After New York philanthropist Brooke Astor passed away in 2007, her four-bedroom duplex at 778 Park Avenue in Manhattan was put on the market for $46 million, making it one of the most expensive apartments ever listed. Today, however, the grand dame's former home is being offered at the relative bargain price of $24.9 million.
As even casual observers of the real estate scene will notice, Mrs. Astor had the bad luck to die just as the housing market was collapsing. Her apartment was not listed until May 2008. A year earlier, it is entirely possible her estate would have collected the original asking price. During the middle of the decade, high-end real estate in the most desirable buildings was reliably setting records. In June 2007, in fact, developer Harry Macklowe closed on a four-floor condo at the Plaza Hotel for more than $51 million, the highest price ever paid for a Manhattan apartment, according to the New York Observer.
Sellers of cooperative and condominium apartments in Manhattan, Los Angeles, Miami, and Las Vegas have shaved asking prices by thousands to millions of dollars to lure buyers after sales declined. According to Sotheby's International Realty, the luxury real estate market hit bottom in 2009. These markdowns have rendered some properties bargains relative to comparable properties in the same building or neighborhood, where sales prices can be off as much as 40 percent from peak to trough. Yet in cases when the original asking price was too ambitious, even a multimillion-dollar discount might still not be enough to make a sale.
Cutting the Price in Stages
Several months after real estate firm Corcoran listed Astor's apartment at $46 million, the price was reduced to $34 million, according to Streeteasy. It didn't move. Then Stribling & Associates took over the listing in February 2009 and cut the price to $29 million. It is now listed at $24.9 million. More than two years since it hit the market, the property still hasn't sold. The Astor duplex isn't alone. Across the street at 812 Park Avenue, another penthouse has been on the market since 2007. It has been marked down by more than half, to $15.9 million from $36.5 million. There are dozens of other examples across the country.
Luxury properties can take longer to sell, and a property was not necessarily priced incorrectly if it didn't sell in the year following the collapse of Lehman Brothers; people simply were not buying, says Jonathan J. Miller, chief executive of real estate appraisal and consulting firm Miller Samuel.
Still, when the list price continues to drop but still fails to attract buyers, often "you'll find it was significantly overpriced" from the start, says Edward Mermelstein, an international real estate attorney with offices in New York and Moscow.
Businessweek.com talked to brokers and worked with real estate websites Streeteasy.com, Trulia.com, and Zillow.com to identify some of the country's steepest price cuts, in dollar terms, for listed luxury apartments asking more than $5 million. Most of the biggest discounts were in New York City.
Preliminary third-quarter estimates by StreetEasy.com show 315 total listings asking more than $10 million in Manhattan. Of these, about one-fifth had price cuts, and the average reduction was 11.8 percent. Only 4 percent of the listings had price increases, which averaged 8.9 percent more than the previous list price.
In the overall Manhattan market, there was a greater percentage of price reductions in the $10 million-plus market, but the average price cut was smaller. About 28 percent of all active listings had price cuts in the third quarter, compared with 5 percent with increases, according to StreetEasy. The average price reduction was 6.6 percent.
Over the past decade, the average listing discount for Manhattan apartments was 3.7 percent, according to a 2000-09 report by Miller Samuel.
Miller says luxury properties are more likely to be overpriced when brought to market, because they are often unique and hard to compare with other properties. Thus the difference between the list price and contract price is generally much wider than in the remainder of the market.
Miller says that based on his experience, if a property has been on the market for more than six months at its current price, it is likely to be at least 10 percent overpriced.
Slight Bounce Up
The average list price of New York luxury co-ops and condos has recovered somewhat from last year but remain lower than 2008 levels, according to Sofia Song, StreetEasy's vice-president for research. "For certain, 2009 was a year [when] the market corrected itself. However, it remains to be seen if we are in for another correction."
Some sellers will slash the price if unexpected financial distress requires them to liquidate their assets. In other cases, the average list price has come down because "the pricing was baseless" for many properties in 2007 and 2008, says Mermelstein. Some older apartments may have been well-located but may not have been renovated in decades. Alternately, sellers had unrealistic expectations and thought buyers would pay anything. "That created numbers that not only didn't make sense, but were dream numbers for sellers."
Before the Astor apartment hit the market at $46 million in May 2008, the designer Vera Wang sold her comparable-size co-op in the same building for $33.6 million in January 2008. Stribling & Associates declined to comment on the property.
Elsewhere Around the Country
In the Miami condo market, one of the biggest price cut is for a penthouse apartment in the Apogee condominium building that has been discounted by $6 million, to $16 million. "The seller has been chasing the market down since 2008, when the property was listed for $22 million," says Zilbert Realty Group's Bryan Sereny, a co-broker who represents numerous properties at Apogee. "If PH-A [were] listed for $16 million in 2008, it most likely would have sold by now."
Sereny adds that prices can jump up when brokers suggest unrealistically high listing prices to sellers as a way to win the listing, but "weeks or months later, without any offers, the broker will then recommend a price reduction."
In Las Vegas, the most discounted apartment is a two-story penthouse in the Park Towers that was priced at $20 million in 2008 before Prudential reduced it to $15 million in 2009. It is now listed for $11.7 million, 58 percent of the original price. The current agent, Cristine Lefkowitz, says the owner bought it as a shell and customized the property, at a total cost of about $10 million. "If you were to build it back to how it is today, it would cost more," she says, but $20 million was a high asking price.
Trying To Be Realistic
When a house sits on the market, the costs to market the property accumulate for the agent. Lefkowitz says she spends thousands of dollars out of her own pocket to advertise her luxury listings. "I sit down with my sellers and say, let's be realistic so we're on the same page," she says.
The seller also continues to pay costly maintenance fees and homeowner's association fees. For example, the maintenance fee for the Astor apartment in New York is more than $18,000 per month, according to StreetEasy.
A property in Miami that is listed at least 10 percent below market price, or the price paid for comparable properties in the same building or neighborhood, is considered a steal, Sereny says. "There are many substantial buyers sitting on the sidelines waiting for such deals. These buyers are ready to act quickly once such an opportunity presents itself." Priced as a steal, a unit can sell within days or even hours, often at the list price, he says.
While many sellers and agents are trying to identify a fair price, Sereny says, "a property is worth only what buyers are willing to pay."
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