complained about the mayhem stretching from 63^rd to 96^th, they inadvertently demonstrated one reason why SAS – argued for and clearly needed for nearly a century – took so long to pick up speed.

Second Avenue Subway begins

The case for the ‘Line that Time Forgot’ was first made in a 1920 New York City transportation proposal. Calling for six new north-south lines and eightcross-town routes, the proposal led to the successful launch of West Side IND trains. But SAS went on to suffer more deaths and resuscitations than the hardiest cat.

Shortly after the East Side proposal was tentatively approved, fate intervened – in the form of the 1929 stock market crash. Dead before arrival, SAS never gathered sufficient speed (or cash) during the Great Depression. Stalled indefinitely in 1939, SAS quietly vanished altogether when World War II broke out.

When WWII ended with the promise of a revitalized city, lawmakers again freed up funds for the transit lifeline. The need was greater than ever, following the demolition of the Third Avenue elevated train. But the city quietly spent its largesse on repairs rather than construction, prompting the New York Times to declare, “It is highly improbable that the Second Avenue Subway will ever materialize.”A decade later, thanks to the federal Urban Mass Transit Act, it was back on track. Millions of dollars were earmarked for transit improvements. The long-delayed groundbreaking occurred in 1972, followed by excavation of three tunnel segments.

And then, once more, plans ground to a halt as the worst financial crisis in New York City history left the Big Apple near bankruptcy.

NYC’s tunnel to nowhere

In the ‘80s and ‘90s, the MTA tried to monetize the unfinished tunnel segments by offering them for rent. Ed Koch famously suggested the underground’s “dark interior” would be perfectly suited for mushroom farming. There were no takers.

And then, a funny thing happened on the way to the millennium. The city burst back to economic health amidst an internet bubble and a financial industry boom. People returned from suburbia, real estate became scarcer and more valuable, and the Upper East Side became a vibrant destination. The lone Lexington Avenue subway line, already stretched to its limits, was strained under the new growing demand. For what appears to be the final time, the SAS gained momentum and money.

In 2007, another ceremonial groundbreaking was held, immediately followed by logistical delays. SAS began – really and truly -- in 2010.

So did the trouble. The noise, debris and inconvenience that accompanied this mammoth public works created unending controversies. The process of excavating a tunnel seven stories below Manhattan has disrupted areas businesses, snarled local traffic, and caused headaches – literal and figurative – for local residents. Efforts to alter the construction schedule or win damages have been mostly unsuccessful. And the SAS – the little engine that could – remains on track, with the recent completion of the tunnel itself.  

Transit equals transformation

Meanwhile, all the commotion has created an historic buyer’s market. Prices for East Side condos and coops have dipped, despite the fact that many buildings are only marginally impacted by the daily din.

And that brings us back to Ben’s initial point: what went down will soon come back up.

Official point to the Sixth Avenue subway, which transformed block after block of shabby residences into a booming commercial haven. And Regional Plan Association President Robert Yaco believes SAS will also spawn a lively ‘hospital corridor’ linking medical institutions from downtown up. That, he adds, will spark even greater demand for luxury housing along the SAS line.

As for Ben Kabak, he knows that construction woes will “fade like a bad dream” in a few years.

And then? The adventurous buyers who got in early will leave everyone else ….well… in the dust.

7 things you need to know before buying new condo in NYC

You’ve found the perfect slice of New York City real estate; NEW condominium.

Sure, the asking price is a bit steeper than for that coop nearby. But the condo offers the complete package: pool, fitness center, movie screening room and playroom – with a few strings attached.

Never fear. The strings can be untied with the help of a savvy real estate lawyer and some good, old-fashioned education. Without proper knowledge, though, a string can easily trip you up.

The condo difference

Condos are among the fasting growing real estate offerings today. Unlike their New York City cousins -- cooperative apartments or coops -- condos are fully owned by the buyer. That is, they belong to the purchaser from the walls inward . With full ownership comes greater freedom to buy, sell and often (but not always) rent your unit, whereas coops – which give each owner a pro-rated share of the entire building – are administrated almost entirely by a group made up of the shareholders themselves.

The grounds, common areas, and the maintenance of condominium extras falls to the Homeowners Association (HOA) or the Condominium Association, a democratic institution made up of all the condo owners. The fate of each individual abode, and, therefore, every bank account, is tied to the health of the entire structure. So some common knowledge is uncommonly helpful, beginning with:

The offering plan

State law mandates that every building file a full description of the property. Apartments, whether coops or condos, cannot be offered or advertised until the Attorney General approves this massive document, averaging 300 and 500 pages. Densely worded, the offering plan is best deciphered by a real estate attorney–particularly one familiar with new condominium construction.

The plan helps owners estimate the common charges and it also details the developer’s promise to the new owner. That is, it guarantees that the nice reclaimed wood floors and the Viking stainless appliances you saw in the model apartment will actually be in your unit, too. It also confirms the square footage of your unit so double-check that, too. While a mistake of several inches may be acceptable, rooms that are a foot or more smaller than advertised call for a renegotiation in price.

