MANHATTAN — Mortgage rates can determine what many house hunters can afford, which is why the specter of looming rate hikes is causing some jitters.
Though the Federal Reserve hasn't announced exactly when or by how much rates will rise, Chairwoman Janet Yellin said last week that the jump will likely be at a slower pace than in previous economic recoveries.
Because of that, there's no need to panic, brokers said. Still, many are urging buyers who rely on financing — those usually in the market for below $1.5 million — to try to hurry to get into contract while rates are still at historic lows.
"The overall rule of thumb is for every 1 percent [of a rate increase], it affects your purchasing power by 12 percent," said Ron Riemer, a mortgage broker with Douglas Elliman Capital.
That means, if you're able to afford a $1 million home at the current rate of 3.75 percent, you'd have to downgrade to an $820,000 home at a rate of 4.75 percent.
Riemer, who anticipates that rates might rise in July or August by a quarter or a half percent, advises prospective buyers to "get comfortable [with] and qualified for" the event of a rate hike.
"It won't happen overnight. But people should be prepared," said Riemer.
Here are some predictions from real estate experts.
1. Apartment prices might spike in the short run…
Because house hunters might feel a sense of urgency to buy before the rate hikes hit, don't expect any slowdown of bidding wars for apartments under $1.5 million — which in many parts of the city is considered the price point for entry level buyers.
"People really do feel that the money is cheap," said Michael Greenberg, CEO of Level Group. "So, they are really stretching to come up with additional cash needed to close."
While spring and summer tend to be peak buying seasons anyway, a lot of "fence sitters" may come out now, too, and a spike in the already-high demand may force prices to rise even "more quickly than they should," Greenberg said.
2. …But then prices will stabilize
When prices shoot up too quickly, appraisals needed for loan approval can't keep up —as has happened in recent years. When there's a discrepancy between the loan and the sale price, it could kill a deal or force a buyer into putting more cash down to cover the gap.
Greenberg predicts that this could become a common problem, which will force the market to "correct itself" and reign in prices later in the year.
Higher rates also might put a damper on bidding wars, said Jason Lanyard, of Stribling, who works with many investors who've been snatching up 2-bedrooms condos in the $1.5 million range, which they then rent out.
"I have buyers looking down to the decimal point in terms of profit," said Lanyard, who believes these buyers might be forced out of the market, along with many first-time buyers, if rates increase. "It's not that they don't trust that the properties are going to appreciate. It's that they need to be cash positive."
Still, since there's a deep well of foreign buyers paying all cash, Lanyard doesn't expect prices to plummet.
Also, though it's a commonly held belief that higher interest rates mean lower home prices, there actually isn't a strong correlation between the two, real estate expert and appraiser Jonathan Miller said.
"When interest rates rise, it means the economy is getting better," Miller said.
While there could be some price "slippage," he said, if employment remains strong, so will housing prices.
"The market will take a breath [and] go from frenzied to hectic," Miller believes.
3. Credit might finally loosen, and that could help inventory.
Tight credit has been an issue for many would-be homebuyers since 2008, Miller said, explaining how lenders have focused on "removing any hint of risk," requiring higher credit scores and other stringent qualifications.
The Fed's decision to increase rates will likely encourage banks to loosen credit, and that might help address the logjam of low inventory, Miller believes.
Homeowners — who hadn't been able to buy in the current market — will finally be able to do so, and that means they can sell their own apartments.
4. Changing rates could hurt some co-op and new development deals.
If rates rise after you go into a contract for a co-op, it could change your monthly costs and therefore affect the low debt-to-income ratio that boards require of buyers (which is calculated by adding up your monthly debt payments and dividing it by your gross monthly income).
Co-ops are sometimes more stringent than banks, so you might still qualify for the mortgage but not pass the board if your purchasing power changes, Riemer noted.
"The last thing you want is you get bank approval, and then rates spike, then the customer is no longer approved by co-op," he said, explaining why some buyers like to lock in a rate when they sign a contract, which can be set for 30, 60 or 90 days.
The cost for locking, however, can raise rates slightly higher.
This poses bigger problems for buyers looking at new developments, where closing dates are often moving targets, Lanyard said, noting some clients in contract have seen several delays on closing dates.
