Planetizen deserves a hat tip for pointing me to the article Can Architecture Help Housing? [Businessweek/Metropolis Magazine] with the subtitle: The ideological catfights over housing threaten to marginalize all of architecture. Could the parties agree for the greater good?
Architects and urban planners have not been known to get along. With the latest housing boom, this gap, IMHO has not narrowed much. Architects have gained the attention of developers who have sought out Starchitects as developers seek to differentiate their building from the competition. New urbanists and other urban planners tend to be more macro in their orientation. Detractors call New Urbanism plop architecture or public housing for the rich.
With the devastation the has leveled a significant portion of the gulf, observers wonder if architects and urban planners can get past the nit-picking that has traditionally characterized their relationship.
The Businessweek piece wonders whether this next generation of architects and urban planners can do better than those in prior generations.
Now that architects are taking shots at one another over housing, can we do better than we did in the last century, which gave us sprawl for the middle class and Cabrini-Green for the poorest of the poor? Can we close the great divide between fetishistic formalism and social responsibility? Or are we doomed to a world in which architecture’s leading practitioners use their work merely to comment on social tumult rather than actually trying to do something about it?
This will be put to the test in the Gulf region as large swaths of it requires rebuilding. Its unrealistic to assume New Orleans can be reproduced exactly as it was before, yet at the same time, is at risk to lose its identity.
In order to diferentiate their residential projects from one another as competition increases, developers are enlisting the services of name-architects…a.k.a. Starchitects. I wrote an article [Miller Samuel] on the phenomenon in the current issue of New York Living magazine which I periodically write articles for. [shameless plug -ed]
The use of Starchitects is growing in popularity as a marketing tool nationwide as inventory increases. It is also an added soft cost, so the use of this branding vehicle is placing more pressure on the bottom line.
I suspect that the growing cost of development (land prices, construction costs, along with marketing costs) will significantly stifle new products in the planning stages in the near future.
Here’s an excerpt:
The current Manhattan real estate new development scene is all about who instead of what. Branding has reached the housing market as a necessary and effective marketing tool to differentiate development projects as they enter the market. The housing boom prompted the explosive growth in creativity with condominium design as capital became more readily available to developers. This shift has been seen as a big step in a market that historically paid more attention to the exterior, rather than the interior of a building. Marketing has now morphed into the whole package, both inside and outside, including common areas and ancillary services. This creative packaging now includes bringing in a brand-name architect or other professional to leverage their reputation as an enhancement to the development….
In last week’s Housing Notes and inspired by this screaming article, I linked out to an old Tim Geithner (former U.S. Treasury Secretary during the onset of the financial crisis) Matrix Blog post that featured his blue bathroom in 2009:
[Geithner Bathroom, Westchester MLS]
And here’s the old Daily Show video in case you need more context. John Oliver explores why Tim couldn’t sell his home and is able to get bathroom decorating ideas from Robert Shiller. Classic fun.
Shortly after I released last week’s Housing Notes I received a note from a loyal reader from the same county as Geithner’s 2009 listing suggesting their green bathroom tiles were more impressive than Geithner’s:
The thought process of choosing between these two tile selections made me wonder if this was what the song “Out on the Tiles” on the album Led Zepplin III was actually talking about: “The title of the song is derived from the British phrase for going out for a night on the town. Led Zeppelin drummer John Bonham would talk about going “out on the tiles,” meaning to go to bars…”
In other words, after returning from an evening of bar-hopping, the overwhelming color intensity of these tiles would clearly look, well,…good.
But I digress…
Each year at this time we are welcomed by (no, not chocolate bunnies) the New York State Comptroller’s report on Wall Street Bonuses. It brings thoughts of 30-something Leonardo DiCaprio-style executives running out and buying new Maseratis and snapping up super luxury condos.
No, that’s a myth and might have been some truth to it a decade ago, in today’s world those stories are relegated to on the margin one-offs. The post-financial crisis regulatory environment has been one with a large regulatory overlay designed to reduce “moral hazard.” I know that’s a stretch but with much of this comp coming in a deferred form, you might have to stick around for a few more years before you can actually spend it.
In the following chart, even though the bonus pay per person has been rising, they use “average” as the metric. I’ll bet if NYS OSC used the median as a metric it would show a far different story. We saw this metric play with the “average tax savings” after the new federal tax law came out. This is one of the reasons “median” is the preferred metric of the housing market because it removes outliers. Even though the average bonus is way up per person, I have been told repeatedly that top performers at the top of the executive pyramid (poor word choice) are getting larger bonus comp proportional to the lower echelons. Call it “shift in the mix.”
Wall Street employment has remained somewhat stable in the long term while overall employment, with more high wage earners in tech, has been growing. While still, a very important piece of the employment and comp picture, the city has been slowly weaning itself off of this sector. Therefore the impact of bonus season is less than it has been in the past, no matter how big the bonus pool is.
There is no doubt that Wall Street compensation is important to the city’s economy with wages roughly 5 times the private sector. However, as a smaller share of employment, the impact to the housing market is much more muted than in the past.
One more thing. The stock market is not the economy.
With the low cost of capital worldwide, we continue to see asset bubbles rise to the top. Self-storage units are popping up everywhere in my neck of the woods and I keep wondering:
How much stuff do we need to keep outside of our homes? Is that need exploding? I see a disconnect. Here’s an interesting article with video in Sarasota.
I saw the stat art below on the storage market in Manhattan in a Core New Development newsletter I never signed up for but put it to good use. Extra space is expensive to maintain. I remember when I first moved to Manhattan, my dad suggested that if you aren’t going to use something in a year, get rid of it. Sage advice. I don’t know about you, but “stuff” continues to grow at the Miller household.
