State of Real Estate
There’s no doubt that the real estate landscape has changed over the past four years. But when houses are going for $30 million plus it’s hard not to feel good about the Greenwich market.
1. Is it still a buyers market?
Tamar Lurie of Coldwell Banker hosted a bidding war recently, and found it a pleasant surprise. “I hadn’t had one for a while,” says the Greenwich real-estate broker. “It was for a $6.5 million house. We had a totally accepted contract, and then a bidding war. It’s just unusual today,” she sighs, “because buyers are so slow to make a decision and actually buy anything. Even if they’ve been looking for two years.”
But now there seems to be a quickening of the pace. As last year drew to a close, local real estate sales followed the stock market and trended upward. House-hunters began to realize that the bargain in front of them was likely to be the best bargain they’d get. “People have realized,” Tamar says, “that the market has bottomed.”
Sotheby’s associate Gideon Fountain declared that we are essentially back to 2003 prices. “That’s not horrendous,” he says, “but it is a shock to people who bought in 2007.” While back country estates have been hardest hit, a few neighborhoods like Riverside have gone back near to what might be called “pre-Crash” pricing.
And as properties have begun to move again, an old truth has resurfaced: Action begets action. When a huge estate sells, it has a ripple effect on the market, as if people finally realize that things are OK again. At least two $30 million plus sales occurred in the last year. The air of action that a sale brings is not dissimilar to what happens to a normal house that has sat for six months without a single offer. Should someone make a bid, it follows like flowers after a rain that six more bids will suddenly arrive on the transom. Where did they come from? Well, as Realtors know, people are reluctant to be the first buyer. But once there is heightened interest in the air…
Today, there is more interest in the air. “The current market has gotten better,” says Beckie Hanley, senior Vice President at Raveis. “We experienced a brisk fourth quarter with buyer activity. Depending on the price point, sellers were more willing to negotiate. Homes priced between $1.5 and $3 million were in demand and cash buyers were anxious to strike a deal. The high-end sellers were less willing to concede on pricing and some turned down cash offers with thirty-day closings.
“Our buyers,” she says, “are very savvy and have armed themselves with local housing data. They carefully follow the trends and bid accordingly. It is now a long process for both the buyer, seller and brokers involved.”
Part of the buying process for real estate professionals is getting clients to look beyond the recent scary past. “We’re trying to help them with the fear,” acknowledges David Ogilvy. “There’s so much media hype about how terrible the world is, I can understand how people get concerned.”
But once the concerns begin to relax, activity begins. “People are just waiting,” says Fountain. “And if their neighbor gets a good price, boom, their house goes right on the market. And so five people in the neighborhood make the same decision, and so that can depress the market because suddenly there’s an excess of inventory.”
However, Barbara Zaccagnini of Coldwell Banker remains optimistic that an uptick in activity translates into an increasingly strong market. “There are always people who want to buy and sell their homes. Activity is up about twenty percent—not sales, just activity. But sales and contracts are up. We need a bit more patience and bit more work.”
2. What's happening at the high end?
In the rest of the country, when people talk about the “Shadow Inventory,” they’re usually referring to the phantom presence of a million foreclosed houses that might return to the market at any time and throw off local pricing. In Greenwich, the Shadow Inventory refers to something else. It’s the ultrahigh-end properties that will come on the market just as soon as things look good. The owners can generally afford to wait out the lean years.
Even if it’s on the market, the big sellers will have to wait. Brad Hvolbeck of Prudential points out that for the past few years, the average house stays on the market for about 172 days. Above $10 million, the wait extends to 474 days. “There is such a glut of houses over $10 million,” says Hvolbeck, who still feels good about the market as he just closed one of the largest sales in Greenwich history, a new, 14,000-square-foot house on fourteen acres for $32.5 million.
David Ogilvy, whose firm is usually involved in the major sales, was glad to move a couple of estates priced over $30 million. “In the higher end, people are paying very good prices, but it’s for very special stuff. There isn’t a second choice — there’s the first choice and that’s it.”
And Robert Bland, vice president/brokerage manager for Sotheby’s, was all smiles recently: “We had the highest waterfront sale in history,” he beams. “Point of View, the former Hascoe estate. We were asking $42 million and got close to that. Property like that is at a premium. And we had two qualified buyers.” The estate overlooking picturesque Greenwich Harbor fetched $39.5 million.
“Nothing is being built in that range now,” Bland says. “Those days are gone, but they’ll be back. But Greenwich already has an inventory of such places. In the $10 million and above area, there are fifty places on the market. Again, this is a unique town. Most places wouldn’t even have that many valuable houses to begin with, not to mention being on the market at the same time.”
3. What are buyers looking for?
“People are looking for a little bit more charm now,” says Barbara Zaccagnini. “Five years ago people just wanted a big house. And the market was moving so quickly, they felt they had to buy fast without checking all the details. With the way of the world now, and there being a lot more inventory, people are taking their time and looking harder at the details. They want to see real solid doors. And charm.”
But note that charm doesn’t mean a historic house with low ceilings and tiny closets. “Nowadays people want a wine cellar and a home theater,” says Brad Hvolbeck with a laugh. “They want at least ten-foot ceilings on the first floor, nine on the second floor. They want top-quality paneling and quarter-sawn oak floors. The kitchens have to be very high quality and generally opening to a family room.”
