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No one will argue that a $70 million penthouse can be special. But when a penthouse has many open houses and sits on the market for more than a year, it seems reasonable to wonder about pricing.

Samantha Sharf at Forbes presented a great video that juxtaposes the amenities of the apartment with my perspective on the state of the super luxury market and the next possible housing cycle in front of us. When they filmed this in Bryant Park, there were many people standing and watching off camera which was kinda fun despite my serious slouching.

[click on image for video]

Tags: Zeckendorf, Samantha Sharf, Forbes, Penthouse

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There was a terrific Bloomberg News story by Oshrat Carmiel: Manhattan Trophy Home Sellers Test Buyer Limits on Price that delved into the disconnect between reality and perception of the luxury housing market in Manhattan. I talk about this phenomenon on Bloomberg Radio’s ‘Taking Stock’ with Pimm Fox and Carol Masser.

It all began with Sandy Weill’s $88M sale of 15 Central Park West PH20 to a Russian Oligarch back in late 2011 that closed in early 2012. He was reportedly purchasing the unit for his 20-something daughter to crash when she wasn’t at her home in Monaco but it was more likely a divorce strategy. The home sold for $13k per square foot, 30% more than the recent $10k ppsf record previously set within the building (ie definition of an outlier).

Combine this outlier with the dearth of high end new development until recently and this 13k ppsf threshold became a new pricing tool for hopeful sellers and real estate brokers of large properties. The $100M resale penthouse listing at CitySpire was the new symbol of “outlier pricing” phenomenon. Other examples of aggressive pricing are cited in the Bloomberg story.

Despite the fact that this nearly $100M subset represents a tiny sliver – a handful of listings and sales – in the overall Manhattan market, consumer (buyers and sellers) have been subjected to a buzz saw of news reports about trophy properties giving the impression that properties like this comprise most of the housing market.

In reality there have only been a handful of contracts signed near the $100M threshold at buildings like One57 and 432 Park Avenue (the near $100M townhouse contract doesn’t count because it’s roughly 1/2 the ppsf of those apt sales)..and otherwise the overall Manhattan market seeing very modest price growth.

Yet none of the trophy apartment resales are selling at this new price point. Sellers have been testing the waters to see if someone across the globe will be willing to pay for something here, that in relative dollars to their home market is a good deal or they hope they will get lucky and these buyers will over pay.

Apparently these trophy sellers haven’t used the Internet.

UPDATE
Just got this feedback emailed from a real estate agent: In every neighborhood and property class “testing the waters” is an age-old technique that has enough utility to go on forever. As an agent, I prefer the price that results in a quick sell but I never turned down a client who insists on an absurd Ask. In most such cases, I have picked up a few customers and sold them something else they could afford before the “outlier” ran out of inquiries and the seller dropped its price or took it off the market. I like it when journalists report activity at the extremes of price and value because it helps me to identify the evolving dimensions of the market.

____________________________
Bloomberg Radio’s ‘Taking Stock’ with Pimm Fox and Carol Masser
Bloomberg News: Manhattan Trophy Home Sellers Test Buyer Limits on Price

Tags: Pimm Fox, Superstorm Sandy, Forbes, Taking Stock, Carol Masser, Bloomberg Radio, Radio

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I spoke with Matt Woolsey, Senior Reporter, Forbes Magazine, Forbes.com about his article covering the luxury housing market nationwide in the current edition of Forbes Magazine called:

The Other Shoe in Real Estate

Check out the podcast.

You can subscribe on iTunes or simply listen to the podcast on my other blog The Housing Helix.

Tags: Forbes

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Steve Forbes interviews FDIC Chair Sheila Bair on the credit crunch, systemic risk, “too big to fail”, toxic assets, shadow banking and others. The questions have the former presidential candidate’s less-government orientation and it’s a good interview.

So, instead of hoping that these risks will be competently managed … we also need a “fail-safe” system where if any one large institution fails, the system carries on without breaking down. We need to reduce systemic risk by limiting the size, complexity, and concentration of our financial institutions. We need to create regulatory and economic disincentives aimed at limiting the size and number of systemically important financial firms. For example, we need to impose higher capital requirements on them in recognition of their systemic importance, to make sure they have adequate capital buffers in times of stress.

If you don’t want to watch the video, here’s the transcript.

I am doubtful any regulatory agency can prevent a catastrophe because they are human and are subject to mob mentality just like investors are. I see any such effort as simply reducing the odds of such an event. In this recent disaster, there were no tangible safeguards in place.

