Tuesday, October 20, 2009

Reasons to Buy Manhattan Real Estate, published in TheStreet.com


Manhattan residential real estate has performed better than that of the US and comparable major cities such as San Francisco and Los Angeles.

For potential buyers including those who are recently married, having an expanding family or the investor who is looking for a hedge against the coming inflation, now is the time to shop. We are in an uncertain period where the Dow is at 10,000 without justifying fundamentals. Unemployment is at 10 percent, dollar is weak and inflation is coming. Relative to the stock market and comparable major cities, Manhattan has performed well. Here are reasons why and why it should continue to do well in the next 10 years.

The Numbers:
While cities like LA and San Francisco have declined more than 40 percent relative to peak, Manhattan’s decline has been much less. Miller Samuel reports that the peak price per square foot was $1,289 in the first quarter of 2008 and declined to $996 in the third quarter of 2009. This represents a 23 percent decline or about half the decline of comparable large US cities.

Third quarter 2009 data shows prices are now declining at a lower rate while transaction volume surged 46 percent, a sign that the Manhattan market is already finding its bottom. I expect it to decline another 10 percent with an eventual U-shaped recovery. But the duration of decline and magnitude have been less than at comparable major cities.

Wall Street firms are expected to pay a record $140 billion in bonus this year, attributable to the stock market, an easing credit market, an increase in deal making and government programs, according to the Wall Street Journal. This is despite the recession and an unemployment rate at a high 10.3 percent in New York City. Regardless of whether these bankers deserve the lavish bonus, this will boost Manhattan real estate prices.

Manhattan is a landlocked island. While developers in most cities keep expanding outwards, developers in Manhattan do not have this alternative. Yes, we can expand upwards but with such stringent regulations, it is easier said than done.

Capital of the World
Manhattan is a global must-see destination. Emerging markets like Brazil and China are creating wealth at a very high rate and churning out millionaires perhaps by the week. New York is often the first international destination these new millionaires from emerging countries would want to visit. It’s also one of the first places where they would buy investment property or a pied-a-terre.

Diversity of Industries:
While Finance was the dominant industry in New York a decade ago, the current economic landscape is more diverse. Beside Finance, New York is established in Media, Hospitality, Advertising and Professional Services like Legal and Accounting. These industries will be selling to emerging market economies and will benefit the local New York economy in terms of job creation and housing demand.

The City’s unemployment rate was at a high 10.3 percent in August. If not for the diversity of the current New York City economy, the unemployment rate would be even higher. Eastern Consolidated reports that the securities industry lost 1000 jobs in August and a cumulative 31,200 jobs since November 2007. However, sectors like education, health, leisure and hospitality gained jobs which partly offset the negative impact of the financial job losses.

Quality of Life
The air in Manhattan is pristine compared to air in China or Hong Kong. Transportation, although via a 100 year old subway system, is still efficient and dramatically reduces commute time for those living in Manhattan. The legal system is established and there is better work-life balance, again compared to China. These are major considerations for attracting global talent.

What To Do
For the investor expecting the coming inflation, gold is at a high of $1060 an ounce. Of course it could increase to $2000 as per Jim Rogers. However, gold is not income producing. Manhattan residential real estate, backed by the points above, has a net rental yield of 4 percent and still benefits from rental income and price increases. Similar to gold, real estate prices and rental income will increase with inflation. One can live in real estate. There is no practical use for gold.

For the primary residence buyer who is still renting, the value of your saved dollars is getting weaker. The US Dollar Index is now at 75, down from 88 in March, reflecting the world’s pessimism about our currency. Rents will increase. Start shopping for real estate. It’s better than sitting on a pile of cash with weakening buying power.

Contact Wei Min at tan@castle-avenue.com on how we can help you grow wealth through Manhattan property.

CBS's Chataboutit, The Political Chick radio show

First the talking heads said we were in a “W” recovery, and not a “V” recovery, and all were anticipating another shoe to drop in the economy. Now that the Dow Jones crested over 10,000, those “experts” are telling us the economy is on its way back. We all know that the primary underpinnings of the economy are employment and real estate, and both of which are still abysmal. But this sure could be a great buying opportunity for an investment property, right? Wei min Tan, CEO of Castle Avenue Partners (http://www.castle-avenue.com/) will help make sense of where the real estate market stands and where we are headed.


Sunday, October 11, 2009

Mortgages Under 5% - CNN Money

Oct 8, 2009

Freddie Mac said 30yr rate slipped to 4.87%.
Bankrate said 30yr now at 5.2% compared to 6.2% last year.
Mortgage apps surged by 16% last week.


