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05.23.2005
 Neighborhood Values, How Vulnerable Are You?

NEW YORK MAGAZINE 5.23.2005

By Jhoanna Robledo

Loftland: Soho, Tribeca, and The Flatiron District

If you're reading this in your downtown loft, you're in luck: You own one of the most coveted properties in town, better protected from a downturn than almost any other. Take recent history as your guide: In the nineties, when Manhattan real estate reached a nadir, Soho and Tribeca lofts recovered way before the rest of the city, says Michael Martin of real-estate-appraisal firm Mitchell, Maxwell & Jackson. The average sale price downtown turned the corner in 1994, he says, while it wasn't until 1996 that the rest of the market began to rise. The same thing happened after 9/11, says Corcoran's Linda Gertler, who sold a $9 million loft right after the attacks to a celebrity couple who paid the full asking price. Of the areas with the highest concentration of lofts, the Flatiron district, with a pleasant mix of commerce and residential life plus lots of subway lines, is probably best shielded from a market dip. Tribeca's solid, too, having been taken over by families so devoted to P.S. 234 that they won't think about leaving till it's time for junior high. (Corcoran's MiMi Murphy notes that they're not buying for buzz or because celebrities love the area.) The best of the newer conversions, in buildings like the Chelsea Mercantile and the Loft Residences at 116 Hudson, are unlikely to feel a downturn: They're so in demand, because they can't be re-created, explains Shaun Osher of the Newcastle Realty Group. Surprisingly, the grande dame of loftland, Soho, may feel more of a pinch, because its cachet has been eroded by the tourist mobs. Overall advice: Take cover, and wait for the worst to pass.

Townhouses below 96th Street

According to the Stribling Luxury Residential Report, the townhouse business has been phenomenal. Total sales increased in 2004 by 118.7 percent. (One 32-foot-wide house in the East Sixties sold for $9.5 million and was flipped the same day for $11.5 million.) Expect that ardor to cool off if the market nose-dives. It's a niche business as it is, representing only about 1,000 properties, and these unique creatures often stay on the market for a long time. Of late, the market's been propped up by nontraditional customers; foreign buyers, mostly, who, frustrated by the shortage of big co-ops or worried about board turndowns, bought houses instead, explains Stribling's Kirk Henckels. It's not so much that prices will free-fall if things go sour they'll simply grind to a halt, as owners stay put until business picks up. If you live in Greenwich Village, NYU has your back; the university's demand is endless as it gobbles up townhouses like Pac-Man. Houses between Fifth and Madison are similarly protected, as are ones off Central Park West. And if your mansion's in Murray Hill, where the undervalued brownstones haven't peaked yet, you're in the catbird seat. One spoiler: If the slump lasts and crime becomes an issue, expect a townhouse's value to lose 25 to 50 percent more than a comparable apartment would. No one wants to have vagrants sleeping on their doorsteps, explains Jeffrey Jackson of appraisal firm Mitchell, Maxwell & Jackson. Still, a brownstone is never going to be a truly poor bet. Even if things are bad, there's always someone willing to step in and pay to live in one, says townhouse broker Jed Garfield.

New Luxe

The past two years have seen a parade of trophy penthouses hit the market, their prices escalating as sky-high as the apartments themselves: the $27 million penthouse at One Beacon Court, a.k.a. the new Bloomberg tower across from Bloomingdale's; the $30 million duplex atop Trump Park Avenue; the $42 million raw space capping Time Warner. The mega-million sales generate tons of buzz, but will these apartments still be worth the same if the much-contemplated bubble pops? Probably not. The prices have run up too fast for properties that, unlike their prewar equivalents, are not a finite resource. There's a certain sexiness in owning a $20 million [new] property that may not be so sexy when the market falls, says Jeff Jackson, of leading residential real-estate appraisal firm Mitchell, Maxwell & Jackson. Every new marquee building gets a marquee penthouse, and there's a very limited pool of buyers for these things, all of whom can easily decide to buy something else, like a townhouse. There's a mitigating factor, of course they're rich enough not to care about market downturns' and for now, they're still shopping. Douglas Elliman dynamo Dolly Lenz says she recently sold a $25 million apartment to a client who barely batted an eyelash. When asked how he felt about such a commitment, he told her, "I just bought a $19 million painting. To buy a $25 million apartment is not such a big deal." Then again, a Renoir will still be a Renoir no matter what; an overpriced Trump apartment is, well, that.

