ASK THE EXPERTS | HOW HAS THE NEW TAX LAW EFFECTED NYC REAL ESTATE?

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Trump’s Tax Reform and New York City Real Estate

 The Tax Cuts and Jobs Act signed by President Trump on December 22, 2017, has initiated numerous changes to how residential property owners can write off their local taxes and mortgage interest payments on their federal tax returns. It caps state and municipal property tax deductions on federal tax returns at $10,000, reduces mortgage interest deduction caps from $1.1 million to $500,000, and prohibits such deductions on second homes.

But what does this really mean for the Manhattan and Brooklyn real estate markets? Well, we’re here to ask the experts just that: does this new tax law have any effect on the real estate market here in NYC? Initial views on this were mixed, and current market trends reflect those prognostications.

The fourth quarter of 2017, when New York buzzed with a mix of suspicion and sanguinity about its native President’s impending tax overhaul, saw Manhattan housing sales activity at its lowest fourth-quarter total in six years, Douglas Elliman and Miller Samuel reported. This included a 12.3% sales volume softening from Q4-2016 to 2,514 closed sales from 2,868 in Manhattan real estate, an average sale price drop to $1,897,503—the first below-$2M figure in two years—and a 13.2% increase in luxury listing inventory to 1,439, the first increase in nine consecutive fourth quarters. To circumvent the lack of tax-write-off incentives for homeownership the Act would create, cash buyers purchased 51.2% of all co-op and condo units sold.

But why? These trends were due largely to the market cautiousness the Act’s reduction of tax benefits provoked in the minds of many buyers, Miller Samuel’s CEO Jonathan Miller told The New York Times in January. Our very own Steven James echoed this sentiment to Bloomberg and Newsweek: “The buyer is very worried about overpaying.”

The Brooklyn market fared a bit better, perhaps due to its up-and-coming status in New York’s higher-end real estate market compared to Manhattan’s long-established one. Brooklyn’s Q4-2017 closed with 2,627 sales, a 1.7% increase from 2,582 in Q4-2016, causing a 23.1% reduction in inventory over the past year. Brooklyn’s $948,706 average sales price was up 0.1% from Q4-2016’s $947,553, and its median sales price rose 2.7% from $750K to $770K over that period. Its luxury median sales price, however, went down 1.9% to $2.4M over that time frame.

Now let’s dive into the 2018 numbers. Elliman and Samuel’s Q1-2018 reports generally indicated continuation of these cautious trends. Manhattan’s home sales dropped 24.6% from 2,892 sales in Q1-2017 to 2,180, which included a 24% fall in luxury home sales. The average sales price dropped from $2,104,350 in Q1-2017 to $1,933,198 (slightly better than the Q4-2017 showing, however). Brooklyn’s market growth slowed its pace but remained strong: the average sale price reduced from $993,955 to $982,093. Then we have the luxury sales, where the median sales price fell 4.7% to $2.425M.

These reports painted quite a different picture from Dezeen’s rosy reportage that Manhattan’s high-end residential real estate market was “booming, thanks to President Donald Trump’s economic policies and tax cuts for the wealthy,” with a reported overall 27% sales volume increase by the beginning of March. Whatever truth those findings hold may be partly attributable to the downward pressure the market’s highest end was already under, pricing-wise.

Prices in the over-$8M+ market have dropped significantly over the past 18 months, possibly to move inventory faster in light of the Act’s diminution of homeowner tax benefits, even though many of these sales involve cash purchases that make the lowered interest expense write-off irrelevant. (In fact, 90% of Q4-2017’s over-$5M sales were cash transactions, Elliman reported.) To boot, some buyers are actually using Trump’s tax reforms to bargain down home prices so they hopefully won’t get socked with higher taxes once the sales are closed, The New York Times reported in June.

Manhattan’s individual neighborhoods varied in RE market sales percentages over the first half of 2018, most showing incremental increases. Downtown consistently held the largest share of the borough’s market, 36% in January and 40% by May. The East Side carried 19% in January and 20% in May. The West Side went up from 18% to 20%, Midtown increased from 16% to 20%, and Upper Manhattan dropped from 7% to 4%.