I think she is one of the brightest leaders of all the regulators out there, but she was at the helm during this crisis and we saw little of her until things went wrong.

Was she held back by the prior administration or simply now sees the light?

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I always thought the word crisis wasn’t the right word for the situation we find ourselves in these days. I see this more as a housing reset. It’s when the issue crosses over into the mortgage/credit arena, then we are in a crisis – sort of a technical malfunction. Massive de-leveraging = a crisis I suppose.

There’s a good article in Forbes called, oddly enough: “The Housing Crisis Isn’t A Crisis.”

This brings us to Zywicki’s disagreement with the Obama administration. Treasury Secretary Timothy Geithner, Director of the National Economic Bureau Lawrence Summers and the other adepts in the administration all argue that the bursting of the housing bubble amounts to a national tragedy. According to President Obama himself, the “crisis” is “unraveling homeownership, the middle class and the American Dream itself.”

…and we start to realize how much power the financial services sector wields over Washington policy makers. This is best explained in Simon Johnson’s piece in The Atlantic called The Quiet Coup.

Of course many find it easier to simply blame the person in closest proximity in this fun piece in Salon by Erica Ferencik called They shoot real estate agents, don’t they? Erica bills herself as “a recovering stand-up comedian and featured guest on NPR’s “Morning Stories.” I recently plugged her recent novel, “Cracks in the Foundation” which is a good read. Erica promised me an Orange Julius or a mention of my eventual first book in her blog, whichever comes first.

Tags: Forbes, Tim Geithner

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Last week, Dan Gross at Newsweek wrote a fun piece on Slate/Newsweek called “Jump” (not a a correlation with the old Van Halen song). Basically he says that nothing the government can do will fix the economy unless we participate.

In the grips of a bubble mentality, we—as investors, consumers, and businesses—blithely assumed risk and convinced our­selves it was perfectly safe to do so. We bought houses with no money down, took on huge amounts of debt, and let the booming stock and housing markets perform the heavy lifting of saving.

I remember the ridicule the former president took for his previous economic fix after 9/11 – “Shop!” else we enter the “paradox of thrift.“

If everyone saves during a slack period, economic activity will decrease, thus making everyone poor­er. We also need to start investing again—not necessarily in the stocks of Citigroup or in condos in Miami. But rather to build skills, to create the new companies that are so vital to growth, and to fund the discov­ery and development of new technologies.

I am not suggesting that shopping is solution, but it is certainly part of the problem right now. When consumers and investors hunker down and do nothing, a failure spiral results.

Today Secretary Geitner announces the plan we have been waiting for, which is heavily reliant on the private sector. US Treasury secrectary Geitner unvailed his second attempt at getting the economy moving again and this time there is probably no room for a do-over. Did he really call it “My Plan”?

We cannot solve this crisis without making it possible for investors to take risks. While this crisis was caused by banks taking too much risk, the danger now is that they will take too little. In working with Congress to put in place strong conditions to prevent misuse of taxpayer assistance, we need to be very careful not to discourage those investments the economy needs to recover from recession. The rule of law gives responsible entrepreneurs and investors the confidence to invest and create jobs in our nation. Our nation’s commitment to pursue economic policies that promote confidence and stability dates back to the very first secretary of the Treasury, Alexander Hamilton, who first made it clear that when our government gives its word we mean it.

Of course Hamilton was shot dead in a duel. Let’s hope this strategy has a quicker draw and better aim.

Here’s the official press release and fact sheet posted this morning.

Here’s the problem with the AIG bonus outrage that fueled this modification of plans – it’s not about being scared of keeping AIG and other Wall Street firms afloat and it’s not about the obscene lack of morality – it’s about the danger of scaring off the private sector from participating in the solution. It’s called “Free Market.”

Council of Economic Advisers Chief Christina Romer said:

“We’ve got banks with a lot of toxic assets, what ‘toxic’ means is they are highly uncertain … so that is certainly the big picture, and that is going to be the main reason for doing this … We simply — we simply need them. We need them — you know, we’ve got a limited amount of money that the government has to go in here, so we need to partner, not just with private firms, but with the FDIC, with the Fed, to leverage the money that we have,” she said.

$165M AIG bonuses (actually it’s $218M) and it’s symbolism of greed have been a distraction and we have to be very careful of taking our eye off the ball. Cut out the “Main Street versus Wall Street” homilies and let’s fix this.