"It's a penalty every time you extend the lock rate," Lanyard said. "You can't just do it ad infinitum."
Gov. Cuomo versus Mayor de Blasio as 421a expires
By Christian Brazil Bautista
Two of the state’s top Democrats are trading jabs over the 421-a tax program, showing cracks in the party agenda over the controversial measure.
Governor Andrew Cuomo and Mayor Bill de Blasio, who have described themselves as friends, are publicly criticizing each other, with advocates from real estate groups and unions lining up behind them.
Since late last week, their dispute has risen to a higher plateau, with de Blasio, who has often refrained from criticizing the Governor, openly questioning the leadership in Albany.
The two men started exchanging harsh words late last week, shortly after they met in Albany. Cuomo, who has aligned himself with unions calling for a wage requirement on affordable housing projects, called the mayor’s proposal “a giveaway to the developers.”
PHOTO BY MARC A. HERMANN/ MTA NEW YORK CITY TRANSIT
“A lot of people think the deal that’s been negotiated by the city is too rich for developers and doesn’t do enough for workers. I want to make sure the workers are protected and the developers get a fair deal. But I am not interested in passing a program that is a giveaway to the developers,” Cuomo said.
The mayor’s office responded with a statement, reiterating their claim that the plan will boost jobs and the number of affordable housing units in the city.
“Anyone seeking to preserve the status quo is fighting for fewer prevailing wage jobs and less of the affordable housing New Yorkers desperately need. If 421a is simply extended as-is, as some are seeking up in Albany, there will be no prevailing wage construction jobs, far fewer building service workers making prevailing wage and no progress on affordable housing for tens of thousands in desperate need. That’s an indefensible outcome,” Wiley Norvell, a spokesman for the mayor, told Capital New York.
De Blasio also expressed regret for supporting the governor during the last election, saying, “I worked very hard for him. I worked very hard to convince my fellow progressives that they could trust what he said. And I would think he would want to be a partner in this and I don’t have any reasonable explanation for you why he’s standing in the way of a reform plan that would protect the taxpayers and create a lot more affordable housing.”
Relations have soured to the point that the two men are now avoiding each other. They took shifts attending the 51st annual Celebrate Israel parade, with both men finding it an appropriate time to air grievances. De Blasio started the festivities, directing a pointed rebuke towards his former boss at the Department of Housing and Urban Development.
“We’re not blind to petty politics. We’re not blind to the games people play,” he said during a speaking engagement at the Concord Baptist Church in Brooklyn.
“I’m just surprised the governor is acting this way. I tried talking to him about it — it’s not like he offered an alternative; it’s not like he had a specific vision of what would be better. So I can’t explain to you why he’s acting the way he’s acting, but it sure is not based on the facts or the substance.”
Cuomo, who also had disagreements with former mayor Michael Bloomberg, fought back, indicating that the proposal would have to be revised to gain support from Albany.
“I believe the mayor’s plan offers a sweetheart deal to large real estate developers in the city,” he said. “The mayor’s plan has raised serious questions that need to be addressed before the Legislature is going to support it or before I’m going to support it, frankly,” he said.
The exchange has inspired real estate groups, lobbyists and unions to pick a side in the feud.
“We overwhelmingly support Governor Andrew Cuomo’s comments today in support of working families over special interests. This is an important issue because it really does affect so many families, and that’s why we will continue to push in Albany for legislation that gives New Yorkers the ability to earn middle class wages which will improve lives,” said Up4NYC, a group representing contractors and workers unions.
“I do not agree with the Governor. While I believe that both the Governor and Mayor DeBlasio sincerely wish to reform 421a to increase the number of affordable housing units in New York City, the Governor’s suggestion that the Mayor’s plan is a giveaway to developers strikes me as disingenuous,” said Michael Greenberg, the CEO of Level Group.
REBNY is backing New York City Mayor Bill de Blasio in his 421-a reform push. “The plan put forward by Mayor de Blasio will result in the creation of much more affordable and market rate, multi-family rental housing in New York City,” the group said.
The tax break will expire on June 15, setting up a duel between the mayor and state leaders in Albany.
Rents in Manhattan’s famous shopping districts are among the priciest in the world—so pricey, in fact, that many retailers and restaurants have been forced to abandon them in favor of less expensive locales.