Mortgage origination volume is still well below housing bubble levels and the GSEs want to see that volume flow through their institutions. They are doing a lot of things to get banks to lighten up on credit conditions as many lenders remain in the fetal position because they have lost the muscle memory to lend. This is a key reason why listing inventory remains so low. It’s MOP money (Money on Paper) because many are faced with the inability to afford or qualify for a trade-up, a lateral move or even downsizing.
Housingwire published a listicle on what the GSE regulator has done to convey to lenders that it is a good time to lend. However in their expediency to ease the credit world, they may have made banks more nervous.
One of these ideas was the introduction of the concept of waiving appraisals on a small percentage of loans that relies on the bad data generated by Appraisal Management Firms that have corrupted the appraisal process. Just imagine the fraud that this will unleash?
I found it hilarious that this ad was in the Housing Wire article. No wonder why banks continue to push back on Fannie Mae’s attempt to ease conditions.
Here is the list with the key comments selected from the Housingwire piece.
Student debt – revised their student debt related calculations concerning potential payment shocks.
Credit invisible – improves access to credit for mortgage applicants who do not have sufficient credit history to compute a credit score.
Low income borrowers – increased to a 95% maximum loan-to-value ratio allowed for adjustable rate mortgages.
Mortgage education – planning its own marketing campaign to increase awareness of borrower training and other resources available through its CreditSmart financial education curriculum and borrower help centers.
Language barriers – it would include a question on the revised uniform residential loan application to find out an applicant’s preferred language.
Housing counseling – work to improve their pre-purchase and early delinquency counseling by outreach.
Credit score models – desires to update from the Classic FICO model, it has yet to decide which new model to use as a replacement.
Minority borrowers – community outreach and provided training to three major minority trade associations at town hall events.
High LTV refinances – will give borrowers with high-LTV loans who are current on their mortgage an opportunity to refinance.
Multifamily – loan production caps on each of the GSE’s multifamily business to further the goal of maintaining multifamily activities while not impeding on the participation of private capital. Exclusions include financing for subsidized affordable housing, manufactured housing communities and small multifamily properties, between five and 50 units.
One of the great things about the housing boom/bubble a decade ago and the recent development boom of the past 6 years has been the great creativity in external design. When I arrived in Manhattan in the mid-1980s was largely safe, pragmatic and boring. But the introduction of “Starchitects” to the market in the early “aughts” changed everything.
In the same way that George Clooney and Meryl Streep could be counted on to carry a picture, these brand-name architects, or “starchitects,” as they came to be known, helped to set a building apart and gave buyers another reason to want to live there.
One of my favorite buildings in Manhattan is a luxury rental tower built in 2007 known as New York by Gehry. Frank Gehry’s work is amazing.
I attribute the start of the Starchitecture in Manhattan with Richard Meier’s 173/176 Perry Street in 2004. After his success with the Getty Center in Los Angeles, he struck east and created the condominium known as 173/176 Perry Street. It broker price barriers as many of his west coast fans bought there.
The problem with this phenomenon is what does the developer do about the marketing when the new project becomes aligned with the starchitect that is accused of something controversial and criminal?
Here are some thought pieces on the subject:
Tainted by #MeToo, starchitect Richard Meier’s name is erased from his building [Quartz]
Architecture’s #MeToo moment and the marketing of ‘starchitecture’ [Curbed NY]
What A Time We’re Living In!
One of the great things about the changes being seen in the appraisal industry today is through the actions of appraisers themselves. Appraisers are speaking out more often and pushing their thoughts about the industry and the techniques of the profession out into the ether. And most of all, these actions are causing change.
When Tristar Bank of Tennessee lied about the shortage of appraisers in their request to lend without appraisers, an often fragmented industry unified to call “BS.” One of the biggest pain points of the industry has been Appraisal Management Companies for fighting through their REVAA trade group to keep borrowers in the dark about who gets what part of the appraisal fee.
Some of the biggest appraisal-related publications were criticized for never giving appraisal industry coverage the perspective of the appraiser, these publications responded by reaching out and including appraisers in their content more often.
A number of appraisers have been frequently sharing their knowledge and insights to the appraisal industry narrative in a “can do” spirit that I find contagious. Ryan Lundquist, Tom Horn, Rachel Massey, (have I missed any other notables?!?!)
Appraisers have relentlessly fought the misleading narrative provided by appraisal management companies over the appraisal shortage, their lack of emphasis on quality, their drag on turn time and their increase in the cost of an appraisal. And as new blogger but experienced appraiser Mark Skapinetz so eloquently articulated in his first blog post: What’s not in your wallet?
Despite being approached all the time to add our firm’s name to an appraisal management company, decline. However, when wealth management companies were forced by their parent company, they made arrangements to help attract better firms like ourselves to consider working with them:
Last fall we were approached by 4 different AMCs because their wealth management clients demanded they fix the problem of not attracting the better appraisers in their coverage area.
In the first three that onboarded us, we got a lengthy addenda request that included things like inserting the “floor” level” of the office address of the client in the report. I’d push back and request a conference call with all the parties and to their credit, they rethought the review process and we rarely see addenda anymore and when we do, its fair. That’s how it should be.
It also proves a very significant point – most of the laundry list items included in addenda requests are either over-interpreted or simply made to justify the AMC’s existence but on our time and money. They are not regulatory requirements that is claimed when appraisers give pushback.
