Wall Street on a Budget Revives Greenwich Real Estate
For Mari Nuzum, who spent three years searching, it’s the best time to buy a home in Greenwich, Connecticut. She, and her husband Richard, bought a six-bedroom Colonial revival in the back-country neighborhood for $3.85 million. A year ago it was listed for $4.75 million.
“I had in my mind exactly what I wanted for our family,” said Nuzum, who moved in July with her husband, president of investments at Mercer Global Investments Inc., and their four children to be closer to school and within commuting distance of New York City, about 40 miles (64-kilometers) to the south. “My husband said, ‘Just wait, the prices will keep going down.’”
The sale of the almost 10,000-square-foot (929-square-meter) property illustrates the shifting fortunes of real estate in Greenwich, home to some of the world’s top bankers and money managers. Five years after the collapse of Lehman Brothers Holdings Inc., which led to thousands of job cuts on Wall Street, smaller bonuses and a paralyzed housing market, the town is experiencing a revival in home transactions as sellers reduce prices and buyers set their sights lower, forgoing the $10 million-plus properties that helped define the boom years.
Median home prices in Greenwich, known as the hedge fund capital of the world, rose 3 percent to $1.64 million in the first eight months of 2013 and the number of sales jumped 17 percent, according to brokerage Shore & Country Properties. That followed a 3 percent price drop last year, even as home values across the U.S. gained 6.4 percent.
Homes between $750,000 and $5 million are driving the rebound. Of 514 sales that have closed this year through August, just one cost more than $10 million, according to Shore & Country. In 2007, there were 21 transactions of more than $10 million, representing about 1 in 35 sales.
Buyers increasingly are taking advantage of cheap borrowing costs. The number of properties financed using jumbo mortgages, or those too big for government programs, rose 18 percent in the second quarter to the highest since 2007, according to Warren Group, a New England real estate tracker. The average rate on a 30-year fixed jumbo loan in Greenwich was 4.58 percent in August, according to mortgage-data firm HSH.com.
“People are just being a lot more conservative with how they spend their money,” Russell Pruner, owner of Shore & Country, said of Greenwich. “They want to bank more money in the long-run so that if there is a further downturn in the financial sector, they will have money available to them instead of living bonus to bonus.”
About $900 million was spent on Greenwich properties priced at more than $10 million in the four years prior to the crash, as hedge funds doubled to manage $1.9 trillion, banks posted record profits and UBS AG (UBSN) and Royal Bank of Scotland Group Plc (RBS) established the world’s two largest bank trading floors in nearby Stamford, Connecticut.
Mansions and multimillion dollar renovations attracted the attention of Vanity Fair with a 2006 article titled “Greenwich’s Outrageous Fortune.” The piece described Paul Tudor Jones’s home overlooking Long Island Sound -- with its 25-car parking garage -- and Steven A. Cohen’s 32,000-square foot mansion that includes an ice-skating rink. As the financial crisis unfolded, profiles of long-time resident Richard Fuld, former chief executive officer of Lehman, featured his indoor squash court.
The collapse of Fuld’s bank helped trigger a global credit crisis that plunged the U.S. into the worst recession since the Great Depression with home prices in the U.S. dropping 35 percent from the peak. In Greenwich, values fell 24 percent, according to data compiled by Shore & Country. While the decline was less severe than the country’s, Greenwich’s recovery has trailed the rest of America amid sweeping changes to the finance industry and years of mediocre hedge-fund returns.
In addition to thousands of job losses, banks have changed their pay structures, limiting cash bonuses and granting more stock and deferred compensation packages. Wall Street’s bonus pool was 40 percent lower in 2012 than in 2007, according to estimates by New York State Comptroller Thomas DiNapoli, hurting the economies of commuter towns like Greenwich.
Lower bonuses, an emphasis on delayed compensation, and the possibility that banks could claw back pay in the future means some finance professionals have set their sights lower in Greenwich, according to David Haffenreffer, a real estate broker at Houlihan Lawrence, a Westchester, New York-based firm that opened a Greenwich branch this month.
“Instead of that 6 million, 7 million or 8 million-dollar home, they’re buying a 3, 4 or 5 million-dollar house,” Haffenreffer said. “If you know you’re going to be making the money, but can’t take it out for a certain number of years or fear it may be taken away from you or you may lose your job, you’re going to be more conservative.”
Sellers also have had to lower expectations to entice buyers. Many homes for sale in Greenwich the past few years were overpriced as owners who could afford to stay put refused to sell at a discount, according to Mark Pruner, a broker at Berkshire Hathaway HomeServices New England Properties.
