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Manhattan Luxury Real Estate Is Poised to Sell

Manhattan Luxury Real Estate Is Poised to Sell

After the housing bubble burst, buyers looking for homes in the once-booming, seven-figure-plus range became as hard to find as taxis in a rainstorm. With jumbo loans drying up, bonuses shrinking, and the stock market plummeting, high-end home prices fell across the country. In Manhattan, prices for everything from West Village townhouses to Tribeca condos plunged almost as dramatically as they had risen.

In the first quarter of 2010, New York's luxury housing market may have showed early signs of improvement. After a near-freeze in the first half of 2009, activity in the luxury home segment has started to rise. Prices ticked up slightly as confidence returned and Wall Street bonuses rose 17%. Even as millions of Americans struggle with unemployment and the prospect of further foreclosures, a small group of home buyers is purchasing posh residences priced at $5 million or more. Still, while brokers and analysts expect New York's luxury segment to perform better in 2010 than last year, some say it's too early to declare a rebound.

Sales in Manhattan's luxury market have increased, compared with early 2009. The number of transactions in Manhattan's luxury market in the first quarter—at 275—was up 93.7% from a year earlier, says Sofia Song, head of research at New York-based real estate information company StreetEasy. The firm defines luxury as the top 10% of transactions in terms of price—in this case, individual sales greater than $2.83 million during the first quarter.

Apartment sales in all segments nearly doubled year-on-year, according to a report by New York appraiser Miller Samuel and broker Prudential Douglas Elliman Real Estate. Jonathan Miller, chief executive of Miller Samuel, says that sales of Manhattan's high-end properties, or those with three to four bedrooms, showed the largest gain in market share. They jumped to 16% of total unit sales in the first quarter, from 10% a year earlier.

More All-Cash Deals

StreetEasy's Song says that there is already clear evidence of price gains: The median sale price in Manhattan's luxury segment increased to $4.45 million in the first quarter, from $3.9 million during the third quarter of 2009, when prices started to stabilize. She remains cautious because StreetEasy's data shows that the number of luxury sales fell 25.1%, from 367 transactions, in the last three months of 2009.

Howard Margolis, managing director of Prudential Douglas Elliman, says that while many sales over $5 million have typically been all-cash, he has seen a greater percentage of such deals this year. There has been greater interest in lower-end luxury properties while demand in the $20 million-and-up range has eased. A surge of lowball offers came from American, European, and Asian buyers hoping to pick up property at steep discounts, but few were successful.

The most expensive New York sale so far this year is a gutted penthouse on the 52nd floor of the Trump International Hotel & Tower on Central Park West, which sold at auction for $33.18 million in January, says Margolis, the sale's exclusive broker. He expects demand for even pricier units in 2010, including a Park Avenue property that he estimates will sell for around $40 million in the next few months. "The luxury market has started to resurge," says Margolis. "People are starting to feel more confident."

The penthouse sale pales in comparison with the $50 million-plus transactions that frequently crossed brokers' desks during the real estate boom. Over the coming two years, Manhattan prices will likely increase, says Edward Mermelstein, an international real estate attorney with offices in New York and Moscow. "Units will be absorbed in the next six months to one year as the economy rebounds, and there is no new construction taking place," he says.

Stricter Co-Op Boards

With many companies worried about job retention and a large portion of bonuses being paid out in restricted stock, "we aren't seeing a gold rush of Wall Streeters like a few years ago," says Miller. Moreover, even top investment bank executives are no longer guaranteed to win approval from increasingly demanding cooperative boards: Many now require that applicants possess liquid funds in multiples of the sale price. Afraid of being stuck with buyers who may find themselves unable to cover mortgage or maintenance charges, the buildings are showing preference for buyers with lots of cash in the bank.

A further problem for the luxury market will be financing, as the Federal Reserve stops buying mortgage-backed securities. Miller says recent sales have been driven by cash buyers who do not need mortgages, but lending for luxury and second homes remains tight. "The component that's missing is getting financing," he says. "When financing becomes more expensive or isn't available, that impacts the ability to buy property."

The market is improving, but "I think it's premature to be calling a bottom," says Miller. "Recovery used to mean getting better and going up, but the new definition is 'not getting worse.' "

Click here to see the most expensive real estate sales in Manhattan during the first quarter of 2010.