The Changing Flavor of Luxury in Manhattan Real Estate - Part I
Manhattan's East Side has long been known for old money in New York (Rockefellers, Roosevelts, Kennedys, etc.). The real estate has been some of the priciest in the city. if you wanted to be part of that exclusive "club" and ride the residential elevators with the wealthy on or along Park, Madison or Fifth Avenues. you needed to buy a nice, prewar cooperative apartment. You would ask around and someone in your social circle would refer you to an exclusive independent boutique broker that handled the sales in the best coop buildings. Eventually, you would need to be approved by a coop board. Manhattan's high-end real estate market was a genteel, insular world clothed in secrecy to ensure discretion and exclusivity.
Wow, times and tastes have certainly changed! It started with people saying that they'd consider the other side of town along Central Park West. Then it was either uptown or downtown. And now, the top tier of the market is dominated by condominiums rather than cooperatives. Of the fifty contracts at $4,000,000 and above during the week ended Oct 24, condos outsold coops forty two to five (There were three townhouse sales.)
Why has the luxury consumer's appetite shifted as it has? This month, I'll discuss consumers' preference shift from coop to condo.
New construction projects are almost all condos, and people are often drawn to new. Additionally and with more frequency, even those who prefer the charm and character of old have chosen to keep away. The policy choices made by coop boards and implemented by their management companies have turned people off and resulted in their relative devaluation.
Many of the better buildings limit financing to a maximum of 50% of a unit's value. With today's low interest rates and skyrocketing stock market prices, savvy buyers are unwilling to park such a large percentage of their cash in coops. It doesn't make financial sense to do so when there are other housing options that will permit stronger financial leverage.
Coops have strict and oppressive rules regarding renovation. Some only permit heavy work to be done in the summer. Some only allow contractors into the building between the hours of 9am and 3pm, Monday through Friday. Some restric
t the number of projects in the building at any given time. And others limit the length of time a project may take to complete, imposing a per diem penalty when the work exceeds the time limit. The larger coop apartments that have been long term homes often require extensive renovation, and buyers for those homes are turned off by restrictive coop rules. Condos tend to be newer and not require the same level of work, and their rules tend to be more flexible and user friendly.
Boards maintain the right to reject buyers they deem "unworthy", either financially or otherwise. Lifestyle differences? This seems like a throwback to the days of illegal discrimination. No potential purchaser wants to be scrutinized by a coop board. Isn't it sufficient to either be able to afford the apartment by paying cash or having satisfied a lender?
For estate planning and tax planning purposes, many of today's wealthy home buyers choose to own their homes either in trusts or corporate entities. Although some coops no longer flatly refuse to consider alternate forms of unit ownership, many restrictive rules remain. Condos have no such limitations.
Coops have much more restrictive rules than condos regarding rentals. Consumers want the flexibility to rent their homes without oppressive rules and red tape.
Finally, boards today reject buyers who, in their opinion, are not paying enough for the apartments. It is the boards' intention to protect the values of the other units in the building by rejecting a sale at too low a price. In reality, however, these restrictive boards are rendering the coop apartments in their building even more illiquid, limiting the pool of potential buyers, damaging the building's reputations and thereby further reducing the values in the buildings.
In addition to the consumer preference shift from cooperative to condominium form of ownership, they're also shifted from prime Upper East Side. Over time, the brokerage community has responded to these changes. I'll discuss these fascinating issues in next month's blog.