Congress underestimated consumer outrage and the House quickly passed retribution legislation to get even via a 90% tax. Because the political playing field is incentivized by one-upsmanship, Congress is much more comfortable with this sort of grandstanding/finger pointing and that’s what this debate has regressed to. Dodd is in hot water.

It began with the previous legislation of caps on Wall Street compensation (when Congress didn’t catch it), while a feel good measure, is also a short sighted position much more apparent now because there will always be work-arounds.

I love how many simply lump all Wall Streeters into one evil pile and feel it’s right to treat everyone the same. It’s professional prejudice on steroids. A market for the “toxic” assets needs to be fostered. Do we want to get out this mess or not? No room for populist shortsightedness.

More on the plan later. In the meantime I need to download that song from iTunes – it’s systemic so we might as well jump.

Tags: Dan Gross, FDIC, Forbes, Wall Street Bonus, Tim Geithner, Bailout Nation

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Last week the New York State Comptroller announced that Wall Street bonuses fell 44% to $18.4B and the securities industry losses may exceed $35B

Troubled Asset Relief Program (TARP), which infused billions of dollars into the financial system, helped prevent more institutions from failing. TARP placed restrictions on bonuses for top executives and many have voluntarily forgone bonuses, but it did not impose limitations for lower-level employees.

State Comptroller Thomas P. DiNapoli seems to be inferring that high level executives held back and the more pedestrian lower paid employees took the money? I don’t think so. Sure, CEOs at Citi and others witheld bonus compensation, but that wasn’t in the majority. In fact 79% of all Wall Street employees got paid a bonus this year.

In fact, although the bonus pool was down 44%, it was the sixth highest payout in history.

Here’s what I wrote about bonuses last year at this time. Much has changed, other than the concepts applied to compensation (hint: they’re not correlated with performance.)

That certainly important for the New York real estate economy, but given the credit crunch, it may not prove to be much help. Each January, the bonus compensation starts the real estate market engine.

Maureen Dowd in her Op-ed piece Disgorge, Wall Street Fat Cats suggests:

The president needs to think like Andrew Cuomo. “ ‘Performance bonus’ for many of the C.E.O.’s is an oxymoron,” he said. “I would tell them, a) you don’t deserve a bonus, b) where are you going to go? and c) if you want to go, go.”

Firstly, I think we all need a refresher course on what a bonus is:

bo⋅nus   [boh-nuhs] noun, plural -nus⋅es
1. something given or paid over and above what is due.
2. a sum of money granted or given to an employee, a returned soldier, etc., in addition to regular pay, usually in appreciation for work done, length of service, accumulated favors, etc.
3. something free, as an extra dividend, given by a corporation to a purchaser of its securities.
4. a premium paid for a loan, contract, etc.
5. something extra or additional given freely: Every purchaser of a pound of coffee received a box of cookies as a bonus.

I always saw bonus as a mislabeled compensation method – most see it as base pay plus commission. After all, the average compensation on Wall Street has averaged 40% to 50% of total compensation and bonus payouts have been at or near record levels over the past 6 years – based on nothing really. It morphed into a way to offload compensation risk to the employees. We’ll pay you half of your salary at the end of the year if we can, which morphed into no matter what.

Felix Salmon at Portfolio opines further on this point – that there is a minimum bonus payment level that must be made (seemingly contrary to Andrew Cuomo’s statement above).

Now there are good reasons for having a bonus system: it incentivizes profitable work, and it makes it easy for banks to pay less money in lean years. But as Bookstaber writes, there’s definitely an implicit minimum bonus at investment banks — a sticky level below which it’s hard to cut bonuses any further.

There are reasons to have a minimum bonus, rather than baking that money into base pay: it’s not included in pay-rise calculations, for starters. But when banks start getting multi-billion-dollar government bailouts, it looks really bad if they then just turn around and spend a similar amount of money on bonuses.

But resentment is growing and the campaign weary “Main Street vs. Wall Street” has found new life. Wall Street has lost billions, been bailed out for billions and been paid billions in bonuses. The mortgage securitization juggernaut will end up costing taxpayers trillions and the industry is whining about compensation.

Washington is angry, and perhaps embarrassed for not building this into the TARP.

But seriously, did Congress really expect Wall Street to stop paying out bonuses voluntarily? Its part of the culture, always has been. It’s like asking Congress voluntarily not to run attack ads and not be overly partisan – it’s simply built into their DNA.

