Real(i)ty Check - Harlem
I'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 longerOn 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.
Comments (19)
Great post. What do you think about Jersey City? Many people looking at LIC and Harlem often also compare Jersey City as well, due to the heavy development near the Grove Street PATH station.
Posted by Ray | February 27, 2008 10:58 AM
Ray,
Thanks. I plan to keep it coming with real scoop from people who are in the trenches. As of now, I would say my macro call is the same for the emerging New Jersey markets of Hoboken and Jersey City, which tend to borrow demand from Manhattan. I know there has been strong supply coming on in these markets as well....and some issues with sell out velocities in at least one Hoboken development I know of. But I am not really current on how things are right now in these markets and I will put them on my list to delve into.
Posted by Jeff | February 27, 2008 11:09 AM
I live in Harlem and find what you say as accurate....prices are flat to slightly increasing. However, due to the impending rezoning of 125th st, the future development of approx 3 hotels and Harlem Park (anchored by Major League Baseball's Cable Network), the Columbia University expansion, and the mall on the East side by the FDR....I am bullish on Harlem! Of note, is that Harlem should not be compared to LIC. For one, Harlem is in Manhattan with myriad transportation options (buses/trains/cabs) to include the MetroNorth. Furthermore, the mayor's office has not only identified Harlem as a future economic hub within the city but has backed-up words with action....ie. $250million for improvements to Harlem Hospital Center, the rezoning of Frederick Douglas Boulevard which has generated a tremendous amount of economic activity (so much so that a story was recently done on two very successful wine shops owned by ex-wallstreeters), the impending rezoning of 125th street, etc.; Now we even have Starbucks, H&M, Old Navy, Dunkin Donuts, Rite Aid, CVS, Marshalls, etc.
As a new Harlemite I appreciate your article and welcome future pieces that examine the state of Harlem. Harlem is back and will be better than ever!
Posted by d | February 27, 2008 12:45 PM
600 Jackson Ave in Hoboken sold only 8 out of 128 units, the building is going rental, the developer is losing his equity - i suspect this will be the trend for secondary (tertiary?) locations
Posted by bb | February 27, 2008 1:05 PM
Noah, I think you're over looking Washington Heights. All of my properties in this area have appreciated at a healthy pace. There is still much value to be found. I agree with your thoughts on Harlem but if you compare price/sq. ft. you still see more for you money in the Heights.
Posted by eah | February 27, 2008 1:43 PM
eah - well ask Jeff who wrote the piece.
Jeff, any views on WH?
Posted by Noah | February 27, 2008 1:53 PM
D and BB,
Thanks for the input....D, you would probably love my piece Why Harlem is Hot Hot Hot, if you have not clicked through to it already. I very much agree with your optimism and I may be off base on the impact of new units coming to market and the economy. Anyway, thanks for the commentary. BB I will try to get a piece up on Hoboken and Joisy City. Your not the only one with a story of "direct to rental" condo developments, it's happening in Brookly and LIC as well.
Posted by Jeff | February 27, 2008 1:58 PM
I did a -listings in contract study for the month of January 08, for Harlem Condos. And the results were great.
The average was $738 a foot-Not bad considering all the negative talk in the media.
Posted by Ray | February 27, 2008 2:08 PM
Great piece, Jeff. I agree that it will be a terrific place to buy when prices retreat to their Y2K levels by fall 2009
Cheers!
Posted by David | February 27, 2008 2:23 PM
Thoughts on Williamsburg? I know it's hyped and there's a LOT of development. I love the area and seriously considering buying but quite worried that I'd be reselling at a loss even 6-8 years from now.
Posted by bjw2103 | February 27, 2008 4:05 PM
Thoughts on Williamsburg? I know it's hyped and there's a LOT of development. I love the area and seriously considering buying but quite worried that I'd be reselling at a loss even 6-8 years from now.
Posted by bjw2103 | February 27, 2008 4:05 PM
BJW 2103,
Stay tuned for my update piece on Brooklyn, wherein I will get the scoop from those who are in the know RE Williamsburgh and other garden spots.
Posted by jeff | February 27, 2008 9:49 PM
I don't know if this area has ever been explored as to determine whether an area is popular, but I noticed that my daughter, who is a custom closet and home office designer, is getting alot of business in Long Island City. Just a thought.
Posted by voracious reader | February 28, 2008 9:37 AM
Thanks Voracious,
I should hope there is activity in LIC with all the new condos coming on the market. While I know of at least one that has "gone rental", I also know banks are still lending to developers in LIC and development sites are still being sold with no decline in land pricing.....people are still believers in the area's long-term appeal.
Posted by jeff | February 28, 2008 2:23 PM
I have lived in Harlem for seven years, love it, and am bullish LONG term. However, I am not sure I understand the condo market optimism. . . there are two struggling buildings on my corner alone. One looks like it lost the funds to finish (The Lenox Grand) and the other has had rental open houses every sunday for as long as I can remember.
Asking prices seem to be in the high $500/low $600s per sf so I am not sure that fits with some of the info here. If average pricing is $750 or whatever, then these should be flying off the shelves. . . shouldn't they?
Additionally, the retail spaces in most of these condo buildings are vacant. Occasionally a store will move in and make it for six months, but there are retail spaces that have been vacant for YEARS. That means they were vacant during the actual boom. What's going to happen now?
I know everyone likes to cite the wine stores as evidence of Harlem turning the corner, but we are still lacking more basic services. Every decent deli that has opened on Lenox has also closed. Citarella wanted to close but because of the incentives it received was not allowed. Instead, they just scaled back the offerings and hours. I could go on, but you get the idea.
I think the prices already reflect the potential, which is why there are fewer takers at prices that would need to reflect actual improvements.
I would love to own in the neighborhood, but I think only people from outside can justify the prices.
Posted by Harlem resident | February 29, 2008 3:36 PM
Harlem resident - What you are describing is a catch-22 of neighborhood emergence. Businesses (supermarkets, restaurants, basic services) need a large enough customer base in order to survive. At the same time, many people are reluctant to move into the neighborhood because of the lack of these services. Meanwhile, most of the existing Harlem residents are too poor to sustain these businesses until the new residents move in. To add to the problem, most of these condo developers price their units (residential as well as commercial) AS IF the neighborhood had already matured. The result? Nobody moves in, no businesses grow, all these empty apartments sit unused, and the entire area is saddled with the stigma of being an undesirable neighborhood, which hurts its prospects of growth in the future.
That's why the area so desperately needs the city's rezoning to go through. It will kick-start growth and improve the neighborhood for everyone. Existing residents will get the services they need, businesses will populate the empty storefronts, other people will begin to consider Harlem to be a viable candidate vs other neighborhoods, which will bring much needed economic growth for the entire community.
Posted by Bargain Hunter | March 1, 2008 2:39 AM
The rezoning was approved on March 10th!!!
Posted by Anonymous | March 27, 2008 10:28 PM
The area is full of projects and tenements as well as juvenile crime with men who follow women, and sometimes touch, aggressively down the street. The men also mutter insults under their breath or make obscene gestures to peopel they believe are gentrifying the neighborhood. Graffitti shouting racial epithets against whites have gone up on my building and can be seen around the neighborhood. The structural geography will never change. The only thing that keeps things from falling apart are the numerous police officers on the street. Beware of false comfort.
Posted by amenhotep06 | July 16, 2008 9:54 AM
There must be a balance of retaining the long time Harlem residents with the newly upsurge of yuppies and buppies despite the recession.
GRH
Posted by Garth R. Harding | October 8, 2008 10:13 PM