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They are daffy about luxury condos in NYC

Posted by Rona Fischman  September 10, 2009 02:39 PM

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I have been following this promotion since it started. Here’s the pitch: a fashion retailer, Daffy’s, is offering a one-year lease at $700 a month for a $7000 a month loft on Carmine Street and 7th Avenue. (That’s smack in the middle between Greenwich Village, Soho, and the West Village.) Contestants were asked to come to the apartment to do a 30-second interview explaining why Daffy’s should give them the rights to the lease. It’s like, “what will you do for a Klondike bar?”
Mostly, these are commercials for Daffy’s. They amused me. So, I’m passing them on…
This ad campaign made me wonder. Does this advertising help the folks at OneSeventh, the owners of the building? There were lots and lots of people coming through to record their interviews; I wonder if any will ever rent there at market rate? I doubt it.

The demand for $7000 a month apartments must be pretty low, given the number of people who could pay that. It seems to me that if you can afford that rent, you should buy something so you can seal the deal on your prime location. $7000 a month would cover a mortgage of about $1.25M (depending on taxes, insurance and interest rate.)

That apartment wouldn’t cost $7000 in Boston. Just this week, Scott wrote about Boston's luxury market here and in Banker and Tradesman. This New York apartment is nice, but it is the location that carries the panache and the pricetag. Is there any location in Boston worth $7000 a month?

I rarely fantasize about the high-end home of my dreams; I’m just too practical for that. But, when I do think about the dream place, it isn’t an apartment in lower Manhattan. It would be someplace on the water, with a reasonable commute into a major city. What about you? Where would you spend that $1.25M, if you had it to spend on housing?

If you watch the videos, let us know who you voted for. I like the guy with the duck!


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6 comments so far...
  1. The demand for $7000 a month apartments must be pretty low, given the number of people who could pay that. It seems to me that if you can afford that rent, you should buy something so you can seal the deal on your prime location. $7000 a month would cover a mortgage of about $1.25M (depending on taxes, insurance and interest rate.)

    Myth: If you can afford to buy, you should buy.

    Fact: Prices and rents in NYC are plunging, particularly in the high-end segment. Also, price-to-rent is way out of whack (it's not uncommon for luxury apartments to rent for half what they would cost to purchase). Unless you have money to burn, buying an apartment right now in NYC is a big mistake.

    P.S. Nolan Myerson gets my vote.

    Posted by Lance Stapleton September 10, 09 04:38 PM
  1. The demand for $7000 a month apartments must be pretty low, given the number of people who could pay that. It seems to me that if you can afford that rent, you should buy something so you can seal the deal on your prime location. $7000 a month would cover a mortgage of about $1.25M (depending on taxes, insurance and interest rate.)

    Yeah, but it wouldn't buy you a New York apartment.

    NYC real estate is a world unto itself, Lance. The city is full of people in high-paying jobs trying to live the life to match. So having $84k/year to shell out on rent is the least of it. Such folks are out there.

    No, the real problem is that almost all the apartments in Manhattan are on the Co-op model. So you've got to pay the mortgage, but you've also got to pay the fees - and those can be remarkably steep. Even more importantly, you have to satisfy the Co-op board. They'll probably want to see that you have liquid assets equal to at least half the value of the apartment, and perhaps equal to its full value. They'll check your references, to see if you're they're kind of owner. It's a rigorous process that even well-qualified applicants routinely fail for mysterious reasons.

    So, wholly apart from whether a high-end NYC apartment is a sound investment, there's a whole pool of potential owners out there who can't make it through the process. Maybe their compensation is too titled toward variable bonuses to get a mortgage in the current climate. Maybe they make a killing, but don't have enough in savings to satisfy the co-op board. There are any number of different reasons. But yeah, strange though it may seem, there actually is demand for high-end rentals in that city.

    Posted by Cynic September 10, 09 10:58 PM
  1. Cynic:

    Maybe I didn't make myself clear. I am not suggesting that renting a place for $7k/mo is a bad idea. On the contrary, renting is the best option in a market like this one where prices and rents are falling. Nor am I suggesting that nobody in NYC can shell out $7k/mo month on living expenses. There is certainly a pool of such buyers/renters, although I am not convinced this pool is large enough to absorb the inventory of high end apartments on the market.

    That said, NYC is one of the few markets where the "it's different here" camp can actually make a plausible case. As long as it remains a preeminent cosmopolitan hub, there will always be people with money from around the world looking for a pied-a-terre in NYC. So to some extent, certain segments of the NYC market really are different. But as we are seeing now, that doesn't make it immune from the laws of gravity. There was a global credit bubble which drove real estate prices all around the world to stratospheric levels (see: London, Spain, Iceland, USA, China, Australia, etc.) This credit bubble has popped, and prices around the world are falling as paper wealth disappears. This is dragging prices down, even in NYC. Just look at the numbers.

    And yes, I am very familiar with the co-op ownership structure that is prevalent in NYC. I'm not sure how this is relevant except that it further limits the pool of qualified buyers providing yet another factor that will weigh on prices.

    Posted by Lance Stapleton September 11, 09 09:43 AM
  1. Yup - the fees are what can get you. We have a family friend who lives in a 3bdrm coop in Lower Manhattan. The monthly maintenace fee alone is $2400! IMO it's a beat up POS building w/no character, yet the mortgage, parking, and monthly fees on that place must be $10-12k easy.

    Posted by Mike September 11, 09 10:39 PM
  1. From today's Bloomberg...

    Prices are also falling. In the Manhattan luxury market, the median sales price dropped 26 percent in the second quarter to $3.66 million, according appraiser Miller Samuel Inc. and broker Prudential Douglas Elliman. Luxury sales plummeted 50 percent, with 153 apartments trading in the period. The luxury segment is defined as the top 10 percent of co-op and condo sales.

    Hung

    Posted by Hung Wang September 14, 09 04:25 AM
  1. Kimberly Dawn Neumann won the lease to the apartment.

    Posted by Rona October 1, 09 10:01 AM
 
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Scott Van Voorhis is a freelance writer who specializes in real estate and business issues.

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