The fourth of these firms finally on-boarded us and our appraisal timeline looked like this:
Day -3 – assumed it took 3 days to find a cheaper appraiser since it was ordered as a rush (borrower wasn’t in a hurry)
Day 0 Rush appraisal requested
Day 0-5 days borrower allowed access
Day 5-8 we delivered report 3 days later as quoted
Days 8-13 reviewed by AMC
Day 13 – AMC delivers a 30 point review of clerical fixes that had nothing to do with the multi-million dollar valuation
Day 14 – I send an email to both the bank and AMC requesting a call to discuss review process. AMC responded that chief appraiser would review
Day 15 – no response yet
By my math, this is a 18-day process although we don’t have a response yet. The appraisal part only took 3 days as a rush.
Here’s a redacted partial (admittedly terse) response – “if [XXXX] continues to apply this approach to the high-end review function, we will no longer continue to accept assignments or will simply triple our fee quotes to reflect the incredible amount of time needed to complete the requested clerical busy work.
I’d be happy to discuss this issue with you and members of the [XXXX] team to resolve this relationship…Let me know how you would like to proceed. We’d love to continue to work for you and I’m sure your high-end clients would like for you to continue to rely on our services.
We don’t have this issue with lenders we deal with directly.
AMCs Are There For A Bank To Say They Checked A Compliance Box
I ran out of time to write about the FHFA paper on the appraisal process. I’ll elaborate next week. It’s important.
Are Appraisal Management Companies Value-Adding? – Stylized Facts from AMC and Non-AMC Appraisals [FHFA]
In the meantime, I’ll share my appraiser friend and colleague’s tweet on the topic:
According to FHFA, there is no value add for the AMC model. Billions of dollars taken from consumers for no good, reliable, or logical reason. Harm to the industry still being measured. @JacobGaffney #externalobsolescence https://t.co/F3IauCXpav https://t.co/vxB2dc8qdf— Lori Noble, SRA (@noble1_lori) March 27, 2018
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Because my value system (remember, I’m an appraiser) tends to skew towards the shallow, I was pleasantly surprised that my Twitter account was verified this week. I’m not sure how this helps me navigate life, but I tend to get excited about trivial details like blue lobsters and flying cockroaches and the value of high ceilings, so this helps.
I love Twitter but am not so crazy about Facebook. Perhaps its because I can be more succinct and abstract on Twitter with so little room for details in 140 characters. My friend Nathan Pyle has articulated my Facebook view perfectly:
One of the things I’ve always wanted to do was trend entire markets by cubic feet versus square feet.
Area volume has the potential to better incorporate the height amenity into the value of a property. As appraisers, we can generally observe the premium when trying to compare apples to apples in an analysis of this amenity. Certain types of housing stock may sell for a premium simply because one of the baked in amenities includes above average ceiling height. We saw higher ceiling height appear during this recent U.S. new development boom that has been skewed to the luxury market.
It makes sense since developers, especially those focused on urban towers, have a zoning envelope to build within. Higher ceiling height means fewer floors that can be installed within the development envelope. Since the developer is attempting to create the most value in this “window” of opportunity to realize the highest return, this development trend makes a clear statement about the perceived value add of the high ceiling amenity. There was a great article in last week’s Wall Street Journal Mansion section by Stephanos Chen about this amenity called: For Ceilings, What a Difference a Foot Makes. My RAC appraisal colleague in Chicago makes the point:
While ceilings are rising throughout new luxury towers, the tallest ceilings are typically found in the highest, most expensive apartments, says Michael Hobbs, the owner of PahRoo Appraisal & Consultancy in Chicago. Since zoning rules can limit unit density, he says developers try to eke out more value from top-floor units with better views and more prestige.
A legal argument
A while back I used a “high ceiling” argument as an expert witness litigation that involved a noise problem. The owner of an apartment was suing the owner of the apartment above them because of excessive noise. During a renovation, the defendant had removed the sound barrier beneath their hardwood floors, but had no carpeting and seemed to encourage their kids to play soccer and field hockey in wooden clogs at all hours of day and night. We looked at remediation as a way to value damages. The plaintiff had 9 foot ceilings. After installing a hypothetical remediation solution throughout the apartment, they would have had 8 foot ceilings. I was able to come up with an analysis of the impact to value with the reduced height ceilings in a straightforward empirical way.
Back in early 2014, I read an article in the Washington Post that jarred me: 8 in 10 Manhattan home sales are all-cash…except that the premise was not accurate. I knew the source data was wrong immediately and contacted Realtytrac, who upon further review, realized that the data feed they had for co-ops, was wrong. They were very transparent in resolving this with me and we figured out what happened.
I explained why the 80% figure was incorrect in a followup post: Manhattan Home Sales Are NOT 80% All-Cash (They Are 45%).
I revisited the topic of cash sales with a cool table for the New York Times a few weeks ago in Buy It With Cash, Mortgage It Later. I did my calculations using Douglas Elliman data and the found the overall market was comprised of 44.3% cash buyers (pay all cash for the purchase).
Afterwards I wanted to break out the market by property type and then by price point. The use of cash for purchases dovetailed perfectly with the new development boom and the over emphasis on luxury sales since those buyers were thought more likely to pay with cash.
Yesterday I wrote a blog post on Curbed New York: More than half of Manhattan condo sales this year were all-cash deals which thankful confirmed my anecdotal observations through our appraisal firm’s interactions with market participants.
Here are the charts I came up with. The first presents the year to date share of cash sales by price and property type. The second chart shows the change in overall results by price point on a year over year basis. Interpretation of the results can be found my ‘Three Cents Worth‘ column on Curbed New York.