Upper East and West Side Family Apartments

If you're looking for shelter in a real-estate storm, hide out in a classic six. In general, family-size apartments, essentially those with two or more bedrooms on either side of Central Park are fairly bubble-proof simply because they're so in demand. "The more square footage you have, the better, because space is rare," says Corcoran's Emilie O'Sullivan. During the nineties, when the market was in a tailspin, two- and three-bedroom co-ops and condos in these neighborhoods depreciated just like everything else, but managed to avoid crashing. Nowadays, as fewer couples desert the city when they have children, they're powerfully in demand. "Good schools and families make an area more stable," says Susan Abrams of Warburg Realty, and the Upper East and West Sides certainly have plenty of both, not that they were exactly rough turf to begin with. Still, some properties will hold value better than others. On the West Side, the prime pockets are the West Seventies and Eighties, and West End Avenue, Riverside Drive, and Central Park West; on the East, you can't go wrong with Carnegie Hill, East End Avenue, or anything west of Lexington. Though for years prewars were universally considered better investments than postwars, that's no longer the case, says appraiser Jeff Jackson. Today, better space wins out. If you live in a postwar three-bedroom with a gracious layout and drop-dead views off York Avenue, your property won't depreciate as much as will a light-deprived maisonette with a claustrophobic plan off Madison. And a full-service high-rise with a gym and a concierge trumps one without the perks.

Edgy Brooklyn

Two kinds of buyers choose the less bourgeois stretches of Brooklyn: the arty crowd in Williamsburg, Greenpoint, and (at the wealthy end) Dumbo; and the families that have made a go of areas like Bedford-Stuyvesant, Red Hook, and Crown Heights. Few will do great in a downturn, but the hipsters will be better off than the rest, who are likely to find themselves with no buyers to cover those renovation loans. That's especially true in Bed-Stuy, with too few newcomers to offset stubborn crime and weak schools. Paying $750,000 for a house here puts you well into a danger zone. Crown Heights is better off, because of better subway access and proximity to Park Slope, but its houses still seem overvalued. A far stronger bet is Red Hook: Though there's no subway and a huge housing project, it has the critical mass to handle a downturn. Water access, plans for Ikea and Fairway, and a continuing shortage of good properties suggest a real future. Williamsburg will remain a destination for those attracted to expensive vintage clothing and Thai food set to techno, and Greenpoint, next door, is a leafy family neighborhood with loads of owner-occupied three- and four-story townhouses that many brokers believe are still a little underpriced. The first casualties will be apartments around the Lorimer L stop, which lack the nightlife draw. Anyone overpaying for a condo in the Gretsch Building should watch out, given that 10,000 new apartments with waterfront views will be on the market in a few years. As for Dumbo, it's small enough to keep demand high: "It's there to stay," says appraiser Jeffrey Jackson.

Queens: Long Island City and Jackson Heights

Lots of potential, lots of speculation, not enough people, yet. This is the story in Long Island City. While the neighborhood is solidly an artists haven anchored by P.S. 1 and whatever's left of MoMA QNS, there's still not a strong enough residential core to insulate the area from a market crash. "Lots of speculation has driven prices up, but it hasn't evolved enough as a neighborhood," says Jeffrey Jackson, co-founder of the Mitchell, Maxwell & Jackson appraisal firm. Isolated and windy is how even enthusiastic residents describe the place, which still lacks a major supermarket. (FreshDirect doesn't deliver, even though its headquarters is here.) The only luxury high-rise co-op in Queens West, Citylights, may even face competition from the planned Olympic Village next door, and a 400-unit condo complex rising nearby. The views of Manhattan from all these new developments are unparalleled, and the ability to commute to Midtown East in fifteen minutes will keep it attractive to some. But first, Vernon Boulevard will need more than a few cute cafés and bars to draw actual residents, not just speculators to the neighborhood. Jackson Heights, an entirely different beast, is still what one appraiser called a 'vanilla neighborhood' without the hipster vitality of Astoria to the northwest. Corcoran's Megan Hoffman likens it to Brooklyn Heights, suggesting that gardens, fireplaces, and historical designations there will keep it attractive even though it's twelve local stops from Grand Central.

The Suburbs

If nothing else, life in the cul-de-sac is a fairly secure investment these days. Though home prices foundered in the crash of the late eighties (when the number of homes for sale in Nassau County increased by one-fourth in a single year), suburbanites have less to fear this time around. Greenwich, the de facto hedge-fund capital of the world, is teeming with ladder-climbers in an industry that barely existed fifteen years ago. They work and spend locally, and benefit from a tax structure that encourages ever-larger McMansions. Geographic moves are helping New Jersey and Long Island, too. "There's been a shift westward of the central business districts in midtown," says MM&J appraiser Jeffrey Jackson. That's increased the appeal of Penn Station over Grand Central, which in turn favors New Jersey Transit and LIRR commutes. And as Long Island has witnessed double-digit percentage increases every year for the past three, MM&J's Jean-Pierre Blaise says suburban homes are secured by something immeasurable: emotional value. "You're unlikely to cut and run if you're buying your primary residence to raise your two-point-five kids," says Blaise. (Mortgage data suggest that Long Island's single-family homes turn over every seven years, compared with four to five years for condos and co-ops.) Perhaps most fascinating is the urbanization of the 'burbs' as young buyers mimic a Real World existence in Metro-North country. "The 'city living' trend we're now seeing it in White Plains, in Norwalk, even Yonkers," says Jackson. "There's loft-building conversions in New Rochelle. These areas that were kind of blighted are being reborn."