Wednesday, March 3, 2021

New York's Condo Bust

On the one hand, there’s commercial real estate. As per the last post, it is not doing very well. And then there is residential real estate. As per this Zero Hedge story, it is not doing very well either. But then again, as the story explains, it had not been doing very well before the pandemic.

This is the world of multimillion dollar palaces in the sky. Many developers thought that the sky was the limit, literally, and built amazing buildings, filled with modern amenities, inhabited by no one in particular. You see, most of these places were bought by foreign investors, the better to park their money in a safe haven. Others bought these places to flip them at a profit. 

And yet, as far back as 2020 these new condos were going unsold. Hmmm. The culprit-- the elimination of the state and local tax deduction, a centerpiece of the Trump tax cuts. But then the pandemic hit, and people flew south, forever. No one wanted these places anymore.

Manhattan's luxury condo market peaked a few years ago and has since developed into a nightmare for sellers. Massive supply is quickly eroding values as inventory builds. In early 2020, half of all new luxury condo units constructed after 2015 in the borough were unsold. A confluence of macroeconomic headwinds, as well as SALT deduction caps and transfer taxes, cooled the market. Then came the big bad pandemic that wreaked even more havoc in the borough. 

For instance, you might be in the market for a dazzling new condo on Columbus Circle. It is being offered at a discount of approximately 30%. That's the offering, not the sales price:

Olshan said a deal at 80 Columbus Circle for a 74th-story condo recently listed at $25 million. The seller combined two apartments in the tower, one unit purchased in 2011 for $17.5 million, and the other unit (next door) purchased in 2014 for $18 million. 

Of course, the downturn has brought some people back into the market. They think that they see a bargain. Then again, if large banks are moving operations out of the city, the new places become rather expensive as pied-a-terres.

There is some good news in the luxury real estate market - after writing about the downturn for 18 months and the plunge following the pandemic, the decline in prices has brought buyers to the table

As for whether the market has bottomed out, your guess is as good as mine. You have probably heard the old line about catching a falling knife. Buyer beware.

The fault lies with New York’s radical leftist mayor, Comrade de Blasio:

With Mayor Bill De Blasio doing everything he possibly can to drive both businesses (like Goldman Sachs) and individual citizens out of the city, the effects of his colossal mismanagement and general cluelessness have come at a loss for some wealthy elites who bought luxury condos in the last several years, thinking they could flip the unit(s) for a quick buck. Many have transformed into bagholders, or recently, they want out and are willing to take realized losses. 

Some people will be losing money on their investments. One hopes that they can afford it. And yet, the people who voted for de Blasio are seeing their neighborhoods infested with crime, their children losing their minds and souls because of the school closings, and their jobs vanishing in the cold night air.

Sadly, they voted for this. And they are paying for their vote.


Sam L. said...

They THOUGHT they were smart. BUMMMMMMMMMMMMMMMMMMMMMMMMMMMMMER,mannnnnnnnnnnnnnnnnnnn.

urbane legend said...

Coming soon to the country who voted in Biden/Harris, or didn't, depending on where you look at the matter.

Walt said...

There's a move at the state level to preempt NYC's power over its own zoning in order to convert empty office buildings into apartments. But it also seems to be a Trojan horse for a lot of other jiggering. There's also a proposal before the city council, sponsored by the Speaker (who's almost as bad as tne mayor) to tinker with zoning in all tne boroughs in order to build public housing everywhere and especially (but not only) targeting neighborhoods with low rise single and row houses. NYCers can check your own local community board to get all the details.