Brooklyn’s market softened slightly as well. Q2-2018 sales were 5.7% down from last year’s second quarter, from 2,845 to 2,683, the first such decline after ten consecutive year-over-year gains, though sales increased 11.3% from Q1. Inventory rose 18.5% from Q2-2017’s 2,257 to this second quarter’s 2,675, which was up 30.9% from Q1. This significant inventory expansion followed 11 consecutive quarters of year-over-year depletions. Median and average sales prices both dropped from Q2-2017—$997,654 to $984,047 and $795K to $780K, respectively—with very minimal differences from Q1.

With all of this data being enough to make your head spin, what does this mean to our buyers and sellers who are uncertain about the effects of Trump’s new tax law on the NYC real estate market? The answer is, of course, nuanced, like any complex market. Because of the multiple up-and-down pressures the real estate market must weather consistently, assigning responsibility to any individual cause, trend or force wouldn’t be fair and/or accurate.

“External influences outside of the vibrant city economy such as rising mortgage rates, the potential impact of the new federal tax law, and an unclear direction of the national economy have continued to remain a concern of market participants,” Miller reported in the Q2-2018 Elliman Report on Manhattan sales. Another external influence could be a predicted mass exodus from New York to lower-tax states like Florida, where “you can save a million [dollars] a year,” our own Richard Steinberg told The Real Deal.

So there you go. No omens of a recession or bubble-burst are on the horizon, but cards are being played cautiously in NYC real estate investment, yet with hopeful signs that Brooklyn could be a worthy “Trump” card for the homebuyer or investor. Looks like we’ll have to stick around and see what happens in Q3 and Q4.

Sources

ASK THE EXPERTS | WHAT NEGOTIATIONS IN REAL ESTATE LOOK LIKE

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As seasoned real estate brokers here at Douglas Elliman, we are often asked the question of what it’s like negotiating during the buying or selling process. People seem to want to be a fly on the wall to hear exactly how the magic happens, so we thought we’d pull together a sample scenario that does just that: realistically conveys the back and forth between seller, broker and buyer (because let’s recall:  the broker isn’t just negotiating with buyers but is always also negotiating with the seller in terms of what the market can bear).

Therefore, we welcome to the first micro-episode of “Ebb and flow: negotiations in real estate.”

Broker: We have run the comps on your apartment, and after visiting the apartment various times and assessing its value, we believe that the apartment should be listed at $1.495M, considering that its value ranges from $1.3M-$1.6M.

Seller: I have lived in this building for over 22 years and I am not selling it for under $1.6M.  Plus, it’s a renovated apartment.

Broker: We understand, however your renovation is over 5 years old now and no longer feels new to prospective buyers.

Seller: But everyone wants to be in this building; the parquet floors and the location are real attractions.  This apartment has fantastic space! I am not selling it under $1.6M so let’s price it high so then we can absolutely get the $1.5M you’re talking about.

Broker: Mr. and Mrs. Seller, nothing has sold in the building for over $1.5M but we will price it where you want it.  We do want to reiterate, that buyers today are knowledgeable and research savvy – brokers are even more so…If we go on the market at that price, we will get offers on where the property should actually be priced.  Not to mention that when buyers are researching properties below $1.5M, your property will be missed despite it being overpriced.

Seller: Let’s try $1.6M

(Hits the market at $1.595M…)

Broker: Mr. and Mrs. Seller, our Open House was well attended with 30 people.  We received four offers, one at $1.3M and three at $1.4M.

Seller: The number has to start with a 1.5 in front of it.  We put $300,000 into the renovation.  I have to have a number starting with 1.5.

Broker:  Mr. and Mrs. Buyer, thank you for your offer at $1.4M but my client is countering at $1.5M.

Buyer: The trades don’t support that price.  There is a unit in the same building, on the same line that is trading at $1.3-$1.4M.  We can come up to $1.43M

Broker: I will revert back to my client with your counteroffer.

Seller: I know what my apartment is worth and we must have a 1.5 in front of it.

(A few weeks later)

Broker: Hi, Mr. and Mrs. Buyer – I have good news, my client has lowered the price to $1.45M.  Are you still interested in the property?

Buyer: I’m sorry but we have moved on.

Broker: Mr. and Mrs. Seller, we need to move on from that offer, they have already placed an offer elsewhere.

Seller: Great, because I want an offer with a $1.5 in front of it anyhow.

