Manhattan’s iconic “Billionaires’ Row” is known for establishing new benchmarks in both the luxury and price of real estate. Now, the toniest residential area in New York City—with its ultra-exclusive condominium towers offering breathtaking views of Central Park—is experiencing its first-ever foreclosures.

Two recent lender suits against defaulting owners at luxury high-rise One57 (157 West 57th Street) have stirred concerns about the outlook for the Big Apple’s luxury residential real estate market. Are these foreclosures early warning signs of a bubble, perhaps global in scope, that could soon burst?

Donna Olshan, president of high-end Manhattan brokerage Olshan Realty, doesn’t think so. She says the recent foreclosures at One57 are isolated incidents involving borrowers who got into trouble, not indications of a coming market meltdown.

Instead, Olshan says current soft prices are partly the result of excess inventory caused by the overbuilding of expensive condos. “At $10 million and above, inventory is growing. We had too much building on the uber-luxury end of the market. Things under $1 million fly and things over $10 million are sitting,” she says.

Overpricing by sellers of luxury properties is largely responsible for stalling transactions at the top of the market, says Olshan, a 37-year veteran of the New York real estate market. “Real estate is an efficient market. If it’s not priced correctly, it won’t sell. People either remove their property from the market or they lower the price and sell it.”

Olshan refers to the boom that happened about five years after the 2008 financial crisis as “the golden years of luxury real estate building in New York City.” From 2013 to 2015, construction projects that faltered after the crisis were restarted and a lot of new development began. “During that period of time, the market really escalated,” she says.

Prices of newly developed super-luxury condominiums in New York City have already corrected by 15% to 35% since their peak in 2014, according to Jonathan Miller, president and chief executive officer of New York-based Miller Samuel, a residential real estate appraisal and consulting firm. “When you have values dropping in short order that much and asking prices don’t adjust, you have few sales,” he says. “It always takes sellers—especially at the high end—a couple of years to get back in sync with the market.”

Miller covers 22 housing markets and authors the Elliman Report for Douglas Elliman Real Estate.

With no significant increase in demand expected at current prices, Miller says sellers will need to come down another 10% to 15% to clear the inventory overhang. The construction of about 10,000 luxury condos above current levels of demand has resulted in at least three to four years of excess supply in New York City, Miller says.

Overall, he says, prices for both existing and new luxury properties are softening. “Like the national market, New York is roughly 85% resale, 15% new development. The market is softer at the top and tighter as you move lower in price.”

As sellers reduce prices in many areas of the country, sales of luxury homes are picking up. “What you’re seeing now with sales in a lot of markets is much larger listing discounts and longer marketing times because sellers have to travel farther to meet buyers. Buyers aren’t coming up. As sellers capitulate to the new market, sales occur,” says Miller.

Defining Luxury
The Institute for Luxury Home Marketing designates the top 10% of the total U.S. home market based on sales price as “luxury,” the top 5% as “ultra-luxury” and the top 1% as “uber-luxury,” according to Diane Hartley, president of the Dallas-based organization.

The dollar values associated with the institute’s luxury tiers vary dramatically from market to market. “Luxury real estate is hyper-local. Because the stakes are so high, you want a local agent that knows the market literally down to the street,” says Hartley.

For example, in Chicago a $1.4 million single-family home qualified for the top 1% in the first half of 2017, whereas in Palm Beach, Fla., the 1% threshold price was $4.3 million, according to San Diego-based REAL Marketing, a strategic marketing company that provides local statistical analytics for the North American real estate market.

The range of luxury selling prices also varies significantly across markets. The highest-priced condo/townhome sold in Park City, Utah, during the first six months of 2017 went for about $5.9 million, while the highest price for one in Los Angeles went for $20 million, according to REAL Marketing’s data.

In a few U.S. markets, like Manhattan, home prices approach the surreal. A penthouse comprising the top two floors of One57 sold for just over $100 million in 2015, a record for the most expensive unit ever purchased in New York at the time. Several condos at 220 Central Park South were combined to create a mansion that’s under contract (as of press time) for close to $250 million.

“The New York market is nearly always viewed through the optics of the $100 million or $250 million apartment. Those are outliers,” says Miller.

Global Insights
Ultra-prime residential real estate is indeed rarified. As of mid-2017, about 1,500 homes over $20 million were listed for sale globally. Yet only 34 were available for over $100 million, according to Christie’s International Real Estate’s 2017 report “Luxury Defined: An Insight Into The Luxury Residential Property Market.”

By country, the definition of “luxury” real estate differs significantly, says Christie’s report, which gathered data from over 100 luxury residential markets worldwide. For example, an entry-level luxury home can be purchased for less than $1 million in Costa Rica, while one would start at over $10 million in Monaco.

In 2016, the global trophy residential real estate market was characterized by significantly slowing sales, considerably more days on the market and slightly upward-trending prices. Luxury home sales over $1 million grew by only 1% annually in 2016. By contrast, sales of $1 million-plus properties grew 8% year over year in 2015 and 16% year over year in 2014. The average time on the market for homes over $1 million increased from 195 days in 2015 to 220 days in 2016, a 13% rise, Christie’s research shows.

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