Posted by Jonathan J. Miller -Wednesday, May 16, 2012, 5:36 PM
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Tomorrow I’ll be a featured speaker at The Northeast New Jersey Chapter of the Appraisal Institute’s 6th Annual Meadowlands Conference in Teaneck, NJ.
My presentation is called:
The Intersection of Housing and Credit in 2012, How This Cycle Ends.
Always great to hang out with valuation professionals who care about their profession.
Posted by Jonathan J. Miller -Wednesday, May 16, 2012, 3:47 PM
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It’s time to share my Three Cents Worth on Curbed NY, at the intersection of neighborhood and real estate in the capitol of the world. And I’m simply here to take measurements.
Read today’s 3CW post on Curbed New York:
Since the Euro is creaking under the prevailing sentiment that Greece will flee, I thought it would be interesting to take a look at how Manhattan looks from Europe and the UK’s perspective. I threw in Canada and Australia for good measure. I applied their currencies against the US dollar and the Manhattan inflation adjusted average sales price (dark blue line)…
[click to expand]
Posted by Jonathan J. Miller -Wednesday, May 16, 2012, 3:34 PM
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Crazy?
In the past few days there have been some pretty serious announcements of high end sales in the Manhattan apartment market. First there was the $52M co-op sale at 740 Park Avenue and then there was the $70M condo sale at 50 Central Park South. The former was a record – the highest sales price of a co-op apartment in Manhattan history and the second was a near record sale for a Manhattan condo. One could say this $70M sale was the highest arm’s length condo sale in history since it appears from what I’ve read that the $88M sale at 15 CPW a few months ago was more of a global divorce strategy play.
In appraising we use the “paired sale” technique to extract what certain amenities are worth. One could argue that these 2 recent sales were very similar:
- Both were about 10,000 square feet.
- Both are duplexes (2 levels).
- Both had terraces.
- Both located on well known streets/addresses.
- Both were located in pre-war buildings.
- Both sold at about the same time.
- Both appeal to an affluent buyer who doesn’t require financing.
Simplistically speaking the key differences are the form of ownership (co-op v. condo) and the view. The 50 CPS property has full frontage on Central Park, the most sought-after view in Manhattan. The 740 Park Avenue is located on the 12th and 13th floor has city views that do not clear the roof lines of most buildings in the immediate area.
In our market, the premium for a Central Park view can be about 25% of an apartment’s value. In our co-authored research paper on Manhattan co-op v. condo value with NYU Furman Center, the inherent difference in value between a co-op and condo after controlling for all differences is about 9%.
25% + 9% = 34%
This 34% total is pretty consistent with the 34.6% difference between the $52M co-op and the $70M condo sales prices.
So the numbers aren’t so crazy after all.
- Wynn lands Ritz-Carlton penthouse for $70M [The Real Deal]
- Park Avenue co-op sells for record $52.5 million [CNN/Money]
- Fertilizer King Rybolovlev Sued By Wife For $88 Million 15 CPW Purchase [NYO]
- The Condominium v. Cooperative Puzzle: An Empirical Analysis of Housing in New York City [Miller Samuel]
Posted by Jonathan J. Miller -Tuesday, May 15, 2012, 1:57 PM
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aside : I’m the New York guy
Knight Frank’s Prime Global Cities Index showed more weakness this quarter.
The first three months of 2012 brought with it little new momentum. The Eurozone’s debt debacle remained at the forefront of the global economic agenda, several critical elections were on the horizon (Russia, France, Greece) and Asia’s highly-effective cooling measures showed no sign of being relaxed. Against this backdrop some luxury buyers took to the side-lines to observe their market’s trajectory.
Primary markets seem to be cooling off a bit. I thought the conclusion was quite powerful.
The safe-haven argument still resonates. Capital flight will continue to focus on cities with low political risk, transparent legal systems, good security and ideally those with an HNWI-friendly tax regime.