 

TO BE CONTINUED…

Monthly Gem | 40 Bleecker

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Noho’s new 12-story condo at 40 Bleecker Street is our pick for February’s Gem. Broad Street Development brought on Ryan Korban as the interior design master, who Architectural Digest just named on its AD100 list yet again.

While Korban is predominantly known for his work with celebrities like James Franco, Kanye West, and Alexander Wang, along with top fashion labels, the interiors at 40 Bleecker mark his first full condo building. The overall design team on the project is rounded out by Rawlings Architects and Hollander Design, the latter of which will work on landscape at the project. When complete, this 12-story building will bring 61 one- to three-bedroom apartments to the in-demand neighborhood.

The photo the developers shared in the hyperlink above is a mock-up of the building’s lobby that’s currently located at the sales gallery for the project, which is nearing completion. Sales of the condo are expected to be underway early next year.

This is Jeff’s new development obsession for 2018, and rightfully so. It’s a must-see!

Monthly Gem | 135 W. 79th Street, #12C

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We often feature shiny new developments as our monthly gems, but they’re not the only kind of real estate that inspires us.  This month, we want to highlight a listing of ours that has truly caught our attention:  apartment 12C at 135 W 79th Street.

There are many reasons why we’re enamored with this 1-bedroom gem.  First is the combination of 10-foot ceilings and abundance of natural sunlight that floods the apartment.  Second are the custom beams and dark hardwood floors which create a wonderful blend of elegance and pre-war charm, augmented by exposed brick walls and custom beamed millwork. (Those looking for modern touches will be pleased by its windowed kitchen featuring dark granite countertops, a Viking four-burner stove-top and a Sub-Zero refrigerator, among other updated features) Third is the location of the Lyons, which is on one of the most desirable blocks on the Upper West, moments away from Central Park. Last, but most definitely not least, is the flexible co-op policy that allows both pied-a-terres and pets.

The combination of these features have created a special place in our heart for this listing, that we’re certain will create incredible memories for the next owner to live here!

Ask The Experts | “Ready To Sell” To-Do List

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So you read our piece last month about now being the time to plan your sales strategy for the fall, and you’ve decided “yes, I want to list my home in September.” Great! “And I want your team to be my partner.” Even better! “What should I absolutely do now to make my home sell faster when I do list?”

What a great question! We wish more savvy sellers like yourselves would be open to truly embracing the answers to this pro-active question. There are several things to tackle that, if you do so now, will play to your benefit come fall.

  • Have us walk through the property with you. A broker walk-through will give you all of the tips you need to have your apartment look as fresh and appealing as possible when you pull the trigger. This way, you benefit from the daily experience we have showing and viewing properties, to help your place stand out (or at the very least meet the bar) in the market.

 

  • Paint. You know that incredible hue of red you and your partner found together that just screams “you”? Well that’s precisely the kind of shade that may scream “run” to one too many prospective buyers out there. Although it may seem bland and boring, the primary purpose of the paint is to create as neutral a palette for the apartment to appeal to the most number of people. This is not the time to squeeze your creative juices or exercise your interior design courage.   The secondary purpose of the paint is to help the place look crisp and clean, so it pays to hire someone truly qualified to make sure those edges are sharp and the coats are even.

 

  • Fix. You know that chipped baseboard corner that you stubbed your toe on more times than you can remember? Or that cracked mirror in the bathroom? Or how about the nicked kitchen countertop? Now is the perfect time to fix those little things that you think only you notice. They, in fact, accumulate little by little and add up to an “eh” feeling from buyers walking through your property. There should be as little as possible left for anyone to “fix” when buying the place; you want to make the apartment turn-key, making the decision to buy as seamless as possible.

 

  • De-clutter. We’ve said it once, and we’ll say it again, and again, and again. The minute you decide to list your apartment for sale, it is no longer “your” apartment but a product to sell. You are looking to create a neutral space that when others walk in, they think “aaaaah, I can live here.” This means a picture of you on a sailboat or of your parents in Paris shouldn’t bring that vision to a screeching halt. Those kinds of personal items serve as an heavy reminder to others that someone else lives there, an obstacle to their seeing themselves in the space already. Further, look at all of the “things” you have in your place, and try to get rid of 20-40% of it. The extra shelves, the extra side table, the excess seating, the storage containers … and the closet contents, especially the closet contents. You want to leave room for additional clothing to go in there, sending the message “oh, the closet it so big, they didn’t even fill it.” Ultimately, you are looking to create the physical and mental space necessary for others to insert themselves into it. (Yes, we’re often psychologists in our role.)