No moral judgement being made here – people outside this world don’t seem to understand what makes Wall Street tick. If its not mandated, then status quo will prevail.

Even worse, the lower compensation is having an adverse effect on the social lives of Wall Street bankers, ’cause its the economy, Girlfriend.

UPDATE: Signs Wall Street may already be re-inventing itself.

Tags: Forbes, Wall Street Bonus

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The 4Q 2008 Brooklyn Market Overview that I author for Prudential Douglas Elliman was just released.

The President and CEO of Prudential Douglas Elliman, Dottie Herman, is a big believer in publishing market data to create more transparency for consumers in the market her firm serves – Manhattan to Montauk.

Other reports we prepare can be found here.

Customized tables for the 4Q 2008 Brooklyn data and a series of updated charts are available on our corporate site.

A report excerpt

…The median sales price was $490,000, down 7.5% from the prior year quarter result of $530,000 and down 3.9% from the prior quarter result of $510,000. The year over year change in quarter median sales price has declined for 5 consecutive quarters beginning in the fourth quarter of 2007 when the decline was 0.9%. Subsequent quarters resulted in declines in this metric of 1%, 1.9%, 5.6% and 7.5%. In addition, this is the first time the indicator fell below $500,000 since the first quarter of 2006 when the median sales price was $499,500. Average sales price for the quarter was $559,338, down 5.2% from the prior year quarter average sales price of $590,169 and down 2.8% from $575,287 in the prior quarter. Brooklyn showed declines in median sales price more than a year ahead of Manhattan…

The media coverage of the report is available here as they were obtained (in no particular order). In addition, the headlines and respective links to articles listed below are a fun way to see how the media interprets the report content since every outlet was working off the same information.

Print/Web

Brooklyn Apartment, Home Prices Drop 7.5% as Recession Hits [Bloomberg]
Brooklyn Housing Boom: Dude, It’s So Over [New York Observer]
Q4 Brooklyn Reports Show Bloodletting, Except Brownstones [Curbed]
Brooklyn housing market still suffering [Crains]
Brooklyn apartment sales prices fall 7.5 pct -report [Reuters]
Brooklyn Real Estate Begins to Collapse, Too [Gothamist]
Brooklyn apartment sales prices fall 7.5 pct -report [Forbes]
Brooklyn Real-estate Market Reports: More Sobering News [New York Mag]
Elliman: Condos Down, Co-ops Flat, Brownstones Up in 4Q [Brownstoner]
Brownstone Brooklyn prices unscathed in fourth quarter [The Real Deal]
Brooklyn Housing Market Hit [WNYC]
Experts: Real-estate boom about to go bust [The Brooklyn Paper]

Radio

4Q 08 Brooklyn Market recap [WNYC Radio]
Brooklyn Housing Market in 4q 2008 [Bloomberg Radio]

Tags: Forbes, Brownstoner, New York Observer, Dottie Herman, Radio

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The insanity of CEO compensation in the lending industry continues even as many of those institutions have run out of money. WaMu is paying $20M to CEO Alan Fishman for 17 days on the job (my guess at the hourly calc – $20M/17 days/15 hour days). To be fair, I can only assume he worked long hours without a break for the past three weeks due to the dire situation of his employer.

According to filings with the Securities and Exchange Commission, WaMu threw a $7.5 million bonus at Fishman when it hired him on Sept. 8, and guaranteed him an immediate cash severence of $11.6 million — both of which he gets to keep.

He also was eligible for annual bonuses of up to 365 percent of his annual base pay — set at $1 million — to go with millions of shares of company stock.

Fishman does lose out on a big bonus that would have kicked in had he remained on the job through 2009.

I am not saying he shouldn’t be paid this salary if the contract was proper. I know the amount is ridiculous. But he’s not the bad guy here. He was courted heavily to come in and keep the lender from going under even though, in fairness, WaMu was out of business and simply didn’t know it. Who wouldn’t want to make that rate of pay?

Incidentally, this was the largest US banking failure in history.

What I do have a problem is the board and their accountability to its shareholders. Remember their previous CEO?

Personal feelings: While I feel sorry for the hard working people who lost their jobs at WaMu who didn’t deserve to, there is no love loss within the appraisal industry from the way WaMu sandbagged their appraisers a few years ago.

Here’s a sampling of the anger they caused:

• WashingtonMututalSucks.org
• WashingtonMututalSucks.com.

Tags: Forbes

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