The Crash of the Luxury Condo Market in Manhattan

One57, a 1004-foot condo tower in Midtown Manhattan, was the envy of the real estate world when it was under construction. This skyscraper aroused interest in wealthy investors everywhere and sparked a new demand for luxury condos. The resulting boom in luxury real estate had developers betting on an ever-increasing demand for luxury residences. Fast-forward to the present, however, and the sale of apartments at One57 has been reduced to a trickle and 20 apartments are still left unsold.

The demand for mega-priced condos in Manhattan has dropped drastically amid a surplus supply of high-end apartments. Meanwhile, the demand for average-priced apartments is still strong, with a limited supply of them. The situation in Manhattan is similar to that of other major cities worldwide. In London for instance, the luxury property market has slowed and now various projects, some completed and some still under construction, are seeing sales stagnate. Many of these projects may have sold few or no units at all.

Many New York developers entered the luxury market as it boomed three or four years ago, only to be met later by weakened demand and a glut of high-end properties. One developer of super-tall towers referred to this situation as a “temporary imbalance” which would be absorbed in subsequent years, but most developers are still worried about the dwindling luxury market. The upper floors of the Sony Building underwent a conversion to smaller units, while a proposed high profile building on Central Park South was shelved. A developer of a 900-foot tower on East 58^th Street filed for bankruptcy last month. This happened after the developer was unable to obtain long term financing to complete the project. The remaining developers are hoping that the thousands of units now under construction can still be sold for at least $3500 per square foot.

A tower under construction near the Museum of Modern Art has about 140 luxury apartments in addition to a penthouse priced at $70 million. At 520 Park Avenue, there is a slim tower with 33 units each priced at $38 million. Along “billionaire’s row” on 57^th Street is 111W. 57^th St., the slenderest tower ever built. This tower, which will offer 60 units, is to rise 1400 feet above the ground and past the Empire State Building at 1250 feet high. Additionally, construction is about to commence for the development of another very slim 900-foot tower. This project is financed partially with money from Chinese buyers. Developers of these projects had been hoping for the continued growth of the luxury real estate market and the presence of super rich investors.

The luxury market, however, is very volatile and can easily be affected by interest rates and currency conversion rates, unlike the demand for office space or an ordinary rental apartment. The weakened economy in China and lower prices for oil have greatly affected the luxury market. Even as condo developers experience the slowdown, they are still predicting an increase in demand for the high end projects. They believe that sales will continue at high prices, but perhaps at a lower rate.  However, they are now finding that sales are much slower than at the height of the boom. A listed unit can stay on the market up to 90 days before it is purchased. This is a considerably a longer time compared to when the market was booming.

One developer suggested that those developers that have buildings with views of Central Park should hold out until they can sell at a higher price. This is because apartments with such views are limited. Thus, the developers are delaying a marketing push while waiting for better prices. The Central Park view has always been one of New York City’s most beautiful and sought-after views. Developers are counting on the luxury market to recover before the loans they’ve taken out are due for repayment. Fewer projects are being started now, which may help keep the luxury market from an even greater glut.

International buyers have accounted for about 40 percent of Manhattan luxury home purchases as well as 20 percent of New York mega-priced buys, and their hesitance to continue investing will affect the luxury market negatively. The increased demand for luxury homes by these foreign buyers, especially the Chinese and Russian investors, is what led to the boom in the first place, with the result being a profusion of new skyscrapers doting the Manhattan skyline. These super rich investors were seeking ultra-luxury homes to serve as stores for their wealth. To satisfy their tastes and give them value for their money, developers included “super amenities” in these in the newly constructed towers. Most of these amenities are fit for royalty and include swimming pools, catering kitchens, restaurants, children’s playroom, basketball court, yoga studios, gyms and hamams. Recently, the availability of valets, spas and concierges have become standard for ultra-luxury homes.

However, the strengthening of the U.S dollar against other currencies, the decline in oil prices and the economic meltdown in Asian countries have discouraged buyers from further investment. This resulted in the flooding of the market with luxury properties. Moreover, many units of luxury condos are still under construction. Despite the hopeful predictions of the builders, there is a risk that the flooded luxury market may still outstrip demand for years to come.


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