 

  • Photograph. Schedule a photography session of your apartment now. “Now? But we’re two months away!” you say. Yes, but flowers are in bloom and the light of the summer sun always helps to show your building off, especially the exterior. Further, you benefit from photographers being far more available now, with more flexible schedules, than they are when everyone is rushing to list in the fall. Take your time, do it right, do it when the time suits you best, and you’ll be better off for it.

Monthly Gem | 527 W. 27th Street

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This month’s gem is paying homage to the summer, and reveling in the indoor/outdoor experience that is all too often rare in the city.  We’re focusing on Jardim at 527 W. 27th Street.  This West Chelsea development truly is a little oasis in the heart of one of the most dynamic neighborhoods of the city.  Home to Hudson Yards, the High Line, and plenty of galleries, this City nook is rapidly developing into its own destination.  When we say it’s a little oasis, we are also referring to its size of 36 units, ranging from 1 to 4 bedrooms, albeit at a generous average of 2,500 square feet.  Isay Weinfeld designed it to maximize the use of greenery in our concrete jungle (which is also the visual reference of its concrete boxy exterior).  An interior garden, the roof top and its terraces will all be overflowing with trees, plants and hanging, lush greenery.  Its interiors are defined by simplicity and warmth, two attributes that rarely come together in such a complementary way.  Amenities include a stunning indoor pool, a spa-like fitness center with a steam-room and sauna, a children’s playroom, and automated parking.  All of this comes at an attractive, accessible price-point as a contrast to the ultra-luxury new development inventory that has dominated the market for the past several years.  If you’re in the market to buy, Jardim will be well worth a look.

At The Core | Now Is The Time To Engage Your Broker

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Last month in this section, we strongly advised against betting on NYC, articulating the transition we see occurring in the markets.  Based on the many conversations we’ve had since, this month we’re urging you to engage us if you are in any way considering entering the market as a buyer or seller over the coming months, especially as a seller.  With no further ado, our official headline is “Now is the time to engage your broker!”  There, we’ve said it quite explicitly.

“Why now?” you might ask. “I have plenty of time before the fall.”  It’s very funny for us to talk with clients as they tell us in a relaxed, sit-by-the-pool kind of voice, “we are more than 10 weeks away from Labor Day”, and have us respond in a pot-is-boiling-over voice “you are a mere 10 weeks away from Labor Day!”.  Same facts, different perspectives.

You see, our team believes in being prepared; we believe in doing our homework, being strategic, and doing everything in our power to hit the ground running successfully, selling your property of the highest price we can get you in the shortest period of time.  Doing so doesn’t happen in one week; being prepared takes time, research and planning.

The markets start significantly picking up with the pitter-patter (more often stampede) of buyer feet pounding the pavement, en masse.  We want to capitalize on that increased volume of demand to your advantage starting late-summer, early-fall, when prime listing season beings.  This means:

  • We need to begin talking to you about valuations and real-time trends and metrics we’re seeing.
  • We want to start creating tailored marketing plans that speak to your specific property, in your specific building, in your specific neighborhood.
  • We want an effective narrative that speaks to your target buyers, that’s relevant and impactful.
  • We need ample time to assess any repairs or requisite work that will, in turn, optimally position your property to achieve our objectives.

If you’re even considering upgrading a kitchen or updating flooring, this takes time.  You want to be in the market come fall, not working with contractors and running into the holiday season.

Luck is when preparation meets opportunity, and we like to think that we help our clients maximize their luck of finding “that all-cash buyer” who is looking to pull the trigger next week; or “that quirky family” who wanted that exact ratio of outdoor and indoor living space; or “those empty nesters” who really want that large living area for entertaining in their golden years and don’t care about the small bedroom size.  Real estate is made up of stories that seem anomalous, that seem like the stars all aligned in just the right way to make a deal happen; those lucky sellers!  We like to believe that we create our sellers’ “luck”, and are ghost-writers of such stories …  so long as we have the time and trust to do our jobs the best way that we know how – through hard work, research and preparation.

So let us help all of your stars be aligned and let’s have a conversation sooner than later about how to hit the fall listing season with a magical story of your own!