Crate and Barrel, for example, is shuttering its flagship location at 650 Madison Ave., five years before its lease expires. According to numerous reports, the privately-held chain already pays $20 million for the 62,000-sq.-ft. store, which it has occupied for roughly 20 years. The home furnishings retailer will continue to operate its Soho location, according to a statement from the company.
Likewise, Toys “R” Us plans to close its iconic Times Square location. The Wayne, N.J.-based company chose not to renew its lease on the 110,000-sq.-ft. flagship store. The lease expires next year, and current rental rates for such a desirable location have increased to $2,500 per sq. ft. for the ground floor, according to industry estimates.
“I do think we're beginning to flirt with the top level, where any retailer would have trouble making money,” says Faith Hope Consolo, chairman of The Retail Group at real estate services firm Douglas Elliman Real Estate. “While some of these flagships are advertising and the corporate parent can afford a loss leader, most of these statement stores really are supposed to contribute to the bottom line.”
Luxury retailers can afford the rent
Only a few select retailers and restaurants can afford the rents in Manhattan’s most expensive shopping districts—those that are high-volume, ringing up thousands of transactions daily, or those that sell luxury goods worth tens of thousands of dollars.
“Don’t confuse the best-known shopping districts with all of Manhattan—there are certainly more affordable (though admittedly not cheap) areas that aren’t Fifth, Madison, Times Square or Soho,” Consolo says, adding that the priciest spaces will be leased to international conglomerates with deep pockets. “You just aren’t a serious international presence with a store here somewhere,” she says.
Other retailers and restaurants are moving to less expensive side streets in Manhattan, out to the boroughs or exiting New York City entirely, creating new shopping neighborhoods. Consolo says those priced out of Soho are going to the Lower East Side or Brooklyn, and the Bronx is “finally getting its due,” as are neighborhoods in Queens.
Michael Greenberg, CEO of Level Group, a commercial and residential real estate firm, points to the high rents as the impetus for many restaurateurs to choose Brooklyn over Manhattan for new openings. “It’s one reason that Brooklyn now is on the cutting edge of the food scene,” he says.
Building ownership plays a role
Despite the sky-high rents in Manhattan’s best-known shopping districts, demand for space continues to be strong. “Globalization is bringing a wealth (pun intended) of retail entrants from around the world who can [afford the rents],” Consolo says.
While demand is one part of the equation for higher rental rates in certain shopping districts, new ownership is also playing a significant role. Case in point: 650 Madison Ave., the 594,000-sq.-ft. building that houses Crate and Barrel’s flagship store.
In 2013, a joint venture led by Oxford Properties, Vornado Realty Trust, Crown Acquisitions and Highgate Holdings acquired the 27-story tower for nearly $1.3 billion. According to various reports, the owners have plans to juice their returns by increasing retail rents.
“Building sale prices that assume very high retail rents [force] new owners who have paid top dollar based, in part, on the expectation of sky high retail rents, to seek rents in that range to assure that their properties produce the sort of returns that their investors expect,” Greenberg says.
Rob Frischman, who heads the retail division of EVO Real Estate Group, a commercial real estate management and leasing company, says Manhattan continues to be a landlord’s market, despite the high rents. Moreover, he doesn’t believe retailers will unilaterally abandon pricey districts in Manhattan or any other city with expensive retail rents.
“It’s not that retailers will ‘leave’ because of the rent pricing… I think there is a more esoteric change that continues as to what types of retailing can thrive in these expensive markets,” he explains.
Blackstone’s $5.3 billion purchase of the sprawling Stuy Town apartment complex also bought the firm a jumbo 700,000 s/f of air rights that could wind up being “just the tip of the iceberg” in Mayor Bill de Blasio’s plan to preserve and build affordable housing in the city, according to one expert.
News of the air rights in Stuy Town — and new owner Blackstone’s claim over them, along with the 110-building property, was reported in the Wall Street Journal last week.
While the value of the air or development rights wasn’t clear since it depends where they’d end up, commercial real estate attorney Michael Greenberg, also founder and CEO of the Level Group brokerage firm, predicted many more similar arrangements in the future as the city looks for creative ways to get those elusive units of affordable housing.