“That’s a real psychological barrier, the idea of losing money on your house,” said Pruner, adding that in the past few months owners who have reduced their asking price have had better luck securing offers. “Owners have to look at the prices and market to decide what the appropriate price is.”
The Nuzums’ new property was initially listed at $5.7 million in June 2007. After failing to sell, it was relisted at $4.75 million in April 2012.
“We got a really good deal for what it was supposed to be listed for,” said Mari Nuzum, whose prior home in Old Greenwich, which features a wine cellar and basement apartment ideal for a live-in nanny, is still on the market. The Nuzums took out a 30-year fixed mortgage on the new property, after paying cash for their previous home.
In some cases, only a significant reduction is enough to generate interest. An 18-acre property, nestled between the Tamarack Country Club and a wildflower sanctuary, with its own practice polo field, tennis court, heated pool and enough stables for 30 horses, will be auctioned next month with a starting bid of $1 million, according to Raul Villacis, a real estate agent at Advantage Realty Group Advisors, based in Stamford, who’s handling the sale. The foreclosed property was once valued at $36 million, he said.
Villacis estimates there’s been a 20 percent increase in short sales, or properties in which the lender agreed to accept less than what was owed on them, in Greenwich’s high-end real estate market in the past year.
For buyers like Eston Woodard, 33, bank-auctioned properties provide additional incentive to consider Greenwich.
Woodard, who currently rents a duplex in Greenwich, moved from Boston in June for his job at International Business Machines Corp., where he sells computers to financial-services companies. On the hunt for a home less than $1.2 million to live in with his girlfriend, he’s looking to take advantage of any bargains so long as he can afford the maintenance and property taxes.
“For a bank-owned property, I would move very quickly,” said Woodard, who plans to take out a 30-year fixed mortgage on whatever he ultimately buys. “These are multi-million dollar homes we’re talking about, you have to think outside the box.”
In Greenwich, where for-sale signs are “frowned upon,” lower tax rates often help lure buyers from neighboring Westchester Country, according to Mark Pruner, the brother of Russell Pruner of Shore & Country. In Scarsdale, New York, in Westchester County, taxes on a $3.5 million home are more than triple what they are in Greenwich, data from each town’s assessor show.
Greenwich’s public and private schools also attract families such as Lauren Steinberg’s. She and her husband, who works for the Weather Channel, have been eyeing the town for the past two years. Living in a two-bedroom apartment on the Upper East Side of Manhattan, Steinberg, a stay-at-home mom with two young children, plans to take out a 30-year fixed mortgage to help finance her dream home, which she hopes will cost less than $2.5 million.
“I’ve seen a ton of price cuts, a lot of the prices of homes I’ve been looking at have come down,” said Steinberg. “My kids need the space, they are going to need their own rooms as they get older. And I’ll need a basement or a backyard to throw them out in.”
Empty-nesters looking to move to a smaller home in Greenwich are also boosting inventory of larger properties, according to Mark Pruner. Compared with young families, this group made fewer purchases in the past five years, he said.
“It was a lot easier to hold off on downsizing than it was to have a bassinet in your living room in Manhattan,” Pruner said, referring to a baby’s cradle. “Older couples are starting to move on and are looking at their options.”
While the luxury market trails lower-priced homes in Greenwich, demand may be starting to rise for the most expensive properties. Four homes costing more than $10 million were sold in September, according to data compiled by Mark Pruner, including the private sale of a $24 million estate in the gated community of Belle Haven. The sudden interest in luxury properties is in part because buyers are looking for an alternative investment to bonds, which they fear may decrease in value as interest rates rise, as well as concerns that Manhattan’s next mayor could raise taxes for high-income earners, Pruner said.
Wall Street is also showing signs of recovery with the Standard & Poor’s 500 Financials Index climbing 22 percent this year, outpacing the 19 percent gain for the broader S&P 500 Index. While bonuses are still below their 2006 peak, they rose 8 percent last year, according to DiNapoli’s report. Compensation for managers of the biggest U.S. hedge funds rose as much as 15 percent last year, according to a report by Hedge Fund Research Inc. and Glocap Search LLC.
For Mari Nuzum, an uptick in Greenwich real estate couldn’t be better timed.
“We are so happy we moved when we did,” she said. “Hopefully now we’ll be able to sell our old house.”
To contact the reporter on this story: Elizabeth Dexheimer in New York at firstname.lastname@example.org