Posted by Jonathan J. Miller -Tuesday, May 15, 2012, 1:16 PM
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About five years ago, The New York Observer started a publicity campaign called The Power 100 where they selected 100 notables in New York Real Estate circles, put them on a list and threw a party to build loyalty and hopefully attract advertisers. It was a fun thing to be a part of. It wasn’t scientific and it wasn’t a serious endeavor nor was it taken seriously. It was just fun and created appreciation from those selected.
I was part of the list in three of it’s first four years. Myself and many others blogged about it. The effort got a lot of attention for NYO which was the intent.
I’ve always liked and respected the reporters there (still do) and I love the flagship NYO publication. I’ve subscribed for years and have been a regular source of market information for the publication.
However this year the publisher changed the methodology by switching it to their other publication The Commercial Observer and excluded media types and most residential types unless you owned a brokerage or sold a few apartments north of $20M.
Of course I’m down with that.
However I didn’t expect the publication to be mean about it. (Not to be confused with snark.) The Commercial Observer published a list of who was cast off (your’s truly) without disclosing the methodology change.
Imagine your kid applying to college but they don’t get accepted – only the college decides to publish their name in a list with all those who weren’t accepted?
I think the “Out” list is just as interesting as the “In” list – here’s a sample.
- Bill Ackman – Pershing Square Capital
- Serena Boardman – Sotheby’s
- Timothy Dolan – Archbishop, RC Church of NY.
- Steve Cuozzo – New York Post
- Si Newhouse – Conde Nast
- Howard Rubenstein – Rubenstein Communications
- Steven Rubenstein – Rubenstein Communications
- Sheldon Silver – Speaker NYS Assembly
- Lockhart Steele – Curbed Network
- Jay Walder – MTA
I’m going to start a new list “The Tepid 25″ since the word “Power” is a bit obnoxious.
Ok, enough of this drivel already. Back to work.
UPDATE: Here’s the response (tweet) to my post although they neglected to include my link and changed the topic – the social media person at TCO treated this as opportunity to expand the conversation thread rather than addressing the issue of right versus wrong. In media relations this technique is called “reframing the conversation” since my post was addressing how they mocked people being removed as being “Out” in a fit of self-importance, although many are sources for the publication and have been long time friends of it. When you don’t disclose your methodology you can’t do what they did. It’s simply wrong. No, it’s mean.
So here’s a lesson on what not to do on Twitter when your actions are challenged:
CO: Dear @jonathanmiller, you provide your list of the 100 Most Powerful, we’ll publish in our pages 2 weeks from now. Sincerely, The CO #co100
JM: @commercial_nyo yes I’m sure you would. #disconnect
CO: Weak RT @jonathanmiller @commercial_nyo yes I’m sure you would. #disconnect
UPDATE2:
We just got invites to attend the Power 100 party, presumably to celebrate our touted removal from the list. Really? JS needs a sit-down.
Posted by Jonathan J. Miller -Tuesday, May 15, 2012, 10:04 AM
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Absorption defined for the purposes of this chart is: Number of months to sell all listing inventory at the annual pace of sales activity. (The definition of absorption in my market report series reflects the quarterly pace – nearly the same)
I started this analysis in August 2009 so I am able to show side-by side year-over-year comparisons. The blue line showing the 10-year quarterly average travels up and down because of the change in scale caused by some of the significant volatility seen at the upper end of the market. The “blue” line for average changes very little year to year but the scale of the chart does frequently.
Side by side Manhattan regional comparison:
April 2011 v. April 2012
[click images to expand]
Thoughts on the year-over-year comparisons
- Manhattan All price segments below $2M experienced noticeable increase in pace of absorption.
- East Side Condo market accelerating except for $10M+
- West Side $3M to $10M accelerating
- Downtown Below $2M went from faster than average absorption to a lot faster.