In Stuyvesant Town, this meant preservation, and if air rights are transferred elsewhere, possibly new affordable housing.
Blackstone and its partner in the Stuy Town deal, Ivanhoe Cambridge, have gotten the city’s support to transfer the Stuy Town air rights since the owner has made a commitment not to build on the property’s open spaces or its existing structures.
“What’s unusual is that it’s rare for the city to allow it — there have been requests for them to allow the transfer to sites that are not contiguous or to other neighborhoods even,” said Greenberg.
Noting the mayor’s ambitious plan for affordable housing, Greenberg predicted that if the city got creative with ways to transfer air rights, “he might be able to jumpstart his campaign promise and get pretty close to accomplishing it. It’s an insight to how the mayor’s thinking in a non-traditional way.?
According to Wiley Norvell, a spokesperson for the mayor, any transfer that resulted in residential use would be subject to mandatory inclusionary zoning, which means at least 25-30 percent affordable housing.
“This,” said Norvell, “represents a commitment to work with the new owner, which has agreed not to develop any of the open spaces within the complex and to protect its affordable housing, and to study opportunities to transfer those existing rights elsewhere.”
Greenberg, who said he’s worked with air rights his whole career, pointed out that this issue “is much bigger than Stuyvesant Town,” considering that there are currently millions of square feet of unused air rights in the entire city.
“If you create affordable housing units and lose others you net zero, which doesn’t help,” said Greenberg. “This sets a precedent. This might be the tip of the iceberg as to how they plan in the future (for affordable housing).”
Typically, he said, air rights are worth about “half of what the underlying land is worth. It’s a little higher in places where you can monetize it for a higher price, but 50 percent is the rule of thumb.”
Greenberg added, “This isn’t just about Stuy Town. It’s about the future of development in the city.”
Of course, with air rights typically just transferred to nearby lots, cooperation of the city to allow them to be used further away is what would likely spur the interest of developers.
Greenberg gave the example of the Highline Transfer Corridor as an occasion where the city allowed landowners to transfer development rights beyond contiguous lots to accomplish a particular policy goal.
“Here, it appears that the areas of the city where the new owners of Stuy Town can transfer their air rights is less defined,” he said. “But this concession to the owners of Stuy Town is clearly an outgrowth of the Highline program and a nod to its success in achieving a particular policy goal of the city, which in that case was the development of the neighborhood around the Highline. Here, the goal is preservation of existing affordable housing units and, perhaps, at least in part, the transfer of development rights to areas where new units of affordable housing can be developed.”
While none of the information regarding the air rights or development rights was mentioned during the hour-long press conference in Stuyvesant Town announcing the change in ownership last week, Norvell noted that the development rights in Stuy Town are nothing new. They have existed as a right of the owner, despite going unused, since Met Life owned the property.
Additionally, even with the city’s blessing, to utilize that right, Blackstone will still have to go through what any other landlord would: a months-long ULURP process and getting input from the local community board, the City Council and borough president. By doing this, Stuy Town’s air rights would be used up, even if the property is sold again.
“The incentive” of the development rights, noted the Journal article, “offers a window into why Blackstone may have agreed to a deal to preserve middle-income housing that was viewed as a low-cost win for the city — one far cheaper for City Hall than plans proffered by other developers that have vied for the property.”
It also went on to note that any attempt by an owner of Stuy Town to use those rights within the complex would be near-impossible, unless the owner doesn’t mind having tenants and elected officials storm the management office with pitchforks.
“It would have been worse than a war,” Martin McLaughlin, a political consultant who advised a prior Stuyvesant Town owner on community relations, was quoted as saying.
When asked for comment, Christine Anderson, a spokesperson for Blackstone, reiterated that the owner is committed to preserving “the physical character of the community.”
On Monday, Comptroller Scott Stringer and other local elected officials reached out to Blackstone via a letter to ask about the company’s intentions for their air rights.
“The neighborhoods surrounding the superblocks have few vacant parcels to accommodate any new density,” Stringer said. “Therefore the public purpose of your proposal and the boundaries within which an air rights transfer can occur, are not readily apparent.”
In response, the company stated, in a letter of its own, with regards to the air rights, “We have no current plans…. We simply asked for the city’s support if we sought to transfer air rights to another site.”
