Property values continue to escalate wildly in the global gateways as the wealthy and ultra-wealthy look to park money in the world's perceived safest and most stable places—on the top tier that means London and New York, but the effect in the U.S. extends from San Francisco and districts in Los Angeles to the Miami waterfront.
In a coop building I am familiar with in New York along one of Manhattan's most desirable avenues—a “classic six” room prewar apartment (high ceilings, “white-glove” building) never lost value during the recession when it was purchased for approximately $2 million. Now after a short-time on the market it will fetch a nearly $4 million price in a timely sale. Okay, so the owner did an upgrade, but most of the recent appreciation in the unit can be credited pure-and-simple to outsized capital demand for the best assets in the best districts of the best cities. Conservatively apartments in this building have tripled in value over the past 15 years with the latest price pop coming in the past six to 12 months. For owners in buildings like this, the paper wealth gains are as staggering as at any time during their holding periods.
The heady, over-the-top appreciation in the gateways far surpasses what's happening elsewhere as housing markets generally rebound, but mostly remain (well) below their credit induced peaks of 2006-2007. And still after more than six arduous years, the current recovery in housing is arguably only building a modest momentum, pushed by institutional investors, all cash buyers, and high credit-rated purchasers who can pass muster in stricter underwriting reviews.
The Gateway Phenomenon shows no sign of abating although how many more condo towers can be built offering $50 million penthouse triplexes? Or is $80 million? At some point the global demand from the sliver of the ultra-affluent will run its course.
What we still do not see is any meaningful capital flow into areas that have no interest for the rich. In the commodity zones most folks are treading water—flat incomes, problematic job outlooks, mortgage debt, less government support. They do not have the money to push up prices meaningfully and investors do not see how they can profit from investing in places where wealth is limited and prospects so constrained.
I was talking to a friend the other night who said he couldn't really afford to buy a pied de terre in Manhattan, but had lost money on a land deal from a few years back on resort properties in West Virginia. Hunh, West Virginia the land of no exits? Well, no wonder he can't buy in the city.
PBS ran a story last night on the NewsHour about Quicken Loans massive investment in downtown Detroit—buying up and refurbishing long vacant and semi-vacant office buildings, while neighborhood groups tend community gardens in vast swaths of the city being bulldozed for green space. The consensus of locals was that it will take 10 more years for the city to come back. Back to what?
The September unemployment numbers just are more of the same old story—the economy is just slogging along. And do we expect the recent government shutdown to help the fast approaching Christmas Season? Don't think so.
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Jonathan D. Miller
A marketing communication strategist who turned to real estate analysis, Jonathan D. Miller is a foremost interpreter of 21st citistate futures – cities and suburbs alike – seen through the lens of lifestyles and market realities. For more than 20 years (1992-2013), Miller authored Emerging Trends in Real Estate, the leading commercial real estate industry outlook report, published annually by PricewaterhouseCoopers and the Urban Land Institute (ULI). He has lectures frequently on trends in real estate, including the future of America's major 24-hour urban centers and sprawling suburbs. He also has been author of ULI’s annual forecasts on infrastructure and its What’s Next? series of forecasts. On a weekly basis, he writes the Trendczar blog for GlobeStreet.com, the real estate news website. Outside his published forecasting work, Miller is a prominent communications/institutional investor-marketing strategist and partner in Miller Ryan LLC, helping corporate clients develop and execute branding and communications programs. He led the re-branding of GMAC Commercial Mortgage to Capmark Financial Group Inc. and he was part of the management team that helped build Equitable Real Estate Investment Management, Inc. (subsequently Lend Lease Real Estate Investments, Inc.) into the leading real estate advisor to pension funds and other real institutional investors. He joined the Equitable Life Assurance Society of the U.S. in 1981, moving to Equitable Real Estate in 1984 as head of Corporate/Marketing Communications. In the 1980's he managed relations for several of the country's most prominent real estate developments including New York's Trump Tower and the Equitable Center. Earlier in his career, Miller was a reporter for Gannett Newspapers. He is a member of the Citistates Group and a board member of NYC Outward Bound Schools and the Center for Employment Opportunities.
