October 17, 2008
CREDIT CRUNCH BEGINS TO HIT B.P.C.
By Julie Shapiro
Some Lower Manhattan condo owners who are hot to sell their property
are turning to an unconventional strategy in the face of a faltering
economy: The sellers are loaning the buyers the money to make the purchase.
Esther Muller, who consults for City Realty, said the
credit crunch has made it much harder for buyers to get loans from banks,
so sellers who don’t want to lose the deal are financing the loan
themselves. She has heard of several such cases Downtown.
“It becomes a win-win situation for the buyer and the
The advantage to the buyer is clear: The buyer is able to purchase
a condo and negotiate the interest rate and the price at the same time.
The loans are structured like mortgages, with monthly payments over
20 or 30 years. That gives the seller the advantage of getting a monthly
check over a long period of time, rather than having to worry about
investing and paying taxes on a lump-sum payment, Muller said. Muller
gave the example of sellers retiring and moving out of the city, where
they would not need the money from the sale all at once.
Sellers can check the buyer’s credit history online to protect
themselves, and the worst-case scenario would be for the buyer to default
on the loan, which means the seller would get the property back —
not such a bad thing in Lower Manhattan’s still-hot real estate
As unorthodox as the arrangement sounds, it’s actually
not new, Muller said. She remembers interest rates soaring to 15 and
16 percent 25 years ago, and back then some sellers offered a comparatively
modest 10 percent rate to their buyers.
The current difficulty of getting loans is just one effect of the economic
downturn on the real estate market. Some Lower Manhattan residents are
hoping to find that the plummeting stock market has a silver lining:
more affordable condos. Several brokers told Downtown Express that while
prices are slipping slightly, no one should expect drops of 30 or 40
percent anytime soon.
Rumors of lower condo prices recently sent Tom Goodkind, a resident
of Gateway Plaza in Battery Park City, looking for a deal. At the Riverhouse,
the Sheldrake Organization’s new condo building in northern B.P.C.,
Goodkind looked at a $1.3 million two-bedroom condo for his family several
weeks ago. The salesperson hinted that bids were coming in substantially
lower, and Goodkind thought he could have gotten the apartment for $800,000
to $1 million — but he and his family decided it was too small.
Sheldrake did not return a call for comment.
Even if Goodkind had liked the apartment, he agreed with Muller that
the flip side of the poor economy is that it’s increasingly difficult
to get a loan.
“Things are affordable, but only if you have any money left,”
Goodkind said recently while discussing the question with other B.P.C.
residents before a community board meeting.
Goodkind, a C.P.A., said Gateway residents are particularly hopeful
about finding condo deals because Gateway’s rent-stabilization
agreement is slated to expire next year, and many of the residents could
find themselves priced out.
Muller said anyone who can afford it should look for a condo.
“If you can come up with 20 percent [for a down payment], I think
there are fabulous, fabulous opportunities now,” Muller said.
“It’s a good time to buy.”
Because of the economy, sellers Downtown and across Manhattan are more
willing to negotiate now and may drop the selling price by up to 10
percent, Muller said. Making a 10 percent cut to the condo’s price
isn’t a big deal to sellers who have owned the apartment for more
than five years, because the value of real estate has risen so much
so quickly, Muller said.
As the economy cools today, the biggest change Muller has noticed is
that sellers who inflate the price of their property beyond its value
are no longer getting offers. Before, Europeans were paying astronomical
prices, but now everyone is being more circumspect, Muller said.
“All you have to do is get one [buyer],” Muller said. “In
this market, it’s more difficult to get that one person.”
Tom Tam, a sales manager with Battery Park Realty, has not seen as much
of a drop in Downtown prices as Muller has. He cited the Real Estate
Board of New York’s September report, which showed Manhattan condo
prices up 33 percent in the second quarter of 2008 compared to one year
earlier. In the same period, Brooklyn condos saw a paltry price increase
of 1 percent, and home values fell across the country, the report found.
Those numbers don’t take into account the most recent financial
tumult, and Tam said some new buildings are more willing to negotiate
prices now. Also, some of Battery Park Realty’s clients were laid
off and moved away, but “Not very many people back out,”
The foreclosure crisis didn’t hit Manhattan as hard as the rest
of the country.
“People are still holding on,” Tam said of Manhattan as
compared to Brooklyn and Queens, which he said had more foreclosures.
Muller thinks the reason for so few foreclosures in
Manhattan is that people who can’t afford to buy apartments aren’t
able to get them. Co-ops, for example, are strict about the financing
prospective residents need before they can move in — a safeguard
that much of the country lacks.
An Oct. 3 report by Brown Harris Stevens showed Manhattan apartment
prices in the third quarter of 2008 up 12 percent from last year but
down 6 percent from last quarter. (The 6 percent figure excludes 15
Central Park West and The Plaza, since those luxury sales skew averages
and mask trends.)
“As we enter year two of the credit crisis, it is only now that
we are beginning to see an effect on market indicators,” the Brown
Harris Stevens report states. There are two reasons for the delay: the
span of time between contract signing and closing, and Manhattan’s
limited inventory of apartments with a low percentage owned by investors.
Looking forward, Hall F. Willkie, president of Brown Harris Stevens,
remained optimistic, at least as of Oct. 3.
“Despite today’s turmoil in the financial services sector,
our real estate market fundamentals are still solid,” Willkie
said in a prepared statement.
Muller and Tam both think foreign demand for Lower
Manhattan will stay strong and keep prices firm. Some of those foreign
buyers are investors and want to rent out the spaces, but many just
want to live Downtown.
“They see Downtown as we see Downtown,” Muller said.
“It’s sexy to own a piece of property Downtown. If you’re
European and you’re young and you’re hip, that’s the
place to own.”