Level Group Commercial Announces October Spotlight Series: “Inside Information”
Distinguished NYC CRE Professionals Will Headline October 26th Panel Discussion
Level Group, an innovative, full-service commercial and residential real estate brokerage company that introduced the 100% commission model in New York City, today announced that registration is open for its invitation-only event, the Level Group Commercial Spotlight Series: Inside Information. The symposium, which will start with a networking breakfast, will be held at the Wells Fargo Conference Center, 150 East 42nd on October 26 from 9AM – 12:00PM.
Linda O’Flanagan, the managing editor of Real Estate Weekly, is the moderator. Panelists are among New York’s most notable authorities on commercial real estate. They are:
Jon Simon, founder and CEO of Simon Baron, NYC-based real estate developer
Brittany Bragg, COO, Crown Acquisitions
William Scully, managing director for U.S. Investments for Asia Pacific Land
Joseph “JJ” Sollazzo, economist for Costar, NYC’s leading commercial real estate portal; and
Michael Greenberg, CEO and General Counsel, Level Group
“Inside Information guests will get tremendous insight into the panelists’ specialties and key niches in new York’s commercial real estate market,” said Michael Greenberg, CEO and General Counsel, Level Group. “These professionals are at the tip of the spear in their industries. For that reason, attendees are guaranteed an informative and substantive conversation.”
The panel discussion will cover both market issues, e.g., drivers of value, threats to current values, where the NYC real estate market is in the cycle, and, in more personal terms, the panelists’ journeys to their noteworthy career achievements. Panelists will reveal their first big break, the biggest risk they’ve taken, the toughest negotiation they’ve been in and other career turning points. “We believe it will be educational and inspiring to hear these very successful players talk personally about their successes and failures,” said Larry Link, president, Level Group. “One of the best ways to learn is from others, and attendees will be learning from the best.”
The Spotlight Series is part of Level Group’s comprehensive approach to broker education and success training. “The Spotlight Series reflects Level Group commitment both to educating our brokers and to providing leadership to the city’s commercial real estate community,” said Michael Barbolla, COO Level Group. “We see this as a catalyst for advancing ideas and innovative approaches in the community at large.”
Level Group Commercial’s partners in presenting The Spotlight Series: Inside Information include Real Estate Weekly, Costar, Wells Fargo, Asia Pacific Land, Simon Baron Development, and Crown Acquisitions.
Spotlight Series: Inside Information is invitation-only. Seating is limited. Please respond as soon as possible to [email protected] to guarantee your seat.
About Level Group
Founded in 2004, Level Group is a full-service New York City real estate brokerage, handling the full spectrum of real estate brokerage work, including residential and commercial leasing and sales. Level Group’s principals Larry Link, president, and Michael Greenberg, CEO and General Counsel, who also serve as the co-heads of Level’s commercial division, together have more than 40 years of legal, financial and brokerage experience in commercial real estate and have handled billions in office, retail and investment transactions throughout NYC. Michael Greenberg is a well-known member of the New York real estate bar and has played a central role in structuring, negotiating and closing deals worth billions of dollars. President Larry Link was previously part of Merrill Lynch’s real estate investment banking division, where he was involved in numerous IPO and capital market transactions. The first firm in New York City to offer the 100% commission model, Level Group is known for its open door policy with all senior management, strong training programs and an open, flexible platform on which agents thrive. It has attracted more than 230 agents, many from the city’s larger brokerage firms. COO Michael Barbolla, with 30 years of management and marketing experience, handles day-to-day operations of Level Group and heads up the firm’s residential division.
To learn more about Level Group, visit www.levelgroup.com. To learn more about joining the firm, contact Michael Barbolla at 212.994.9965 or [email protected]
Moral Compass: Brokerages speak out (or stay silent) in wake of Trump’s travel ban
“This country will not remain a global superpower if we close our doors.”
January 31, 2017 09:00AM
By E.B. Solomont
Robert Reffkin and protesting in Battery Park City (Credit: Getty Images)
President Donald Trump’s ban on citizens of seven Muslim-majority nations earned him the condemnation of several titans of industry from the technology, finance and consumer-goods sectors. Largely absent from the conversation: the real estate industry, whose leaders Trump counts among his most zealous backers.
