Penthouses have a special air around their name. It’s like saying the word “gold”. You know right away it’s shiny and worth quite a bit, but how much really and what does it look like? Is it even real? Is the value actually there? According to OLR there are 445 Penthouses available in Manhattan between 1 and 100 million dollars on the market which makes up about 10% of the inventory market in New York City. The real question is, since Penthouses are so “desirable and valuable”, why are there so many available and why do they sit on the market for so long?
The oldest listing on the market is 56 Leonard at a whopping $35M. According to The Real Deal as of last summer, luxury apartments are now sitting on the market for an average of 9 months. This stat stands for properties over $4M. *3Q16 claimed the number of apartment closings in the luxury price category had dropped 18.6% and that apartments are sitting on the market on an average of 8.2% longer. Inventory spiked with new development 27.2%.* With those numbers on a seemingly steady decline, it appears that the sellers aren’t in that much of a need to sell and the buyer has been priced out. Sellers not needing to sell means these units are actually investment properties for many of their owners.
Walking around at night in some of the best neighborhoods in NYC, just look to the skyline and you will see many of those top lights are not turned on. There are so many penthouses not lived in. The term is “ghost apartments”. This means that the owners have never been there, never plan to live there, and/or almost surely never occupy the space full time. Without the urgency to sell these units, these apartments won’t move. And without the right prices for buyers these units will continue to sit on the market. A lot of these units are sitting because of two trending actions here in Manhattan: Surplus of Inventory and Volatility.
With regards to new inventory, many developments have been put on hold while many keep on building. With new developments, and inventory of penthouse numbers growing, sellers are going to have to accept that the valuation is going to decrease. When these products sit on the market for years without so much as an offer, something will have to give. Or the owners will have to sit on their investments long term to live out the fallout and rise back up that many people think is right around the corner. If you paid $90M for an apartment, but the market crashes and it is then only worth half of that for the next twenty years, it wasn’t such a secure investment after all, was it?
And that brings us to the second point. Volatility. For many many years, America has been a safe place to live, work, spend, and grow. Our democratic government is secure (in the minds of so many volatile countries at the very least) so won’t the money be safe here? But is it true? The second action is withdrawl of foreign investments. It doesn’t necessarily mean they see us as not safe but it could be a warning sign of something bigger. The second action is that the foreign markets that once were able to collect NYC apartments as though they were literal safety deposit boxes, are having difficulty acquiring these transactions for security of their wealth. Since America has always been stable in their minds, they have always come here with their money and investments to grow their wealth in a non volatile, growing, stable country. This has served the most wealthy of many countries such as Russia, Brazil, Argentina, Canada, some of the Middle East, and China, up until now, very well. Many of whom are seeing socio-economic, environmental and trade restrictions (oil drying up in Russia and the Middle East), or just plain national fear for a myriad of reasons affecting their ability and decisions to place cash in American, especially Manhattan, real estate.
The only sure outcome of all of the discussion around the “luxury penthouse bubble” in New York City is that we, as of right this moment, have more than enough penthouses for sale. And if you want one, you can surely get your hands on one and real estate firms across the city will find a way if you have the will to buy.
*Elliman Report
*ZeroHedge