Investment picks as Manhattan, New York property rides the Trump wave
Posted by Wei Min Tan on October 24, 2017
While the last 2 quarters of 2016 saw buyers sitting on the fence and sales volume down, since Trump’s historic win, there has been an increase in sales with Manhattan condos. We focus on buyers of residential condominiums for investment. In Q3 and Q4, there was plenty of time for our clients. Apartments were sitting on the market. But in January alone, we started seeing clients lose deals because of not acting fast enough.
Since after the election, we have been getting inquiries from finance-type buyers from Russia, London and Hong Kong, all bullish on Manhattan real estate. There is no yield anywhere else. London is no longer a competitor to New York in terms of attracting foreign real estate investment. Our clients feel that the Trump win has removed uncertainty associated with the pre-election period and now is the right time.
Our investor clients mainly seek the sub $3 million segment, consistent with the core Manhattan market as roughly 70 percent of transactions fall within this price point.
Here are our picks with the objective of price appreciation and ease of renting out.
Financial District remains a value buy
We have been recommending Financial District because of its proximity to the World Trade Center. There is a price discount in FiDi because of oversupply from the Great Recession, and the restaurant / quality of life infrastructure is not as developed. Streets are narrow and hence less light comes through. Most buildings do not have setbacks and this blocks out light from getting to the streets.
FiDi has seen dramatic change over the past 5 years. There is a new W Downtown hotel, World Trade Centers 1 and 4 are up, Westfield mall is now the largest shopping center in Manhattan. In 2013, our client purchased an apartment at 88 Greenwich, a full service luxury building. It was a value buy in a developing area. Price per sqft foot at purchase was $1,069. Today the price is around $1,600 per sqft, representing a return of 49 percent, unleveraged. As most real estate buyers use mortgage financing, the return is magnified because the amount of equity in the property is usually between 30 to 50 percent of property price.
A high floor water view one-bedroom at 88 Greenwich can be purchased at roughly $1,600 per sqft. To get a similar quality apartment in Midtown East or Tribeca would mean a price tag of $2000 per sqft.
As disclosure, I too bough an investment apartment at 88 Greenwich about 6 months ago.
For sub $1 million, focus on studios
Buyers with a sub $1 million price point should focus on studio apartments, priced from $650,000 to $850,000. Anything more would be too much to pay for a studio. There are no good one bedrooms at less than $1 million.
The easiest to rent out are studios in buildings with good amenities and close to transportation. This past week my banker client from Hong Kong came to view with a sub $1 million price target. There were 2 studios that I wanted to recommend, one at District 111 Fulton Street and the other at 99 John Street. Both were listed for less than 2 weeks but alas, we couldn’t even view because both had accepted offers. Now we are tracking 3 buildings daily for new studio inventory.
Supply of good studios is very limited. This is because studios have the lowest barrier to entry. There is more flexibility for buyers in terms of whether to close all cash and studios are easy to rent out.
Prewar condos remain attractive
Almost all prewar residential buildings are Coops. This is because condominiums were only built starting in the 1960s. A prewar condo would only come into existence when a prewar building was converted from either a commercial or rental building. The charm of prewar buildings are the high ceilings which create more volume, thicker walls which provide better noise insulation and more charming façade.
The Parc Vendome is one of the most attractive prewar condos, with an English garden in the middle of 4 buildings and great location by West 57th Street.
260 Park Avenue South is another elegant prewar condo that is extremely well located. The two-bedrooms and larger apartments have better views but the one-bedrooms all face the building’s interior.
We feel a prewar condo holds value because of scarcity. Future buyers and tenants are attracted to their detailed exterior which many feel provide charm and personality.
New York Property Capital Gains and Other Taxes