The sale of the Playboy Mansion finally closed for $100 million – the highest price home sale in Los Angeles history. From a valuation perspective, it would be quite a challenge to come up with the number. It would appear that the price doesn’t necessarily represent value because it is not a clean deal. Here’s why:
Price history – $1.05 million – 1971 – $200 million list price – January 2016 – $110 million contract but was reported to be falling apart at last minute August 2016 – $100 million closed price – August 2016
The three highest LA high sales after the Playboy Mansion – with the 2 more recent sales in far superior condition, similar sized lots but having double the square footage:
The Manor $85M, 4.7 acres and 56,500 sqft closed in 2011
Playboy Mansion $100M, 5 acres, 21,987 Sqft closed 2016
The buyer would appear to be paying a significant premium to reconnect the lots considering the life estate, maintenance cost, indefinite lack of access and dated condition, no? This sale will be used as a “comp” to price other sales without considering this premium.
Not sure I would want to appraise this house on a cliff.
Since I report on the Aspen housing market, I read a recent Denver Post piece with great interest. In fact so much so that I dusted off Matrix and wrote a long over due post on the way the market was presented: Aspen Sales “Nosedive” as U.S. Luxury Market Returns to Sea Level.
While I enjoyed the SEO-worthy keywords in the article:
I viewed the sharp drop in sales as more of a reflection of the record sales volume of the prior year. If you removed 2015 from the chart, the trend shows gently rolling sales rather than a 50+ percent drop. Within the 18 sales markets I report on across the country, many saw heavy high end volume in recent years and volume is returning to more normalized levels rather than at a level that is unsustainable. That excess demand appears rot be largely tapped out.
By definition I don’t think there are any SEO terms that would reflect this more accurate interpretation in the right context, do you?
Here are a bunch of rental charts to trend the Manhattan market, updated from the results of last week’s Elliman report:
Flooded with support
While many appraisers across the U.S. are simply swamped with work (thanks to Brexit for lowering mortgage rates and bringing us refinance assignment), some aren’t so fortunate right now. Instead of making hay, well known Baton Rouge Louisiana appraiser Bill Cobb has 3 feet of water in his living room thanks do the heavy flooding that has occurred in the region (and not so widely reported). Our friend and appraiser colleague Ryan Lundquist has thoughtfully set up a go fund me page to help Bill and his family in time of need.
Just when you think about giving up on the appraisal profession by feeling isolated, overlooked and beaten down by the post-financial crisis rules that have incorrectly decimated it, you see an outpouring of support for an appraisal colleague in time of need. I scrolled through the names of the donors and know or have heard of many which lifts my spirits. We wish Bill and his family all the best in this tough time. Please go to Bill’s page and help out right now if you can.
RAC Conference in Frisco Texas
As the incoming president of RAC, I am really excited about this appraisal organization‘s recent growth and branding focus on complex residential appraisals which include relocation work, rather than only be exclusive to relocation work. We’re going to build on this momentum and hope you’ll join us at the conference and consider becoming a member. This conference is chock full of information and insights that appraisers can use in their practice.
For the last time, there is NOT an appraisal shortage<
This type of reporting is – for the lack of a better word – dumb. This news outlet interviews a real estate broker who sees slow turnaround times for appraisers and describes this as a shortage. But it is like looking at a sale through the eyes of the seller only. The only reason there are a few appraisers in this scenario is that the lending industry has relied nearly exclusively on appraisal management companies who take as much as half the appraisal fee paid by the applicant under the guise of “managing the process.”
I’ve said this here before, but there is an appraiser shortage of appraisers who are willing to work for as little as half the market rate. Lets keep that in mind when someone brings uno this topic. Dodd-Frank has reduced appraisal quality by removing the incentive to appraise at all. It’s called making a living.
If you need something rock solid in your life (particularly on Friday afternoons) and someone forwarded this to you, sign up here for these weekly Housing Notes. And be sure to share with a friend or colleague if you enjoy them. They’ll become your pumpkinseed, you’ll get a higher ceiling and I’ll get my blue lobster.
See you next week.
Jonathan Miller, CRP, CRE
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Presumably it’s Black Friday when you read this and hopefully you didn’t fall for the scam of finding actual deals and inevitably breaking down the front door of your local Walmart. I can only assume my Housing Note readers are still well satiated and had a great time with family and friends on their Thanksgiving holiday. I’m writing this on Wednesday morning just before I leave with my wife and youngest son to drive (and take two different ferries while saying this is “ferry nice” repeatedly to my son’s great annoyance) to spend 2 days with my parents, my sister and her family, and my other sons and their significant others. As a kid, Christmas was always my favorite holiday (for obvious materialistic reasons) but as an adult, Thanksgiving has always been my favorite. In fact for the past 17 years since my parents bought their current home on Shelter Island, I always mark my calendar year as commencing on the moment the Bridgeport-Port Jeff Ferry pulls away from the dock and heads towards Long Island. Forget New Year’s to mark your year…it’s wildly overrated.
I was going to call this Housing Note “Thanksgiving’s Tryptophan Turkey Talk” until I read deeper, learning that tryptophan isn’t necessarily the cause of the post-holiday meal drowsiness (if it’s on the internet, so it must be true). Now let me at least pretend to get back to the topic of housing during the holiday.
Don’t worry, you’ve had enough “stuffing” in the past 24 hours so I’ll keep it light.
Back in 2004, I started writing a column for Curbed NY called Three Cents Worth that was essentially a chart surrounded by some commentary. Admittedly I go through bursts of creativity with the column and then take a break. Here are the chart thumbnails for most of my columns on the Curbed Network. My original charts were kind of hideous and thankfully the trolls let me know it. But I learned to remove the gimmicky stuff and eventually morphed them into my own style. And every so often a commenter would give me grief about the Y-axis (vertical line) not starting at zero. And not just for my work on Curbed. “If it doesn’t start at zero” they would contend, “the chart is a lie.” This always bothered me because I knew this wasn’t true.
Vox provides a wonderful short take on the Y-axis subject that I promise won’t put you to sleep (remember, I read that on the Internet). It’s called: Shut up about the y-axis. It shouldn’t always start at zero.