Thursday, October 8, 2009

Manhattan Real Estate Still In Flux

My article published in TheStreet.com.
Note Jim Cramer's comment !


Third quarter Manhattan market reports recently released by the city’s top brokerages showed a slowing rate of price decline while transaction volume increased. Manhattan has lagged the nation in real estate price declines. The ongoing question is when Manhattan would hit bottom. Nobody knows because when we do, the bottom would have been over. Consensus seems to be that the rate of decline is slowing. However, a recovery is still not on the radar.

Manhattan 3Q’09 Market Reports

The reports showed that prices declined compared to a year ago. The declines were less or flat compared to last quarter. This shows the rate of decline has slowed. Prudential Douglas Elliman, Corcoran Group, Brown Harris Stevens and Halstead report that average apartment prices declined between 10 to 16 percent compared to the same period last year.

Dottie Herman, CEO of Prudential Douglas Elliman, even said that the worst is over for Manhattan. Prudential’s market report showed that transaction volume, at 2,230 units, increased 46 percent compared to the prior quarter, signaling buyers are back in the market. The median sales price of a Manhattan apartment is now $850,000, a 1.7 percent increase compared to last quarter but still 8.4 percent lower than the same period last year. The average price per square foot is $996, a 16.5 percent decline compared to last year and 5.7 percent decline compared to last quarter, another example of a slowing rate of decline.

Brokers attribute the increase in activity to declining prices, the stock market, improved consumer confidence and the first time homebuyer credit. The increased activity also shows that the steep post-Lehman drop in prices has ended.

These market reports depict closed sales for 3Q’09 and have a lag relative to real time activity. It takes roughly 2 to 3 months to close after a price is agreed upon. Hence, prices reported are those that traded in June or July of 2009.

Since then, my real time observation is that prices have declined further and by the time the 4Q’09 report is published, I won’t be surprised if they are 3-7 percent lower than 3Q’09 numbers. But transaction volume has indeed been increasing.

Buyer’s Market

Yes, brokerage firms paint a picture of an improving market. However, there are negatives which include unemployment hitting 10 percent, expiration of the first time homebuyer credit in November and of course, the glut of new development units in Manhattan. Inventory in Manhattan is around 8,400 units, which is higher than the 10 year average of about 7,100 units.

Every week, we hear news about a developer announcing potential bankruptcy or something related to inability to repay loans.

For the buyer ready to get into the market, now presents the advantages of low interest rates and a buyer’s market because everyone seems to be running away from real estate. The current market obviously favors the buyer and here are suggestions to effectively negotiate the next deal.

Winter will be a great time to buy because it’s a dead season. This means developers will be more willing to extend better deals.

Be aggressive when negotiating. You want to be the beneficiary of the downturn, not the victim of it. Even before potential buyers ask for a better price, sellers are already offering a lower price compared to the listed price. Prudential’s 3Q’09 report shows the average price per square foot for a condo as $1101. But we’ve observed even very nice new developments selling at 10 to 20 percent lower.

Cash buyers should be even more aggressive when negotiating. If you’re a cash buyer, you’re gold because no credit is required and closing is a lot faster. We have seen buyers who offered to purchase multiple units at a substantial discount and wanted a response on the spot. Of course, the seller gave in because despite a lower price, these are units that will very likely close. Each additional signed contract increases the developer’s credibility with the bank and with the next potential buyer.

Do the numbers. Compare the price per square foot you would be paying relative to what has closed in the same building. It’s all public information. Also, look at the number of units for sale and for rent, both of which will tell you a lot about the demand for the building.

The cap rate of a Manhattan condo is about 3 to 4 percent while for a mixed use building it is around 5 percent. The cap rate is the net rental yield assuming no financing involved. Hence for investors, it
can be compared against a stock’s dividend yield, a bond’s coupon or a bank CD.

Finally, get a fixed mortgage! With the Obama stimulus plans, we will have higher inflation ahead. This is one reason why gold prices shot up recently. With inflation, prices of all things increase and this includes property value and rental income. In residential real estate, mortgages could be fixed for up to 30 years while in commercial, up to 10 years. By fixing your mortgage, you are essentially repaying the debt with weakened currency over time. If you’re renting out the property, rental income will rise with inflation while mortgage payments stay the same. This leads to a larger cashflow over time.

Inflation is the reason why buildings in Manhattan today that are worth $300 million were only $10 million thirty years ago. The successful landlords understand and practice this concept of using real estate as an inflation hedge and letting inflation do its work over time.

Wei Min Tan is a real estate entrepreneur focused on investments and brokerage. He is CEO of Castle Avenue Partners and lives in Manhattan.