Posted by: Matthias Paul Kuhlmey
Allow this blog to be somewhat anecdotal and a bit speculative in nature. This in mind, an alternate title could have been: “Will New York be the new London?!” Some time ago, we reported on several real estate topics, notably about Tall Skinny (Parts I and II), and the more distant Knightsbridge, the “center filet piece” of real estate in London. Recall my trip report from last year, in October: … “It is fascinating to understand that property prices in Central London have reached a new record high (July 2012 data), at 13.5% above the previous peak in March 2008, and that prices, overall, have risen by 49%(!) since the post-Credit-Crisis low of March 2009.” You think this was the end of it? Nope! Prices for central London real estate are up another 7.2% over the last 12 months, and 3.2% in 2013.
As a long-term business traveler to the U.K., it has been amazing to see the city’s transformation from “jolly ol’ England-style” to a glamorous global metropolis. The wealth created, or better portrayed, in London is simply breathtaking; this stated, over the years, many Londoners have been priced out of more convenient “close-to-center” locations, with the effect (domino) that even more remote parts of metropolitan London have become very expensive, if not unaffordable. Let’s now bring this idea back to the Big Apple.
European austerity measures, caps on banker salaries in London, the rich getting richer, all paired with New York being a (relative compared to other metropolitan areas) good and affordable deal (to some), has led to money coming in! Notably, wealthy foreigners have been buyers of high-priced real estate in New York. A recent article in the German magazine, Spiegel, vividly explains the latest craze in Manhattan’s high-floor, high-priced real estate luxury apartment market. Off the charts, baby!
Real estate developer, Harry Macklowe, is back on track (after almost having faced bankruptcy in 2008), progressing with the construction of the tallest residential condominium building in the Western Hemisphere, on 432 Park Avenue (the site of the old and infamous Drake Hotel). Btw, in case you were wondering: The penthouse of the new “Tall Skinny” (2.0) has already been sold at a $95 Million price tag (you are out of luck). On the other side, (literally over the East River) in Queens, the number of foreclosures is skyrocketing. Let’s stick with the “other side”: “If the borough of Manhattan [presenting only one of the five NYC boroughs!] were a country, the income gap between the richest twenty percent and the poorest twenty percent would be on par with countries like Sierra Leone, Namibia, and Lesotho.”
Notable questions/conclusions: 1) Foreigners continue to “recycle” the flood of Dollars provided to them during the “booming years” into U.S.-dollar-denominated markets (e.g., real estate in the U.S.); 2) The economic recovery (still tbd) continues to be “uneven” at best, and has mainly provided benefit to the wealthy. In contrast, “some 46.2 million Americans now live in families where someone is working but earning less than the poverty line: $11,702 a year for an individual or $23,021 for a family of four”; 3) We need to question the quality of economic forecasting: it is a given fact that several components of reported Leading Economic Indicators are directly influenced by the Fed, e.g., housing data(!), equity prices, and consumer confidence readings (please see our entry, American Dream, for additional background); 4) Do the ultra-wealthy know something we don’t, balancing the onset of inflationary pressures with the potential of preserving wealth through prime real estate investments?
Additional historic background: The evolutionary spread of original (old) London to a “fresh” location is not a new concept. In 1609, English sea explorer, Henry Hudson (but sailing under Dutch flag), re-discovered the New York region (Giovanni da Verrazzano was first in 1524). Consequently, Dutch ownership of the island then called “New Amsterdam” changed in 1664, when King Charles II of England granted the region to his brother, the Duke of York. New London, however, was established, after all, as a somewhat charming seaport city in Connecticut, about 100 miles south of Boston. Now as it was then – all a massive real estate transaction that (so far) has held value over the long-term.