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They'll Take Manhattan -- Still

The state of the housing market in much of the country may be gloomy but in Manhattan, real-estate brokers are still celebrating -- and record Wall Street year-end bonuses are only part of the reason.

In many major metro areas, from Miami to San Diego, the number of homes listed for sale has soared over the past year or two as sales have plunged. Median home prices in the U.S. fell 3.5% in October compared with a year ago, the largest year-over-year drop on record, according to the National Association of Realtors. A new report from UBS AG predicts a continued decline and warns that the slump could "seriously impact the overall economy" in 2007.

Yet despite the national outlook, Manhattan has shown resilience, fueled by lower-than-average unemployment rates, a surging financial sector and a swelling population of millionaires (and billionaires) immune to the impact of a slowdown.

Manhattan's international credentials are unique in the U.S., says Andreas Hoefert, chief global economist at UBS Wealth Management Research. A power center that attracts major players in fashion, art, media and finance, the island has more in common with other world capitals like London, Hong Kong or Paris. "Like other financial capitals, the real-estate market here is cushioned by a global demand for housing that's unmatched in the U.S.," Mr. Hoefert says. Still, there could be clouds gathering, some analysts warn, including a glut of new condominiums and possible price declines.

Overall, the number of homes sold in Manhattan was up about 1% in November versus a year ago (compared to an 11.5% drop in sales nationwide in October), and prices continue to appreciate. Median home prices in the borough rose 17.5% during the same period and 26.8% since November 2004, according to Gregory Heym, chief economist for Realtor Brown Harris Stevens. Manhattan's strength is even more pronounced at the high end, where growing demand for trophy properties is propping up the luxury market. The number of $3 million-plus homes sold was up 6.5% year-on-year in November, according to Mr. Heym.

Among the big-ticket sales: the $27.5 million paid by New York Stock Exchange Chief Executive John Thain for a two-bedroom duplex apartment at 740 Park Ave., one of the city's most storied addresses. Formerly home to Rockefellers, Vanderbilts and Chryslers, the building's current residents include cosmetics executive Ronald Lauder and Blackstone Group chief Stephen A. Schwarzman.

In addition, 38 single-family townhouses priced at $10 million and over sold during the same period, up from 22 last year, says Kirk Henckels, an executive vice president of Stribling Private Brokerage. Those sales include the $53 million that investment banker J. Christopher Flowers paid in October for the century-old, five-story Harkness Mansion on East 75th Street, just off Fifth Avenue. The price for the 20-plus-room limestone mansion, which includes a ballroom, 11 fireplaces and a center atrium, is thought to be the highest paid for a Manhattan residence.

Ballooning Bonuses

The health of the New York real-estate sector is the result of lower unemployment rates than the national average, higher job growth rates and a Dow Jones Industrial Average in record territory. The financial industry, long a bellwether for New York's real-estate economy, is soaring. Through the first nine months of 2006, combined earnings at seven top global securities firms based in New York surged to $39 billion, according to David Trone, a banking analyst at Fox-Pitt, Kelton. Meanwhile, new federal data show the average weekly pay for finance jobs in Manhattan was about $8,300 in the first quarter of 2006, up more than $3,000 per week in three years. A projected $36 billion in bonuses will be doled out this year by the top five investment banks in New York, according to Options Group, an executive search firm, up from a record $21.5 billion in 2005 and nearly a fourfold increase from $8.6 billion in 2002.

"There's an incredible amount of money out there right now," says Jacky Teplitzky, an executive vice president at Prudential Douglas Elliman. "It's not clear if that funnels into real estate, but it certainly can't hurt."

Tatyana Dobryanskaya says she expected to wait until next year before looking for a new apartment. But the 30-year-old fixed income analyst says a bigger-than-expected bonus (she declined to disclose how much) from the investment bank she works for helped to change her plans. She is now in the hunt for something in the $1.5 million-to-$2 million range. "There was really no reason to put this off," she says.

Vincent Piazza, a 36-year old research analyst, has moved even faster. He just signed a contract for a new $1-million-plus loft condo in the Wall Street area. It features 10-foot-high ceilings and marble and limestone bathrooms. Mr. Piazza says his year-end bonus is only part of the reason he's buying now. "I waited a year for prices to come down a bit," he says. "They never did."

Traditionally, the upper end of the New York market tended to hold its own when the city's overall housing market slowed, largely because wealthy buyers were buffered from market gyrations. That was particularly true during the last boom-bust cycle in the late 1980s, economists say. Now, however, even as the national market cools, the entire Manhattan real-estate market is humming, fueled in part by rising income levels and interest from wealthy out-of-town buyers.

Ramesh Vangal, an Indian technology and health-care entrepreneur with homes in Bangalore and Singapore, paid nearly $7 million in October for an apartment on Central Park South. Mr. Vangal says he and his wife and business partner, Katharin, have always loved spending time in Manhattan, but that they bought here for business and financial reasons: "New York has always been an important place to do business, but it's also a good place to invest your money," he says.

Clouds Looming

Despite the robust New York scene, some real-estate observers see warning signs for Manhattan. More listings are crowding the market and the length of time homes are taking to sell is creeping up. Quarterly data show 7,243 units on the market, compared with 6,926 a year ago. The average time a home spent on the market in the third quarter of 2006 before selling was 92 days, a 28-day increase from a year ago.

And while the number of Manhattan sales rose slightly in November compared with the same period a year ago, some of that lift may be inflated. Condos make up only about one-third of Manhattan's housing stock, but they accounted for roughly 44% of sales last month, according to economist Mr. Heym. And much of that came from new buildings where buyers may have made down-payments months or even years ago. That means many of November's "sales" may have occurred when the overall market was still strong. (New condo sales are only registered when the building is completed and residents move in.)

A building boom in the past few years is likely to create a glut next year as new condos are completed. Between 2001 and 2005, there were 21,142 units completed in Manhattan, compared with 12,812 from 1996 to 2000, according to the Real Estate Board of New York. REBNY estimates that there are more than 20,000 new condominium units either under construction or being planned in Manhattan. "The real-estate market here simply cannot sustain that kind of growth," says Nouriel Roubini, a professor of economics at the Stern School of Business at New York University. "Prices will fall very hard."

And brokers shouldn't put too much stock in ballooning Wall Street bonuses. Appraiser Jonathan Miller has analyzed first-quarter sales data since 2003 (bonuses are typically handed out between December and February) and his numbers show no significant bounce in Manhattan home sales, with one year showing a slight decrease. "There's a significant amount of money on the sidelines" in this economy, says Mr. Miller.

The potential for a real-estate slowdown and the imminent glut of new units has done little to slow some developers. Hotelier André Balazs is erecting two new Manhattan condos and recently broke ground on a third -- a 47-story tower in the Wall Street area. Called William Beaver House, the high-rise will include three penthouses, an outdoor Jacuzzi, a hot tub and a 60-foot lap pool with lounge-deck and bar. "I see this as a place for hard-working, hard-playing Wall Streeters," he says.

 

 

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THE JACKY TEPLITZKY  TEAM

THE JACKY TEPLITZKY TEAM

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