Monthly Gem | The Bryant

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Bryant Park … it’s one of the go-to destinations in NYC, and it’s no wonder.  Its European-style seating, its fountains, its programming and nibbles, they create a year-round draw to the area.  Its location only elevates this destination status, with the diverse shops, public spaces and transportation options that abound in its neighborhood.  It is why we were moved to name as our monthly gem the last available development space on the park and the first in NYC to be designed by the award-winning British architect, David Chipperfield.

Located at 16 West 40th, Street, The Bryant sits high above a new boutique hotel, with nearly every residence enjoying a panoramic city skyline or park views. This is true NY living at the literal center of it all: Grand Central and Times Square are steps away yet un-intrusive. Deceptive simplicity, representative of Chipperfield’s brand, abounds in this impressive new development marked by crisp frames, concealed storage and appliances, herringbone floors and full floor-to-ceiling windows.  The Bryant offers 57 units over 34 full-height stories soaring above the park, itself.  At an average of under $3,000/sq. ft., it’s no wonder that so many of the units are already in contract.  All in, this is one of the more spectacular monthly gems we’ve shared in some time!

Monthly Gem | The Chatsworth

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Give me an E! Give me an X! Give me a C! Ok, it’s going to take too long to spell out “exclusive”, but we wanted to celebrate our team’s exclusive sales representation of The Chatsworth, our new development project!

Open for immediate occupancy, the Chatsworth was designed by Pembroke & Ives as a modern classic, at the intersection of old and new, with impeccable functionality and style. Nestled near Riverside Park, the building is located at 344 W. 72nd Street, in the prime of the Upper West Side. This majestic development boasts a landmark building status, brimming with historical elegance in a timeless way, on the inside and out.   State-of-the-art kitchens and Italian marble bathrooms meet stunning crown moldings and herringbone floors, across small and large apartment foot-prints, alike. Better yet, buyers get the stability of a co-op with the freedom that comes with condo rules. What can get better than that!

Give us a call to give you a personal tour of the Chatsworth, and everything that this unique property has to offer!

At The Core | Don’t Bet Against NYC

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Times of transition are always tricky: for families, organizations, politicians and real estate market participants, alike. This time is no different: the NYC real estate market is undergoing a transition and is still settling into a new norm of sustainability. The linear upward trajectory we experienced a few years ago is behind us, as we predicted, and the market is finding its new norm, a steadier norm.

That doesn’t mean that the process of transitioning itself is clear, immediate or readily visible while in its midst. This injects a level of uncertainty on behalf of buyers and sellers who don’t see the broader market trends that real estate professionals do, day in and day out. In the land of imperfect or incomplete information, worries abound, often unnecessarily. And this is where we find ourselves today. People are worried that the market shock of a decade ago may rear its ugly head again, but we’re here to tell you: don’t bet against NYC.

This is not just because NYC is always in the top two destination markets for world-wide investors and high-net-worth individuals. This is also not just because NYC’s employer landscape is more diversified than ever, less embedded in the Wall Street reality than ever before. This is also not just because the number of businesses starting up and migrating to the city is on the rise. If you put all that aside and look purely at the supply and demand dynamics behind the NYC market… they are healthy.

We are not seeing an oversupply of property, nor a lax lending environment, nor a lack of demand from property buyers nor a dramatically escalating interest rate environment. None of the fundamentals appear at risk, as we debrief with Jonathan Miller and follow the numbers.

Indeed, transactions in the $1-$5M range, along with studios and 1 bedrooms, remain robust. We are seeing movements across the full price spectrum, fueled by sellers who recognize the market transition.   What this means is that the market is flattening out in the immediate short-term as it looks to build a new foundation from which to grow. This is the stage for “the new up”. Not broker babble, just asset pricing 101.   Headlines get eyeballs and sell ads, but this doesn’t mean that they’re true. Each developer and seller has his own opinion of where the market is going, and may have motivations beyond market timing (think expiring loans, personal cash needs, etc.). That’s the beauty of a fluid and liquid market, after all. But rest assured: the sky is not falling, the markets aren’t crashing and deals are getting done, with happy buyers and sellers, alike. So if you’re in the market, stay in the market, and if you’re not – it may be a good time to jump in during this new foundation-settling environment.