Signs of Softness Appear In Manhattan Real Estate

Signs of cracks in Manhattan's property market could mean the rest of the country is on the road to recovery, since New York tends to feel the effects of a slowing economy later than the nation does. One segment still in the stratosphere: luxury condos and co-ops in exclusive buildings.

(Barron's) -- In next few weeks, real-estate brokers will release a report on the median price paid for a Manhattan apartment during the second quarter. Those who've been waiting for a decline -- like the one most big U.S. cities are suffering -- will be sadly disappointed. Driven by extraordinary gains in luxury co-op and condo prices, this quarter is likely to be even better than the bang-up first quarter, when the median sales price was $945,276, 13.2% above the year-earlier level and 11.2% above the 2007 fourth quarter's figure.

But bargain hunters -- or at least those who can't afford multimillion-dollar digs -- shouldn't despair. More rational prices already have begun to take hold in lower price ranges. And because New York real estate tends to lag behind other cities', it's possible that any coming price decline in Gotham will mark the start of the last phase of the latest national real-estate debacle.

A rash of price reductions now skitters across the columns of the New York Times real-estate classifieds, testament to diminished expectations. "We have dramatically reduced the price of this 1BR in prime West Village," blares an e-mail from a broker for a small, light-filled apartment at 295 West 11th St., not far from the chic Meatpacking District.

That's not the story on the extreme high end, which is supporting the overall Manhattan marketplace. The New York City borough's luxury apartments start at about $8 million and account for roughly 5% of the market. This segment is disgustingly healthy, particularly in trophy buildings like the refurbished Plaza Hotel and Tony 15 Central Park West. (At the latter, a venture capitalist recently listed his four-bedroom, 6½-bath apartment for $90 million -- $60 million more than he paid for it the previous month.)

Because of such excesses, "It will be in '09 when you see prices below year-ago levels," says Gregory Heym, chief economist for Terra Holdings, the parent company of real-estate brokers Brown Harris Stevens and Halstead Property. Heym also maintains ValuExchange, the most comprehensive database of residential property sales in Manhattan and Brooklyn. "The biggest effect will be the loss of those two special buildings [as the Plaza and 15 Central Park West sell out]. That alone can bring you down, even if the market doesn't."