Note: This chart series does not include shadow inventory (properties ready for market but not yet listed for sale) so this analysis somewhat understates the pace of condo absorption. The Uptown (Northern Manhattan) data set is too thin for a reliable presentation.
Posted by Jonathan J. Miller -Friday, May 11, 2012, 12:37 PM
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It’s time to share my Three Cents Worth on Curbed NY, at the intersection of neighborhood and real estate in the capitol of the world. And I’m simply here to take measurements.
Read today’s 3CW post on Curbed New York:
With all the hoopla about record low mortgage rates, the resurgence of entry-level buyers despite the headline-creating high end market, entering the “gray” area of rent versus buy, I thought I’d take a look at how falling mortgage rates impact the size of apartments being sold. The logic being that smaller apartments thrive as rates fall. I recognize that there is a lot more nuance in the size of what sells at any given time, but hey, this is Curbed…
[click to expand]
Posted by Jonathan J. Miller -Thursday, May 10, 2012, 10:50 AM
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A few days ago, a post by Felix Salmon at Reuters caught my eye: Chart of the day: Let’s go buy a house! Yesterday he asked me to send similar data for NYC and would run the same chart. I sent over 20 years worth of median sales price and median rental price (face) data for Manhattan and he punched one out: Rent vs buy, Manhattan edition laying the results on top of the US data.
He’s running a payment equivalent adjusting for inflation and he says:
Obviously the Manhattan data series, with fewer transactions, are much noisier than the national series. But broadly speaking, it costs you the same amount to buy a house today, in terms of your monthly mortgage payment, as it did at the end of 2004, when the median sales price was just over $600,000.
Here’s what I told him when admiring his chart handiwork:
We are def moving into a gray area where we are now seeing more and more Manhattan individual apts as cheaper to buy than rent in our appraisal practice – especially coops since they are cheaper than condos. Obviously the problem remains whether the buyer is credit worthy.
Since this analysis is in aggregate, there is not a “tipping” point where the line is crossed and everyone runs out and just starts buying apts (i.e. Justin Bieber tickets).
Posted by Jonathan J. Miller -Thursday, May 10, 2012, 9:51 AM
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Last night the championship dreams for Knicks fans that began in earnest with Linsanity, was officially over, ending with a final loss to Miami in Miami. The Knicks resurgence has been one of the few feel good stories of the year. I will now shift my sports focus to the Yankees and, oh yes, Tebow. Seriously considering following Curling instead.
During the regular season, my sons and I began to collect “Clydisms” by Walt “Clyde” Frazier, our Knicks hero from the championship years. He uses sing-songy phrases to describe the action. Even his new restaurant name has the same style to it.
When one of us wasn’t able to watch a game, the others texted the rest of us new phrases hoping to discover a new one to add to our list.
His phrases are addictive, part of the complete game experience, yet at the same time, completely uninformative. Sort of like national housing market studies. Although the headlines for housing have decidedly turned positive.
Here’s our collective hard earned list:
Moving and grooving
Sliding and Gliding
Swishing and dishing
Rebounding and astounding
Running and stunning
He’s the Novack in novocaine
He’s the Guadeloupe with the hoop
Whacked and hacked
Cruisin’ and Bruisin’
Perculating and devastating
Fields with the steal
Hanging and banging
Duke and hoop
Dishing and swishing
Tantalizing and mesmerizing
Huffing and puffing
Penetrate and devastate
Posting and toasting
Hustling and muscling
Resounding rebounding
Dooming and glooming
Hounding and pounding
Hang and bang
Hanging and banging
Thriving and driving
Duping and hooping
Stops and pops
The Knicks with the knack
Eratic, dramatic, ecstatic and charismatic
Straining and paining
Slammin’ and jammin’
Winning and grinning
In the Knick of time
Slicing and dicing
Wishing they were swishing
Huff and stuff
Sharing and caring
Using and abusing
In the Knick of time
Hurrying and worrying
Hustling and bustling
Spinning and winning
Shakin’ and bakin’
Shake and bake
Stumbling and bumbling
Puffing and stuffing
Penetrating and creating
Agile and hostile
Elton got branded
Swoops to the hoop
Contagious and outrageous
Duping and hooping
A little more pep in their step
Amazing grace
Wheeling and dealing
Hustle with muscle
Transitioning and swishing
Stoppin’ and poppin’
Velcro “d”, stickin’ to the man
Plays with heart and smart
Hacking and whacking
Cruising and bruising
Fortitude and aptitude
Wheels and deals
Bounded and astounded
Posting and toasting
Stooping and hooping
Pulverized in the paint
Huffs and stuffs
Fire and desire
Spinning and winning
So nice we’ll show it twice
Showing his amazing grace
Tenacity and sagacity
Penetrating and creating
Hustling and bustling
Shaking and faking
Dancing and prancing
Prancing on the perimeter
Nasty and sassy
Synergy and energy
The attack, attacking the rack
Trying to keep from crying
Moving and grooving
Stumbling and bumbling
Not hesitating but devastating
My fave? “Moving and grooving” hands down.
