Luxury Manhattan Condos Pile Up As Foreigners Lose Buying Power

Dollar Gains

The euro-zone economy is forecast to expand 1.1 percent this year, compared with 3.2 percent growth in the U.S., according to data compiled by Bloomberg. In Latin America, Venezuela’s oil revenues are falling, while Argentina struggles to pay its foreign debt. Russians, who’ve purchased some of the most lavish homes in Manhattan and Miami, face a contracting economy, plunging currency and falling revenue from oil.

In the 12 months through Jan. 20, the euro fell 15 percent against the U.S. dollar, while the pound lost 7.8 percent. Argentina’s peso has tumbled 21 percent and the Russian ruble plunged 48 percent.

In February 2012, a penthouse at New York’s 15 Central Park West was purchased for the daughter of Russian billionaire Dmitry Rybolovlev for $88 million, a record at the time. The condo, which would have cost about 2.6 billion rubles at the time of the closing, would cost more than 5.7 billion rubles at today’s rate.

Plunging Ruble

“There’s no question the ruble falling as precipitously as it has put a damper on things,” Marlen Kruzhkov, an attorney with New York-based Gusrae Kaplan Nusbaum PLLC, who represents foreign buyers in U.S. real estate deals. “But it works two ways. There are those people it’s going to prevent from buying. And at the end of the day, there are those people it just reinforces for them the reasons they’re moving their money out of the country in the first place.”

Chinese buyers -- who spent $22 billion on U.S. homes in the year through March, up 72 percent from a year earlier, according to the National Association of Realtors -- may be an exception to the pullback. Their purchases in Manhattan are “increasing significantly,” said Pamela Liebman, president of brokerage Corcoran Group.

Safe Haven

Manhattan’s status as a safe haven for buyers means it may ultimately benefit from overseas turmoil, driving wealthy foreigners into dollar-denominated assets even as exchange rates limit buying power, according to Gregory Heym, chief economist at Terra Holdings LLC, owner of Brown Harris Stevens and Halstead Property. Some developers may have to adjust prices as the supply grows, he said.

“I get the concern that in an area like 57th Street, too much is being built in an area that hasn’t had a lot of residential development in the past,” Heym said. “It’s very aggressive pricing in a lot of those buildings, a lot of them raised prices a number of times since they opened their sales office.”

Midtown’s 57th Street neighborhood, fringing Central Park, has emerged as a billionaires district, where developers are racing to build ever-taller skyscrapers.

At One57, the Extell Development Co. project that set off the construction boom, deals slowed to a trickle amid competition from newer properties reaching the market. Just one contract was signed in each of the first three quarters of 2014, Extell said in a filing on the Tel Aviv Stock Exchange, where the company sells debt to investors. As of the end of September, 24 of the project’s 94 condos were unsold.

It wasn’t like that when sales began in 2011. Deals at One57 totaled $1 billion in the first six months, including a contract for a duplex penthouse for $100.5 million, which set a New York price record when it was completed last month.

Rival Towers

Extell also is building 184 units at 225 W. 57th St. Half a block away from One57, JDS Development Group and Property Markets Group plan to start sales of the 59 units at the tower they’re building at 111 W. 57th St.

Just to the east, Harry Macklowe and CIM Group’s 432 Park Ave., where a penthouse is under contract for $95 million, is nearing completion as the tallest residential building in the Western Hemisphere. And Zeckendorf Development Co. plans to start sales this year at 520 Park Ave., near 60th Street. A triplex penthouse will be offered for $130 million, making it New York’s most expensive listing.

Normal Speed

While all the apartments coming to the market will be absorbed, it will take time, according to Leonard Steinberg, president of brokerage Urban Compass.

“It won’t be at the speed and pace we experienced over the past two years because that was abnormal,” he said. “So it will appear as an oversupply at first.”

The luxury sales frenzy since 2012 was caused by a limited inventory after the global property rout all but shut down construction for almost three years, according to Steinberg. Now that buyers have more options, deals will progress at a more “normal” speed -- about two to four years to sell out a building, he said.

“Some people will get a little panicky because things are not selling as fast,” Steinberg said. “But what we experienced over the past two years was not reality. That was a moment in a century.”

L.A. Mansions

In the Los Angeles area, about two dozen mansions with prices starting at $20 million are being built on speculation that a buyer will eventually emerge. Last year, 19 deals were made above that level, including a $70 million purchase of an eight-bedroom Beverly Hills house with an original asking price of $85 million.

“There’s an oversaturation of very similar spec houses and there are more of those than there are buyers,” said Stephen Shapiro, a partner at Westside Estate Agency in Beverly Hills. “There’s always going to be people coming here and spending big bucks on housing. It’s a question of how many.”

Alessandro Cajrati Crivelli reduced his asking price this month on a 16,000-square-foot spec mansion in Los Angeles’ Holmby Hills district to $35.5 million, down from $45 million when he first listed it in June.

“We received offers now, finally,” said Cajrati Crivelli, founder of Est4te Four Capital LLC, a developer of luxury real estate in London, Milan, New York and Los Angeles. “I decided I will sell it no matter what price.”

In Manhattan, all the new construction is making it more challenging to sell pre-owned condos, according to Gustin at Brown Harris Stevens.

The 7.4 percent price reduction for the Tribeca apartment she’s listing was “a solution to get more people in,” Gustin said. “I had a hot neighborhood. I had a luxury building. I had an immaculate apartment that was glamorous. I didn’t anticipate waiting.”

Biding Time

Renato Cassano, a real estate investor from Italy, is biding time before trading up from the one-bedroom condo in New York’s financial district that he bought in 2010 for $925,000 and rents out. While he plans to sell that property and spend at least $2 million for a two- or three-bedroom, he’s waiting until the euro strengthens.

“Today, New York prices are good for me,” Cassano, who owns nine residential and commercial properties in his home country, said in a phone interview from Rome, “But the exchange rate is almost like a penalty.”

His agent, Santo Rosabianca, said Cassano was the second European client to pull back from the New York market because of the exchange rate and rising prices.

“Things might take longer, but they’re still going in Manhattan,” Rosabianca said. “The foreign national still wants to be on the island of Manhattan.”