The sponsor’s intentions:

Many banks shun condos that are filled with renters, so too many leased units can affect your ability to get financing. Ask upfront, or have your attorney determine, what happens with unsold real estate. For extra measure, ask her to check the institution that provided the construction financing. Is it solvent? On shaky ground?

Tax laws or abatements:

Particularly in up-and-coming neighborhoods, developers often get financial incentives to build. These can result in lower taxes during a specific period, occasionally stretching beyond several decades. After the abatement ends, taxes rise to match market conditions, so it critical to know the timing.

Banking basics

Mortgage lenders can be tougher on a new building because it lacks any track record, Closing costs also tend to be higher, too, as bank not only investigate the individual apartment buyer, but also the solvency of the entire building. And since new bulding may not have comparable properties available to compare values to, appraisals can be problematic. At the same time, if the developer is particularly itchy to sell, he may more willing to bargain the price down or share the closing costs.

Occupancy status:

A building needs an official Certificate of Occupancy before anyone can move in, so be sure to ask about the C of O status, any potential impediments, and projected completion and move-in dates.

Inspection

Hire an inspector, particularly someone familiar with new construction, to check out your dwelling before you take possession. An antsy developer may cut corners or substitute inferior materials to rush things along. You need to know if those floors are really made of reclaimed wood or unclaimed lumber.

This isn’t the whole list, but it’s a good start. Read it carefully, because you’ll face the ultimate test soon– your closing.

Foreign invasion or savvy investment?

Buy the buyers.

It’s a novel way to jump-start the housing market and an idea, originally credited to investor Warren Buffett, that seems to make sense.

A Senate proposal from the bipartisan duo of NYC Democrat Chuck Schumer and Utah Republican Mike Lee would grant three-year nonimmigrant visas to qualified foreign real estate buyers.

Little more than a week after it’s unveiling, the new concept – which could lure new buyers to the New York City real estate market - is generating more heat than light.

The suggested law includes caveats aplenty. Buyers must spend at least half million dollars in cash for their US property, and must actually live in one of their co-op, condo or homes for at least six months – triggering the need to pay taxes to the IRS.

The visa term can be extended in three-year increments, but only pending a reapplication and approval procedure. Permission to work in the US, on the other hand,  is not part of the deal. 

In addition, buyers must satisfy all US Immigration requirements and pass a security check.  Unsavory characters, terrorists, disgraced dictators and deadbeats are, let’s hope, not able to make the cut.

New overseas investors must be adequately wealthy to complete an all-cash real estate transaction, and sufficiently comfortable to do so without having to work. Forced to spend six idle months in their American domiciles, the theory goes, these investors would spend their long American sojourn enriching the economy in countless ways. They’d buy food, clothing, gas, cars – and entertain themselves with expensive concerts, museums, theaters and sporting events. Given the restrictions, it seems likely for buyers to gravitate to New York City . Where better to lay for six months than the capital of all things exciting?

Still, nay-sayers blast the proposed legislation as an assault on the American Dream; one that, they say, could undermine US Immigration policy.

Meanwhile, advocates point out that the same legal provisions work just fine in Canada, with a healthier economy – and without a terrorist attack.

In the United States, foreign buyers already account for more than $80 million dollars in annual real estate sales, a 24 per cent increase over the previous year (according to the National Association of Realtors). And that’s without any kind of visa thrown in as an incentive and, without any National Security incidents.

So to those who fear an alien invasion, we point northward, to the alien land that generates the greatest number of foreign investment invaders.

Too many immigrants?

 

Blame Canada!

The NYC real estate challenge: getting approved by a Manhattan co-op board

BOO! Did it scare you? Probably not.

On Halloween, all those ghosts, goblins, witches and warlocks (pint-sized and bigger) can look terrifying. But they’re not. You know the ritual, and, along with the rest of society, you agree to view the holiday as an occasion for delight rather than dread.

Turns out, a similar dose of understanding and acceptance can sustain you through the New York City home buyer’s scariest encounter: the much-feared coop board interview. 

This face-to-face meeting can feel like a test of personal worth, rather than an objective assessment of your financial health, but in the vast majority of cases, the conversation turns out just fine. Just another of life’s little tests, it can be aced with the proper preparation, and study, along with some capable coaching from your broker. Truth is, boards are happier than ever before to accept solid newcomers to their communities.

The good news

As for all those news stories about celebrities who were rejected by their buildings? Those are exceptions to the rule.

Former president Richard Nixon, singers Barbara Streisand, Madonna, Mariah Carey, Billy Joel and Cher, and actor Antonio Banderas, newsman Mike Wallace, and Designer Calvin Klein; all discovered that fame and wealth weren’t enough to guarantee admission to, or a peaceful relationship with, an upscale New York City coop board. But unless your presence is likely to generate round-the-clock crowds of paparazzi, you probably won’t face the same kind of grilling these folks did.