In general, in a time-series, use a baseline that shows the data not the zero point. If the zero point reasonably occurs in plotting the data, fine. But don’t spend a lot of empty vertical space trying to reach down to the zero point at the cost of hiding what is going on in the data line itself. (The book, How to Lie With Statistics, is wrong on this point.)
For examples, all over the place, of absent zero points in time-series, take a look at any major scientific research publication. The scientists want to show their data, not zero.
The urge to contextualize the data is a good one, but context does not come from empty vertical space reaching down to zero, a number which does not even occur in a good many data sets. Instead, for context, show more data horizontally!
And while you’re at it, read about why he says using PowerPoint during a speech is a horrible idea. It’s a crutch. I avoid using it as much as I can.
And while we’re at it, here is a sampling of some new charts for Los Angeles, CA and Westchester County, NY I whipped up. I cover these and a number of other markets for Douglas Elliman Real Estate. Note the lack of a zero start point on the Y-axis in the first chart.
In a refreshing approach, real estate broker Brian Lewis at Halstead in New York City creates amazingly easy to watch listing videos…deadpan delivery with a fun style, while showing off the amenities of the property. He’s done a few hundred but here’s the one written up in People Magazine. No, I DON’T READ PEOPLE MAGAZINE.
I’ve been a fan of Pete Hamill‘s writing for years. When he released his 1995 memoir on his early years in New York called A Drinking Life I appreciated the way he brought the city’s texture to his New York City stories. I went to the book signing with my oldest son (then 6) and told Pete my son liked to write. He told my son, “if you write every day, someday you can become a great writer.” Of course my son was looking around at all the people and curios nearby and seemed to miss these words of wisdom. Fast forward 17 years to 2012 when I went to his book signing for Tabloid City. I recounted the quick story to Pete and told him my son probably didn’t hear him back in 1995, but ended up becoming a talented writer and had considered journalism as a career at one point.
Fast forward once again to the present. Pete Hamill just wrote a great piece for National Geographic called A New York Writer’s Take on How His City Has Changed With wonder and dismay, Pete Hamill reflects on 72 years of transformation as his hometown is continuously rebuilt.. Loved it.
NAR Existing Home Sales – Released on Monday, seasonally adjusted sales fell 3.4% month over month and increased and increased 3.9% year over year. The bigger story is that housing inventory fell 2.3% month over month and fell 4.5% year over year. Tight supply continues to remain the key characteristic of housing right now. More of a wrinkle in the data, the share of first time home buyers edged up to 31% of all sales from 29% a year ago. First time buyers for this year are at their second lowest level since 1981.
Because credit conditions remain tight, causing inventory to remain low, causing housing prices to rise, keeping first time buyers out of the market. I can only imagine the flood of pent-up demand from millennials if by a miracle, mortgage lending were to normalize overnight (and I didn’t gain weight after my Thanksgiving meal).
The New York Times published a solid common sensical approach to those rarified first-timers Tips for First-Time Buyers. Admittedly my favorite section of the piece was called “Killing your Darlings.” Just love that concept (and that’s not the tryptophan talking). Of course my writing is full of my darlings. I can’t help it.
In addition to the piece on First Time buyers in last weekend’s New York Times real estate section, there was another also related and great article on “Micro-Apartments.” The concept is being tested in many cities across the U.S.
Apartments in New York City ordinarily can be no smaller than 400 square feet, but the city waived those restrictions for this development. A zoning proposal by the Department of City Planning could open the door for smaller living quarters, if it is approved by the City Council. It calls for eliminating the 400-square-foot minimum to allow for smaller apartments and loosening some density restrictions to fit more units into buildings.
The idea is to get the price point lower and encircle the apartment with plenty of building amenities and let “size” be the variable. After all, New Yorkers don’t spend as much time inside their apartments as suburbanites spend in their single family homes (note: I made this up, but it’s the impression I have, having lived in both types of housing). However, whenever I hear the term “Micro-Apartments” I still since there are thousands of them already.
My parents own a 300 square foot (on a good day) pied-à-terre in the city in a building with lots of similar sized apartments. New York City apartment complexes like Tudor City are chock full of ’em. So it’s not about whether they will be accepted by consumers for their small size. That day arrived decades ago. The real driver of this is affordability. Of the 14 units that were “micro-apartments” in the new development profiled, 60,000 people applied. That’s simply staggering and shows how incredibly strong the demand for affordable housing is.
The key adversary to the development of affordable housing nationwide are the landowners, who base their land value on super luxury style developments. Municipal governments simply don’t have the financial resources to subsidize enough housing to meet demand. The remaining studios in the featured building are 260 to 360 square feet with rents being offered at about the median rental price for a Manhattan studio whose average square footage is about 550 square feet. In other words, the rent per foot is almost double the overall market rate. You can see the challenge to creating affordable housing in this one example.
If I’m losing you in the density of information as you grapple with your the tryptophan fog and strongly considering an upcoming New Year’s promise of eating less (remember I pick Thanksgiving over New Year’s to make those types of promises), consider juggling.
But if you need something besides juggling things in your life (particularly on Friday afternoons), sign up for my Housing Note here. And be sure to share with a friend or colleague. They’ll feel good, you’ll feel better and I’ll be able to multi-task.
See you next week.
Jonathan Miller, CRP, CRE
Miller Samuel Inc.
Real Estate Appraisers & Consultants
I think it’s fair to say that most humans are driven to be accurate when it suits them. Forget daylight savings time and how we turned our clocks back last weekend as well as the usual discussions about why we should or shouldn’t go through this twice a year. Let’s even skip leap year and get down to business with something more important, the leap second and the relationship to the Earth’s rotation. Even that methodology is now being argued by many people (especially the tidy-minded types who run national standards organisations) dislike the leap seconds’ hackish nature.
