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Is Manhattan Immune from the Real Estate Bust?

For the time being, yes. But if Wall Street continues to struggle, that could change

The real estate downturn has been spreading like a virus since the credit crunch began eight months ago, dragging down prices in small towns, suburbs, and previously resilient cities such as Seattle and San Francisco. New York, it seems, is the last major city where real estate is booming.

In the first quarter of this year, the median price for a Manhattan home rocketed up 18%, to $872,000, compared with the same period last year, according to an Apr. 17 report by, a Web portal operated by the Real Estate Board of New York. The median price for all of New York City, which includes much weaker middle-class neighborhoods in the Bronx, Brooklyn, Queens, and Staten Island, rose 4% in the first quarter, to $535,000, the real estate industry group reported.

"The numbers continue to amaze me," said Steven Spinola, president of the Real Estate Board. "What's driving the prices up is the closing of high-end condos."

The High, High End

New York's price growth was propelled by a slew of newly completed and startlingly expensive condos.

Sting, lead singer of The Police, paid $26.5 million for a condo in the new 43-story building at 15 Central Park West. Sanford Weill, the former chairman of Citigroup (C), paid more than $42 million for an apartment in the same building, where Goldman Sachs (GS) chairman and chief executive Lloyd Blankfein also bought, according to the New York Daily News.

The 29-room Upper East Side townhouse once owned by Penthouse publisher Robert Guccione sold in early March to Harbinger Capital Partners founder Philip Falcone for $49 million. (For more about Falcone, see BusinessWeek, 4/24/08, "The Midas of Misery".)

And Italian businessman Luigi Zunino is seeking a buyer willing to pay $100 million for the 10,000-sq.-ft. third-floor apartment he has a contract to buy in the 101-year-old Plaza Hotel, which recently reopened after a $400 million renovation with a mix of hotel rooms and condominiums.

The loftiest asking prices in Manhattan now range from $36.5 million and $75 million, according to a survey by

But the market is also busy on the lower end, which in Manhattan would generally start at about $400,000 for a studio. (People in New York are used to living with less space.)

Bright Spots

Manhattan isn't America's only robust market. Bright spots in the real estate market include Austin, Tex., and Charlotte, N.C. And high oil prices have kept Houston's market buoyant. But the nation's largest cities have generally shown weakness.

In San Francisco, which has been a relatively strong market, median prices remained about flat, at around $755,000 in March, according to DataQuick Information Systems. In Seattle, another healthy market, annual median single-family home prices dropped 2%, to $450,000, in March although condo prices increased 4%, according to the Northwest Multiple Listing Service.

Manhattan real estate continues to climb to new heights because of the wealth of its buyers, the still-strong job market, the limited supply of homes, and the weak dollar, which is attracting foreign buyers. The city has also benefited from the strict rules that govern co-operative apartments, which make up around 85% of homes available for sale. Buyers of co-ops do not technically own their unit—merely shares in the corporation that owns the building. The co-op board of directors carefully reviews prospective buyers' finances and requires down payments of 25% or more. Some high-end buildings ask for 50% cash or even all cash. Many of the strictest buildings often insist that prospective buyers have liquid assets equaling as much as three times the apartment's asking price. So, if you're talking about a $5 million apartment, you need at least $15 million in the bank. Other real estate holdings don't count.

Subprime loans and foreclosures, as a result, are rare.

"Here you have to put skin in the game," said Mitchell Hall, associate broker with Coldwell Bankers Previews International. "It's not easy to buy a place in New York—you have to be really qualified." Translation: rich.

Nail-Biting Time

The fact that Manhattan has—at least so far—escaped the downturn doesn't mean it won't get hit. With a recession looming, plenty of job losses are expected this year on Wall Street, where bonuses are also expected to shrink.

The new condos being built—with ever increasing prices—could also create an oversupply of luxury real estate.

Even Spinola of the Real Estate Board concedes that the market could flatten in a recession.

New York real estate is by no means immune to dips. Prices dropped during the recession in the early 1990s and following the 1987 stock market crash. The biggest postwar decline came in the 1970s, when the city went bankrupt.

Jonathan Miller, president of New York appraiser Miller Samuel, said even though prices are rising, sales activity is off from last year's record levels.

The boroughs are doing worse. Expensive Brooklyn neighborhoods such as Brooklyn Heights, Cobble Hill, and Park Slope have mirrored Manhattan's strength. But middle-class communities farther out have been weakened by the subprime crisis and the credit crunch.

Median home prices in Queens fell 12% in the first quarter from a year earlier, according to the Real Estate Board. The median price dropped 9% in the Bronx, 2% in Staten Island, and 1% in Brooklyn.

"Look we've had a very brisk real estate market for the last four or five years," Miller said. "The New York region has held up better than virtually any market across the country. But we are not immune to situations on the national scale."

See the slide show for the most expensive real estate listings in Manhattan.

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