Protected areas

Legally, real estate buyers are protected in 14 separate areas.  The Federal Fair Housing act, the Civil Rights Act, and the New York State and New York City Human Rights laws, prohibit discrimination on the basis of:

-age

-alien status

-children (or childless state)

-country of national origin

-creed

-disability

-gender (including gender identity)

-lawful occupation

-marital status

-military status

-partnership status

-race

-religion

-sexual orientation

Once your rights are assured in those areas, though, you basically enter what one NYC real estate attorney describes as the ‘land of anything goes.’

The Real Estate Board of New York (REBNY) and the Council of NY Cooperatives and Condominiums (CNYCC), among others, guarantee the rights of the boards themselves. Made up of shareholders, these governing groups can refuse any applicant, no questions asked, as long as they stay clear of open discrimination.

Singer Mariah Carey was turned down flat by a Manhattan luxury building years ago, most likely because the then-single young women was viewed as a bad credit risk who toiled in a fickle business. Former President Nixon was nixed for sheer notoriety while, more recently, Dominique Strauss-Kahn had a devil of a time finding a place to await his hearing. None of these decisions were completely unexpected, nor were they enormously surprising.

Bank on your broker

With some cooperative boards of directors noted for prickly decision-making, the key to helping a new buyer pass the test on the first try often falls to the real estate broker.. A good realtor will know the peccadilloes of each individual board, and be completely up-to-date on the rules of the building itself.

I always remind my new buyers set aside some prep time, so we can rehearse the upcoming interview process.  Together, we explore the ‘what ifs’ and the ‘must-haves’. If I anticipate a particularly tricky situation, we conduct a mock interview. Because each board – and each board member – has a distinct personality, there’s no one-size-fits-all way strategy.

A good broker will also fully brief the buyer on the building’s guidelines, the ways they have been enforced in the past, and the general rules drawn up by the REDNT and CYNCC for coops. Many building have specific restrictions on pets, noise, and carpeting and renovation guidelines.  Again, provided these regulations don’t violate any civil rights guaranteed under state or federal law, they’re completely permissible.

On the other hand, boards should be open about sharing their meeting schedules, their interview process, and their approval schedule.  If they ask for some time-consuming records (for instance, credit checks from out of state) they can and should understand that it adds time to the approval process.

Thankfully, most buyers pass their test with nary a problem. In fact, 95 per cent of my buyers have survived the initial interview completely unscathed and the few who haven’t gotten the nod the first time out, have been approved soon afterwards. Some people even enjoy the interview process.

Yes, it’s a test. But unlike a driver’s license, a professional certification or an eye exam, it’s a once-in-a-lifetime challenge.

Pass it, and you’re done.

Buyer, be aware

Two coops are for sale: one for $500,000 and the other for $750,000.

Which one is cheaper?

Seems like a simple question, but it’s not. 

In the wild and wacky Manhattan real estate world, circa 2011, price isn’t absolute nor is it predictive of real cost. There are all kinds of other factors that play into affordability.

You already know that rock-bottom common charges can accompany the costliest coop, while what that ‘bargain buy’ may harbor costly structural problems.  And you’re only too aware that the bust after the boom shattered the old ‘property always appreciates in value’ assertion. But there’s one timeworn caution that is truer today than ever: Stay within your means and – for gosh sakes – know what those means are.

In this economic climate, no responsible broker advises a buyer to stretch beyond affordability. We advise would-be property owners to first take an unflinchingly honest look at their own finances.

My suggestion: assess your expected income and expenses and then play an aggressive game of devil’s advocate with yourself. What if the job went away? What if those investments dried up? What if that comfortable ‘contingency fund’ had to be tapped for an emergency? Could you still pay the mortgage? Do you have adequate reserves to stay afloat for at least six months or, even better, a year?

While we’re at it, take off those rose-colored blinders and examine:

·        What your current job pays – and how likely the position and the pay are to remain unchanged.

·        What extra income you can count on (interest payments, freelance work, rental property income), and which are precarious or market-dependent.

·        What expenses figure in to your monthly obligations (utilities, taxes, insurances, tuition, entertainment costs, second homes, memberships, you name it) and which are sheer discretionary stuff

·        How much you need to save each month to meet your financial goals, whether for college, retirement, loan repayment or other needs?

·        How likely your taxes to rise?

·        What big bills are looming? For example, is the car in its golden years? Are the kids embarking on an educational journey? Is your roof leaking, or your deck about to crumble?

Be as brutal as your bank would be. Remember: mortgage lenders cap your monthly housing costs at about 28 per percent of your gross income. They also set the maximum debt (including your mortgage payment) at 36 percent of your gross income.

Online calculators at Kiplingers, The Center for Economic and Policy Research and Decision aide can provide a rough estimate of affordability. But these offer broad general guidelines. Adjust for your individual situation.

Once you know your ideal price range, be prepared to adjust for variations. Those common charge and repair costs we talked about earlier make a big difference.

Once you’re well armed with the info, don’t let too much grass grow under your feet. Mortgage rates are likely to rise soon, and each additional one per cent hike can reduce a buyer’s maximum purchase price by nearly 11 per cent.

Screw up your courage. But first, fire up that calculator. You’ll need it.