Now look at the precision expected in real estate values and trends.
If you confidently answered “no” to all of the above, then you have the ability to process proper context in your real estate life – just make sure your watch is adjusted for the time change.
There was no precision involved when Superstorm Sandy hit the east coast on October 29, 2012. The storm was a blunt, brutal force. Thousands of homes were destroyed and damaged. My town in Connecticut lost power for 5 days and parts of Long Island lost power for 3 weeks. It was devastating. All of Manhattan lost power south of 39th Street for days. As luck would have it our office was located one block south of the line and so were shut down as well. In fact someone dubbed this powerless new neighborhood (within a city that loves neighborhood acronyms like SOHO, TRIBECA, FIDI, MEPA, etc.) as South of Power or SOPO.
Newsday published a nice housing related summary piece for the anniversary. In the aftermath, foreclosure rates for Long Island, while falling, still remain unusually higher despite the areas improving non-distressed market. However the south shore of Nassau County, the area hardest hit by the storm, seems to be leading the housing recovery in Long Island. But part of the price trend story is that some of the damaged housing stock has been rebuilt or upgraded.
Using our data, Brick Underground provided some graphics using price changes in hard hit areas against a larger control group. The impact to price and sales in the region varied significantly. One of the key takeaways from these articles is that the affordability of coastal living has been diminished. The housing stock is undergoing upgrades and the cost of homeownership will be permanently higher through property upgrades, building code changes and significant insurance increases.
We published our research on the Aspen and Snowmass Village housing markets a few weeks ago. It’s a surprising small market with a significant range of housing prices, not unlike a market like Manhattan, hence the trends can be precision-challenged. Not unlike the other 17 U.S. housing markets I cover, Aspen and Snowmass Village have skewed towards luxury housing as well. I also see these changes at other mountains I’ve skied: Stratton, Vail, etc. that largely began during the bubble a decade ago. I just began covering Aspen at the beginning of the year and have been steadily compiling an archive of housing data back to 2004. This week I got around to charting the market a number of ways. Here’s the library and I’ve inserted a few of my favorites below.
While we are on the topics of cold and precision, I’ve been tracking the absorption rate of the Manhattan market by property type and price range since the summer of 2009. It’s been fascinating to watch the pace of the bulk of the market speed up as it continues to be challenged by inventory and the upper end of the market slow down as development continues to target it, necessitated by record land prices. I’ve placed the October 2009 chart against the October 2015 chart. Incidentally, this is a pattern I am seeing across most of the housing markets I cover.
Now lets compare New York City neighborhoods to L.A. neighborhoods using the insights of NeighborhoodX (launching soon) because we can:
Checks from China
And lets get to the bottom of how the Chinese extract money to invest in U.S. real estate. It’s actually quite simple, they use checks. Here’s the schematic.
Yesterday morning I was rushing to work – I jumped into my car parked in our garage and a huge spider, the size of a giant bumble bee, had weaved a thick web a foot away from my wide-eyed stare. I grabbed some papers to swat it away but it scurried off in my car nowhere to be seen. I was running late and made the drive with my “spidey-sense” on full power.
Fast forward to the evening hours. I opened my car in a dark parking lot and there it was again, inches from my face with a heavy duty web nearly completed. I swatted it away but the door light suddenly turned off. I fumbled for my keys to prompt the door light to turn back on. When it did, I looked down at the giant spider crawling up my leg. I swatted it again and it was nowhere to be seen…
If you need something stronger than a spider web in your life with lots of lights turned on, sign up for my weekly Housing Note here. And be sure to share with a friend or colleague. They’ll feel good, you’ll feel better and I’ll be more relaxed.
See you next week.
Jonathan Miller, CRP, CRE
Miller Samuel Inc.
Real Estate Appraisers & Consultants
At the height of the condo building boom in Manhattan, when it seemed as if a shiny new building was being announced every week, developers took a page from the motion picture industry and seized on star power to sell their projects.
In the same way that George Clooney and Meryl Streep could be counted on to carry a picture, these brand-name architects, or “starchitects,” as they came to be known, helped to set a building apart and gave buyers another reason to want to live there.
The names on the marquees included Richard Meier, Enrique Norten, Robert A. M. Stern, Philip Johnson and Annabelle Selldorf, as well as designers focused on interiors, like Philippe Starck and Giorgio Armani. The boldface treatment worked, helping to push prices ever higher.
But you don’t need a subscription to Variety to know that star power sometimes dims. Now that the dust has settled and these buildings have had a few years to age and see some turnover, resale prices show mixed results. Although none of the starchitects have suffered enough to be considered box office poison, some buildings that had not sold out when the recession hit have had to offer hefty discounts. Others, while still commanding good prices relative to nearby buildings, are not holding their initial value.
Still others, like Mr. Stern’s 15 Central Park West and Superior Ink, have continued to set sales records.
This era is not the first in which New Yorkers have turned to trusted names to build their homes. During the 1920s building boom, Rosario Candela, J. E. R. Carpenter and Emery Roth designed apartment houses that quickly came to define luxury. Today, their apartments are still coveted for their high ceilings, elegant details and gracious layouts. Their names, just like those of their 21st-century equivalents, often translate into added value, but do not guarantee it.
Mr. Meier’s glass towers, 173-176 Perry and 165 Charles, off the West Side Highway, are credited with helping to extend the boundaries of the West Village, but his venture into Brooklyn at 1 Grand Army Plaza has not fared as well: sales started in 2007, and five years later the building has yet to sell out. Also, nearly every resale at Philip Johnson’s Urban Glass House in SoHo, which opened in 2006, has been for less than the original purchase price, according to data on Streeteasy.com.