Posted by Jonathan J. Miller -Wednesday, May 9, 2012, 9:52 AM
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Julie Satow’s New York Times ‘Square Foot’ Column Accuracy of Appraisals Is Spotty, Study Says takes a look at a study that concluded that commercial appraisals were too high when tested against what the property actually sold for. My partner John Cicero in our commercial valuation firm Miller Cicero was referenced in the piece. While he liked the article and agreed with the conclusions, he pointed out the potential flaws in the study.
Of course the report is pointing out what has been an obvious problem for at least the past decade. Banks have transitioned into the view that an appraisal report is a commodity and not a professional consultation. The irony here is the same thinking applies across both commercial and residential valuation assignments for banks but with polar opposite results.
Commercial valuations are seen as “too high” and residential valuations are seen as “too low.” This probably has a lot to do with the fact that commercial real estate, especially class a office space in markets like NYC, Washington DC and San Francisco is probably in the middle of a bubble and there is clearly indirect pressure on the appraiser to make the deal work (no matter what is being said publicly).
Of course residential valuations were way too high during the housing boom so a similarity can be drawn during that period as lenders relied on mortgage brokers to deliver the majority (2/3) of loan volume by the time the market peaked.
The common thread in all this is to understand how the appraiser is engaged by the bank. In residential valuation it has morphed over to the appraisal management company process (B of A’s Landsafe is the poster child for bad appraisals) and in commercial valuation it has become a robotic automated engagement process:
John Cicero, a managing principal of the appraisal firm Miller Cicero, said: “It is a broken profession in a lot of ways. The appraisal industry has become commoditized, where lenders see appraisals as simply a commodity to be purchased by a vendor and where more emphasis is placed on the price of an appraisal than the expertise of the appraiser.”
For example, Mr. Cicero said, in the past lenders would often have long discussions about the project and the appraiser’s qualifications before hiring. Now, it is more common for lenders to use an online bidding system, where they issue a request for proposals from appraisers and often choose the least expensive. “They actually refer to us as vendors submitting a bid, not educated professionals who are providing an important service,” he said.
After a while (and it’s been a while) this becomes a self-fulfilling prophecy and the majority of appraisers used by banks are simply bad at their craft (taking liberties here) because the system attracts that “type” appraiser. As a result many of the good appraisers have either left the business or switched their client base to those who see valuations as more than the equivalent of a “title search.”
Banking’s shortsightedness illustrated
When a bank is considering lending $200M on a commercial office building, they are usually are more concerned about shaving $500 off the appraisal fee than they are contracting with a seasoned local market expert. [Commercial] high-ballers with fast turn times are thriving and their product is very weak. The same goes for a residential mortgage [low-ballers] only with commercial lending, the stakes are much higher because the exposure is so much greater – then ask yourself, who is the party that lacks competency? I’d say it’s systemic.
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