The Manhattan transfer

PUBLISHED : Wednesday, 18 September, 2002, 12:00am
UPDATED : Wednesday, 18 September, 2002, 12:00am

ABOVE THE MODERN-ART splendour of the renowned Gallery Stendhal in chic SoHo, Manhattan's latest investment revolution is quietly and swiftly moving along.

The asking price for each of five fully fitted, low-rise loft-conversion units of luxury is a cool US$2.5 million. For the area - the western and slightly grottier edge of the former industrial neighbourhood - they are priced a little on the high side. Considering the fragile state of the economy and New York's own local recession, such a sale might be considered hopeful.

But analysts expect the homes to be snapped up and sold within a couple of weeks, as investors burned by Wall Street's recent vacillations look for more secure places to park their wealth.

Despite the shock the industry suffered at the hands of the September 11 attacks and the economic downturn, New York's residential real estate market went through the roof in the past quarter.

According to several reports by leading industry organisations, sales have soared and prices have rocketed to near-record levels even as local unemployment increases and economic growth declines.

'There has been nothing short of a renaissance in the residential market of Manhattan, especially lower Manhattan. There is a sense of the phoenix rising down there,' said Warren Wexler of the Real Estate Board of Manhattan, an industry advocacy group.

September 11 hastened a slump in the residential sales and rental markets that had begun early last year. Recession forced many commercial tenants from the Wall Street area, and the laid-off employees who had moved into nearby soaring apartment blocks near their offices began moving out in tandem.

Then came the terror attacks, which demolished 30 per cent of downtown's office space and many of its jobs in the process. The knock on effect to the residential markets was devastating.

A year later, however, that trend has gone into reverse. A renewed vigour has entered lower Manhattan's residential market, especially the home sales market.

Fuelled above all else by the decline of the stock market and by stubbornly low interest rates, first-time buyers and long-term investors alike are looking at Manhattan's property opportunities anew.

With the Dow Jones demonstrating more volatility in the past year than at any time in the past 20 years, investors are looking for the low-risk guaranteed returns that real estate can offer, Mr Wexler said.

According to a study by Insignia Douglas Elliman, the city's largest real estate brokerage, the residential sales market for the whole of Manhattan leapt a staggering 30 per cent in the second quarter of this year, and 50 per cent over the same quarter last year, both record surges.

In absolute terms, average apartment prices are still 7.3 per cent down on the same quarter last year, when they hit an all-time record before the September 11 attacks sent them plummeting. But the recovery they staged in the past quarter - a 5.2 per cent increase to US$829,000 - suggests that benchmark may soon be breached.

Corcorans, another large brokerage in Manhattan, reports that in some parts of the city, that has already happened. They estimate that apartment prices in midtown Manhattan are at least 12 per cent higher than they were before the September attacks.

Remarkably, it is the scarred neighbourhoods of lower Manhattan that have seen the greatest improvements.

Sales in the downtown and Tribeca areas, the neighbourhood closest to the World Trade Centre, have surged 20 per cent. A deal signed earlier this year to construct a new US$60 million, 16-storey block of 34 luxury apartments in Tribeca was hailed as a pivotal point in lower Manhattan's turnaround. It will be the first new residential property to be built in the largely converted-loft neighbourhood in more than 40 years.

A similar picture is emerging within the rental market, which though not as strong as the sales market, has seen a rapid recovery since the terror attacks depressed rents by up to 30 per cent in lower Manhattan.

'The trend that was set about two years ago, in which businesses and residents began leaving Manhattan has been reversed,' said Insignia Douglas Elliman senior sales executive Yuval Greenblatt.

Then, real estate brokers were complaining of an exodus of commercial and residential residents from lower Manhattan to neighbouring cities, such as Jersey City and Hoboken just a subway stop away across the Hudson River. Driven away by soaring rents that had reached up to US$1,500 per square foot in the sales market and upwards of US$3,000 per month for a single-room studio in the rental sector, they established a boom in the former industrial areas on the Jersey riverside that is yet to abate.

The rapid increase in home purchasing has hampered the rental market's recovery to a large extent, but other factors have had a positive effect. The strongest force attracting people downtown has been the generous grants offered by Lower Manhattan Development Corporation, the authority charged with rebuilding the neighbourhood.

In a bid to regenerate the area, it is offering renters grants of up to US$12,000 over two years, or US$500 a month, on leases above US$1,600 per month that are signed before the middle of next year. Similar, although less attractive, discounts have also been offered to buyers.

'That has had renters just flocking in,' Mr Greenblatt said. The scheme's success has only been measured so far in the vacancy rate of lower Manhattan, which slumped to 25 per cent soon after September 11. A year later, it now stands at just 5 per cent. Although there is little data on average residential rent prices, Mr Greenblatt says anecdotal evidence suggests they are creeping up.

With steady but not overzealous demand from purchasers and a moderate supply of inventory combined with a record amount of new construction and conversions about to come online, Mr Greenblatt believes the sales market will remain strong for some time.

'For the first time in a long time we have a very healthy sales environment in lower Manhattan,' he said, adding that transaction times have been halved from an average of six months to 120 days.

'There's no pent up demand and no glut of vacancies. The sales market is moving in an orderly manner.'

Graphic: new18gbz