Some buildings with celebrity architects or designers have maintained or exceeded their boom-time prices, and they undoubtedly owe their success at least partly to that star power. Where prices have not held up, though, a celebrated designer was not enough to overcome other market forces, including price levels still about 10 percent below the highs of 2008. Many buildings with lackluster track records are in less-than-ideal locations or in areas that perhaps weren’t quite ready for high design and its corresponding price tag.
“The city is better for the starchitect phenomenon,” said Jonathan J. Miller, the president of the appraisal firm Miller Samuel, “because it enhanced the mystique of New York’s residential housing market. But during the frenzy, those buildings were marketed as if they had inherent greater value, and the jury is still out on that.”
Mr. Miller said that people who bought apartments in buildings with design pedigrees may not be getting better returns than those who bought in luxury buildings without famous names attached.
“With the exception of the very top of the market, the city has gone into a much more austere mind-set,” he said. “I’m not convinced having a starchitect differentiates a building nearly as much as it did before.”
When Mr. Norten’s One York Street in TriBeCa came to market in mid-2008, several units sold for close to their asking prices. But after the financial crisis, sales slowed and asking prices dropped by as much as 24 percent. Even then, however, many apartments sold at discounts of about 10 percent. Several apartments have been resold since 2008, each for less than the original purchase price.
Mr. Norten nonetheless sees One York as “a huge success,” noting that the penthouse sold for $23.7 million, or nearly $3,900 per square foot, an extraordinary figure for a building off Canal Street. Two-bedrooms in the building have sold for $1.8 million to $4.7 million.
Mr. Norten feels that the starchitect concept was overblown by developers and the media. During the boom, he said, the desire for a brand name may have gotten out of hand. “Developers were not just looking for architecture brand, they were looking for any brand,” including designers like Armani and Mick Jagger’s daughter Jade, he said. “Of course I love Mick Jagger, but does that make a good apartment?”
Regardless, he said, “good architecture does sell better because people in a sophisticated society like New York appreciate good architecture.”
Indeed, several high-profile buildings are in the works, including Christian de Portzamparc’s One57, a 90-story tower on West 57th Street; Jean Nouvel’s Tower Verre, a 78-story structure that is to include gallery space for the Museum of Modern Art; and Herzog & de Meuron’s tower at 56 Leonard Street.
Darren Sukenik, a managing director of Prudential Douglas Elliman, said that buyers had become more discerning in recent years. “People are no longer buying just for starchitect appeal,” he said. “Now, it’s more about quiet consumption.”
At the high end, he added, “people aren’t looking to be sold a lifestyle, they’re looking to have their lifestyle understood and respected.” To that end, he is working on a project with an architectural firm chosen by the developers (he would not divulge its name) for its popularity with the target audience. “Instead of trying to sell them sizzle,” he said, “the developers turned to the buyer profile for inspiration.”
For brand-name buildings that have not maintained value, location may be a factor.
The price drops at Philip Johnson’s Urban Glass House, which has interiors by Annabelle Selldorf, “had nothing to do with design and everything to do with the city’s decision to build a sanitation building next door,” said Leonard Steinberg, a managing director of Prudential Douglas Elliman who is working with Ms. Selldorf on a recent project, 200 Eleventh Avenue.
Uncertainty about the garage, which is still under construction, definitely hurt resales, Mr. Steinberg said. But once the garage is done and “people see that it’s not unattractive, I think prices will go back up.”
Designer buildings in the financial district, which is seeing about half the sales volume of 2007, have also had mixed results. Downtown by Philippe Starck, at 15 Broad, sold out quickly in 2006, with many owners flipping their places at huge profits. But since late 2008, about a quarter of the resales have been at a discount.
Ariel Cohen, an agent at Prudential Douglas Elliman who has sold or rented about 300 apartments in the building, said that the Starck design, with its iconic chandeliers and modern finishes, had held up well. Many of the units sold at discounts are open lofts, long spaces with few windows; their layout was dictated by the building’s original function as a bank. He described the price decreases, ranging from 1 to 20 percent, as “stable pricing.”
At 20 Pine, a 409-unit building that is also a former bank, interiors designed by Armani/Casa were not enough to facilitate quick sales. The building came to market in 2006, and about 30 units are still for sale.
Deborah DeMaria, the agent at Warburg Realty who took over sales last year, was one of the building’s first buyers. She said that she had paid about $1,200 a square foot for her apartment, and that asking prices for some units were as high as $1,700 per square foot. But the average sale price now is about $1,000 per square foot, on par with the rest of the neighborhood. The Armani name, she added, “is still a huge draw for Europeans and other buyers who are interested in design.”
Andrew Gerringer, a managing director of the Marketing Directors, says that today, a starchitect will not bring a big premium if the building is not both in “the right location and the right product for that location.”
By that reasoning, perhaps Brooklyn is not quite ready for contemporary design.
Having a sales office in TriBeCa probably didn’t help Mr. Meier’s 1 Grand Army Plaza when it opened in 2007, said Stephen Kliegerman, the president of Terra Development Marketing, which took over sales in January through Brown Harris Stevens. “They were trying to deny the location,” he said. “But most of the buyers have been Brooklynites, so that was a mistake.”
Brown Harris has lowered prices on many units, and the glass tower is now nearly 80 percent sold, with an average sale price of about $900 per square foot, respectable for Prospect Heights. “It’s not as successful as originally planned,” Mr. Kliegerman said. “But that might have been overzealous.”
Mr. Meier says he can only guess at why his Brooklyn building has taken so long to sell. “Is it the location? Did the market change? Is it that people there like to live in town houses more than a modern building?” he said. “I don’t know the answer.”
