Real(i)ty Check - Harlem

Posted by jeff

Wed Feb 27th, 2008 10:33 AM

harlem-townhouses.jpgI'm sick of the macro-economic pall overshadowing everything! No, I don't think we are out of the woods...I just don't feel like talking about it anymore. So this is the first in a series of pieces I'm going to do on the emerging markets of New York City, where I will check in with local brokers who are active in the market and get some feedback on what they see on the ground today. I have already written on this site that I am bearish on the boroughs and Harlem in the intermediate term, due to new supply trends and my feeling that improving Manhattan values will keep more people in midtown and downtown. I also feel that certain markets like Harlem and Long Island City will offer great long-term appreciation potential to those who take advantage of the expected price correction. But I will not be blind to reality and would be happy to have my forecast proved wrong. So I promise to deliver to you, Mr./Ms. Reader, the unvarnished feedback I am getting from the people on the street doing deals. Remember I myself am not a broker, I currently have no development projects to tout, but yes, I would love to buy income-producing properties at extraordinary values, would that they existed. With that preface taken care of:

A check in with Willie Kathryn Suggs, principal broker at the eponymous Harlem real estate firm, told me this:

The last 2 weeks things have picked up. We had 10,000 hits to our web site in December, but our telephone call volume fell from 300 to 50. But we are busy now with real buyers who are willing to go out in the 20 degree weather to see properties. Prices for townhomes have flattened but they are not going down. We just saw an SRO conversion that was done without permits and sold in a foreclosure proceeding sell above the asking price. A couple of months ago people were coming in with lowball bids trying to take advantage of the news headlines, we aren't seeing that anymore. Some bids may be below asking prices but they aren't insulting.
Edward Myers whose Myers, Smith & Grandy has been in business in Harlem for 38 years, commented on the strength he sees in the face of awful real estate conditions in the rest of the country, that has buyers concerned:
I have never seen the outlook so positive. The condo market is still rolling, they are still building and they are still selling, it's not at the same rate as 3 - 5 years ago, but pricing has not changed. The brownstone market is a little slow, but hasn't ceased. Where it used to take 30 to 45 days for a building to sell, now it may take 60 - 90 days or longer
On the commercial side, I checked in with Shimon Shkury. He's the partner on the ground in Harlem for income-producing property and real estate development site mavens Massey Knakal Realty Services. According to my call with Shimon:
The market is still strong in terms of investment sales. Pricing in multi-family is flat to up. Pricing on development sites is flattish.
Shkury did comment that inventory is moving slower as buyers are taking longer to review deals. However, investor interest remains high with lots of newcomers including some foreign money and investors who have shifted focus from other boroughs. While banks are being tighter in their underwriting practices, there is still, reportedly, money to borrow. According to Shkury, banks had previously given borrowers some credit for future upside in rents on apartment buildings, but they are no longer doing so. They are focused only on debt service coverage ratios, which are required to be 1.15 to 1.25x. In order to reach these levels at current prices, some buyers are having to put in more equity than they normally would, which is lowering the loan-to-value ratios of the loans they can take out. On construction loans for condos, banks are insisting that the deals pencil out as rentals, which would be the alternative plan, if the builder ran into trouble or could not sell off the units fast enough.

According to Barry Hersh, the Associate Director of Education at the Steven L. Newman Real Estate Institute at Baruch College:
A year ago Robert Shiller from Yale spoke at the Newman Institute and later at a Real Deal gathering at Lincoln Center and he asked "Why is New York Immune?" Thus far international buyers have been the wild card.
However, Hersh noted, there are widespread stories of condo developments going rental. He attributed this to slow velocity of condo sell-outs as opposed to a decline in selling prices to date. Although his suspicion was that these would come, while noting "Nobody puts an ad in the paper to let everyone know prices are now falling."

My take on Harlem is that so far it is holding up better than I expected considering deliveries from the pipeline of 1,345 condo units from 2007 and some portion of the 1,506 units that were started in 2006. It speaks to Harlem's attractiveness as an up and coming neighborhood, which I featured in my piece "Why Harlem is Hot Hot Hot!," last summer. I still think that as the country gets deeper into recession and the Wall Street layoffs and related job losses hit New York, there will be a buying opportunity. But if you have a long-term outlook, know what you can afford to spend and feel secure in your job, I would be hard pressed to tell you to avoid buying in Harlem, because of an impending price collapse. There is just no word of that right now.

Add a comment

19 comments

CAPTCHA Image