Janine Yorio, founder and CEO of Compound Asset Management.Compound Asset Management
In recent years, many would-be buyers have feared being priced out of Manhattan residential real estate. For these people now may be a time to re-examine the prospects of purchasing in Manhattan, and for prices they may have thought impossible.
The rare confluence of a supply increase and a reduction in sales has resulted in this becoming among the most opportune times in recent history to purchase condominiums in Manhattan. So says Janine Yorio, founder and CEO, Compound Asset Management.
“The market is slow,” she reports, noting condos are languishing on the market for an average of 109 days, vis-à-vis 84 days during the same period four years ago. Volume of sales has also declined, having dropped year over year for a fourth straight year.
Rising supply
Meantime, supply has risen. Seeking to leverage expiring 421A tax benefits, a number of developers commenced construction on new projects in 2015 and 2016. Investors and lenders were delighted to finance these new projects then, she said.
“Now these projects are coming online, and the market isn’t exactly what the developers hoped it would be, as they are sitting on several thousand unsold condos,” she added. “And although they have been steadily lowering prices, unit sales have remained tepid while hundreds more new units come to market each month.”
All the while, listing inventory has risen year over year by 4.4 %, despite market weakness and the reluctance of sellers to sell at lower prices. Almost 3,600 units are available on the market, representing an increase of 20 % from 2015. The absorption rate of 8.2 months is up from 5.4 months in 2015.
“As with any market, when demand is weak and supply strong, prices fall,” Yorio said.
Exploring sales prices
The median sales price of a Manhattan condominium peaked in early 2016 at $1.845 million. Since then, it has dropped by more than 13 percent to $1.61 million. By comparison, median prices of Manhattan condominiums declined by only 21 percent during the worst downturn most recall, the “Great Recession” of 2007-09.
To Yorio, this moment is all about opportunity.
“We know that long-term, Manhattan always bounces back. It is a 22-mile island with an 834-acre park at its center [and] is the global capital for finance, media, art and fashion,” she says. “Manhattan real estate has attributes that differentiate it from a lot of other markets. It’s a commodity, a store of value, something that can be held for capital preservation and inflation protection with the knowledge that it’s as liquid a real estate market as it gets. That’s why New York was still the number one investment market for foreign investors this past year.”
Leveraging opportunity
The median price for a Manhattan condominium has ballooned by more than 500 % over the last 20 years. That mushrooming growth in value has created wealth for those who owned real estate in one of globe’s most coveted cities, New York City, Yorio says.
Sadly, to seize the investment opportunity, potential buyers would require cash savings most would find well outside their means.
“Of those fortunate to have the cash readily available, many are caught off guard when they realize real estate ownership requires significant capital on an ongoing, often monthly basis, for things such as interest, taxes and maintenance,” she says. “For all the reasons outlined above, now is a good time to consider buying Manhattan condos for investment purposes.”
Condominiums purchased at discounted prices today can be rented at market rents, while the purchasers wait out the supply-demand inequality and a stabilization of prices.
Individual investors can consider some of the closed-end funds available to accredited investors.
“Or if they’re more ambitious,” Yorio concluded, “They can pool capital from friends to acquire a small, diversified condo portfolio.”