At the opening of an exhibition of his collages on the ground floor of the building last fall, Mr. Meier met many of the building’s residents. “Everyone came up and told me how much they loved living there,” he said. “That was very gratifying.”
At another glass-clad building not too far away designed by Mr. Norten and promoted as “A Modern Signature to Park Slope,” only a handful of apartments have sold since sales started two years ago.
Mr. Norten ascribed the sluggish sales mainly to the building’s location. It is on Carroll Street, near Fourth Avenue, the far western edge of Park Slope. “I think the developers were very brave in trying to upgrade with different architecture there,” he said. “They were taking a risk.”
Other buildings may have fallen victim to bad timing. The complexity of high design caused delays in some cases, landing projects on the market at its weakest. This may have been the case for Ms. Selldorf’s 200 Eleventh Avenue, the “sky garage” building where each apartment has an “en-suite” parking spot; and for 100 Eleventh Avenue, a Jean Nouvel building with a shimmering facade made up of hundreds of irregularly shaped windows.
Sales at 200 Eleventh started in early 2007, but most units did not close until 2010 and 2011, many at a significant discount off the asking price. Ms. Selldorf directed questions to Mr. Steinberg, of Elliman, who said the waters were muddied because some final asking prices were higher than the original prices. He noted that one of the penthouses recently sold for nearly $4,000 a square foot as raw space.
Mr. Nouvel’s building also came to market in 2007, though it did not start closing deals until 2010; some units have sold at 20 percent or more off the list price. Several are still available, including an eight-bedroom penthouse listed at $38.9 million. Mr. Nouvel was not available for comment.
Julie Pham, a senior vice president of the Corcoran Group who has sold several apartments at 100 Eleventh, says that prospective buyers seem to be looking for a view as much as a building designed by a famous architect. Many are art collectors who appreciate the design, and many are foreign buyers who also own properties in places like Miami and São Paulo. “Hypermodernism is not much of an issue for them: if anything, they like the glass,” she said. “Whereas New York buyers are more accustomed to not living in a fishbowl and not being on a highway.”
Recession-related problems have even affected Mr. Stern, whose 15 Central Park West recently set a new record with its $88 million penthouse sale. Highgrove, a high-rise condo in Stamford, Conn., built with the prewar aesthetic of Mr. Stern’s other projects, started selling apartments in 2004 but has not yet opened. The original developer went into foreclosure, and buyers filed lawsuits as their promised move-in dates came and went. The building has now changed hands, and the new owners are considering what to do with it.
“That’s an example of a building that missed the market totally,” Mr. Gerringer said. The large and gracious apartments in Highgrove are not well suited to Stamford’s younger demographic, he said. Mr. Stern was traveling and unavailable for comment.
Mr. Norten recalled that a few years back, his New York office was assailed by condominium design requests. “Everybody was a developer and everybody wanted to do a building,” he said. “It was crazy.”
Today, he said, he views potential projects with a warier eye. “I think maybe we should all be a little more careful after we learned big lessons,” he said.
I must admit, I have really enjoyed the burst of creativity in new architectural design as it relates to residential housing. It became all the rave during the later years of the recent housing boom. Some architects were name-brands before this trend but others have been marketed so heavily by developers that they become famous by their recent works.
I was reading the article Miami Is All About Its Celebrity Architects [NYT] this weekend and it occured to me:
Isn’t this the same Miami while gushing about its architecture that has a massive oversupply of new condos coming online over the next year?
Isn’t this simply a game of oneupmanship? Increased competition has raised the stakes for differentiation rather than some clever awareness of changing lifestyles?
With all the Starchitect developments in the major metro markets (and its all virtually the same players in the major markets), honestly, how many have been runaway hits in the past 3 years? …Sold out quickly or at least faster than the norm?
Have developers simply been caught up in the hype? Can we mark the beginning of the end of the boom when their use became popularized (say mid-2004)?
Here’s a few of Starchitect articles of interest:
Celebrity Architects: Behind the Curtain Wall [The Real Deal]
Should colleges hire star architects? [Chronicle]
Condo Couture [NY Mag]
Playing the Fame Game [LA Dwtn]
Troy McMullen’s thorough article today Condos With a Name: ‘Available’: The Architect May Be A-List, But the Location Often Isn’t; Meier, Libeskind Languish [WSJ] talks about the Starchitect phenomenon and how thats not necessarily the panacea for real estate developers trying to move their product. [and my firm is cited as a source in the article – excessively shameless plug]
I recently wrote an article about Starchitects in New York Living and concluded that while it was an effective way to differentiate a new offering, the initial motivation for their services is now diluted as it becomes the norm and the efforts don’t tend to stand out as much any more.
Its definitely an exciting time for lovers of architecture.
One of the most difficult aspects of rating the success of a new development is how rapidly the units are being absorbed. Having been on both sides of the fence, first as a condo sales director more than 20 years ago, and since then as an appraiser, I can appreciate the dilemma that all parties go through in this process. There is a lot of money at stake and much of the success of the project depends the timing of its entry to the market. Its all about keeping the momentum going in the initial concentrated marketing effort.
The data is not verifiable in public record until closings begin and rumors among the brokerage community can spread like wildfire. The speed of absorption tells us how accurately the property is priced and how well the mix of units matches the neighborhood. The exageration of sales success can backfire as the development moves closer to completion. The gap between actual sales and “told” sales gets more and more difficult to explain as evidenced in this article and can result in a consumer backlash.
At the end of the day, its still all about price and its relationship to the amenities provided. And in a less frenzied market, price becomes even more critical and the market less forgiving.
Here is another article I wrote on the problems appraisers face in valuations within new developments:
Appraising “New” New York Real Estate [New York Living]