A few prominent players in the residential space, however, are making their displeasure with Trump’s policy clear. In a letter to agents and staff, Robert Reffkin, CEO of Compass, denounced the president’s order as “dangerously misguided and fundamentally un-American.”
Robert Reffkin’s letter to agents and staff (Click to enlarge)
As the head of a startup, he wrote, “I am acutely aware that we all benefit when the best and brightest from around the world are able to live, work and contribute to the success of our nation.”
Reffkin , whose mother immigrated from Israel, told The Real Deal in an interview Monday that Compass’ other three top executives – Ori Allon, Maelle Gavet and Leonard Steinberg – are all immigrants, as are most members of the startup’s technology team.
Citing Trump’s real estate roots and the prominence of foreign-born agents as well as international investors in the industry, Reffkin urged real estate firms to take cues from tech and Wall Street heavyweights who voiced opposition to the order over the weekend.
Google co-founder Sergey Brin marched in a rally opposing the ban, which affects citizens of Syria, Iraq, Iran, Yemen, Libya, Somalia and Sudan. Airbnb CEO Chesky offered free lodging for refugees. Starbucks CEO Howard Schultz pledged to hire 10,000 refugees over the next five years. Even Lloyd Blankfein, CEO of Goldman Sachs, spoke out against the ban.
“This country will not remain a global superpower if we close our doors,” said Reffkin, whose company raised $75 million from investors this summer for a $1 billion-plus valuation.
Trump’s executive order, signed Friday, set off widespread protests, and in New York, several top agents were among the protestors at John F. Kennedy Airport and Battery Park City, while others took to social media to oppose the ban. “I am an immigrant — I am a part of what has been called the American Dream,” Douglas Elliman’s Frances Katzen posted on Instagram.
“To be silent is a disgrace,” said Warburg Realty’s Jason Haber, who posted a picture of himself protesting in Battery Park City on Sunday.
“The story of real estate in New York is a story of immigrants,” he told TRD, calling Trump’s immigration policy “antithetical” to that narrative.
Haber also took aim at Trump’s real estate allies. “If you want to lie in bed with Trump, metaphorically, you can do that but you have to be prepared to pay the consequences,” he said.
Most of the firms reached by TRD declined to comment on Trump’s ban, including JLL, CBRE and Marcus & Millichap.
Others did not return calls seeking comment, including Elliman chair Howard Lorber, who is on Trump’s economic advisory team, and representatives from Realogy, Century 21 and Coldwell Banker.
“The real estate people are not going to rise up against Trump,” said one source. “Let’s put it this way. The real estate people are watching their dollars.”
On Monday, a number of brokerage heads contacted by TRD said they preferred to keep politics out of the office.
“Never will we ever try as an organization to impose a political view on our agents,” said Nest Seekers International CEO Eddie Shapiro, who questioned the wisdom of protesting. “Taking it to the streets every other day… is disruptive to our economy.”
But Michael Greenberg, CEO of The Level Group, said the Trump administration crossed a line. “If you look at the faces on my website, it’s people from all over the world. But it’s not just for that reason I care about this issue,” he said, “The time has come for all people of conscience to step forward,” he said.
Frederick Peters, CEO of Warburg, put it this way: “If I did in our housing market what the government is doing at the airports, I would lose my license and be subject to prosecution and fines,” he wrote in a blog post Monday.
Buyers from Muslim-majority nations have been responsible for some of New York City’s biggest real estate purchases of the past few years.
At 432 Park Avenue, for example, the buyer of the condo’s $87.7 million penthouse is reportedly Saudi retail magnate Fawaz Al Hokair, while a Qatari buyer was looking to combine several units to create a $250 million penthouse at 220 Central Park South.
Last year, the Olayan Group, a Saudi blue-chip investor with a stake in the Related Companies, bought the Sony Building at 550 Madison Avenue for $1.4 billion.
Now, some voiced concern that Trump’s policies and anti-immigrant rhetoric could curtail such investments.
“The concern is that the perception will be that we’re no longer a hospitable environment for offshore investment because our borders are becoming less welcoming,” said Stuart Siegel, president and CEO of Engel & Volkers New York. “You’ve got to start to wonder what the immediate impact will be for tourists and students, and quite frankly, their parents.”