While new ecominded features have been catching on fast in the upscale market, with more solar and geothermal applications showing up all the time, those features, Realtors say, are not presently getting a premium on resale—at the moment. With every year that goes by, customers are getting attuned to the more natural systems for heating and cooling.
4. What about the dreaded short sales?
We haven’t been immune to foreclosures and resultant auction prices. It’s one of the reasons that $7-million houses now go for $5 million.
Beckie Hanley concedes that 2011 was “the year of short sales in Greenwich, and it was unfamiliar territory for both buyers and sellers. Brokers had to adapt to banking regulations of trading properties, and it proved to be an arduous task of never-ending negotiations and paperwork. Sometimes it took months before a closing.”
The brightest ray of hope is the sheer number of customers drawn to this area who have real reserves in the savings account.
“Greenwich is actually filled with people living beneath their means,” says Fountain, “people who do not overextend. They might, however, buy a $6-million house and not have enough left over for furniture. I’ve seen that happen.”
5. What's the mortgage story?
Call it the great shift. America went from being a land where anybody with a Kool-Aid stand could get a princely home loan into a rocky battleground where even Warren Buffett would have to submit his last forty years of W2s to get money for a porch renovation.
So just what is happening now when a Greenwich citizen applies for a mortgage? A local banking authority gave us, in exchange for a promise of anonymity, the real story:
“Things began to free up in mid-2009, but people didn’t realize it. There is money to lend now. Jumbo loans are not hard to come by. The approval process is standardized again and loans are being approved in as quickly as five days.
“But the era of low-documentation loans is over. In this world, the borrower must be absolutely stable and have a consistent income for two years. If your income does not have a two-year history, the ability to get a mortgage will be difficult. If you’ve been working for some time but only have a one-year history of a bonus, it will be difficult. Maybe in 2008 you got caught in the crunch and were laid off and had difficulty finding work, but now you are making the same income as you used to. Even if you’re back to, ‘Hey, I got my million-dollar bonus’, we still need two years of it!
“It’s hard when you see people who have several million dollars saved, tons of assets, a great portfolio, and they’re putting down a good amount of money, 40 percent or something, and they’re at a firm you know is strong. Are they going to default on the loan? No, probably not. Are they going to get the same or better bonus next year? Probably so. But we also did not think that Lehman or Bear Stearns would go under.
“In the old days we used to value stock options. Now we don’t. Zero.”
“So there’s a new normal. And I’m glad to see more conservatism in lending. You can’t get a $3-million home with 10 percent down. You really have to put down 30 percent. And that’s not unreasonable.”
6. Should you rent the house?
During the lean years, many owners in the tristate region fought off foreclosure by renting out their houses. Some realty agencies even set up divisions to assist in this trade. While this desperation has led to the renting out of certain Greenwich houses, the reason is more likely to be that owners just want to wait until those prices get back to, you know, normal.
“We’ve done more rentals than normal,” says Robert Bland, “because owners didn’t think they were going to get the prices they wanted to get. So they said, ‘Let’s rent it for a couple of years and see what happens.’ This year, if we have a turning year, I think you’ll see that when the leases come up, maybe they’ll come back on the market.”
There is one market sector that has gained from the practice, Sotheby’s Fountain says. “Rentals have been a godsend for builders. In this town, $30,000 a month rent is not a problem. Can the owners survive at that? No, but it makes it easier. But even the best renters cause wear and tear. Builders at least have the advantage of having a crew on hand who can step in at a moment’s notice and make it nearly new again. That’s a gigantic advantage most of us don’t have.”
7. Property taxes—are they really that bad?
It is natural to complain about property taxes, and Greenwich is not immune from cries of dissent. This usually lasts until someone brings up the tax situation elsewhere. “Taxes do come up in conversation, particularly if you’re from Westchester,” smiles David Ogilvy.
“I’ve had a number of customers come over from Scarsdale,” says Prudential’s Hvolbeck. “When we measure Scarsdale against Greenwich, I think the difference was enough to borrow another million dollars on like properties. In other words, there might be $40,000 more in taxes in Scarsdale. At the time the interest rate was 4 percent, so [a million dollar loan] would cost you $40,000 a year.
“I don’t think there are lower taxes—as compared to sale prices—anywhere within forty or fifty miles of here. Anything in New York is going to be much higher. If you look at towns around us, you see huge bond debts. That’s why their taxes are so high. Since 1928, Greenwich went on a pay-as-you-go basis and there is virtually no deficit spending here.”
So even if your property-tax bill looks like the defense budget for Kazakhstan, just look over your shoulder, nod, and pay up.
8. What's going on with new construction?
It only takes a short drive through Greenwich to see a multiplicity of chain-link fences and construction sites. These are, however, not new houses going up. The business of spec houses has dried up almost completely, leaving behind a raft of new construction from the pre-2007 boom.
“Some of the builders are gone now,” Fountain says, “especially the people who got in late because it looked like easy money. In 2006, people said, ‘Wow, anybody can be a builder!’ It was like musical chairs, though: When the music stopped, a lot of them were left standing and they were out of luck. A few of them cashed out quickly. The best builders, though, are still around.
“There are a lot of work sites around town, but it’s custom work and renovations,” he explains.
Renovating for a home sale? “It’s condition, condition, condition,” says Ogilvy. “And it’s got to be the right style for the right locations. Georgians are always timeless. Contemporaries are sometimes harder to sell, but some of those are fantastic houses. People go for things that are amazing quality.”
“If you’re renovating for value,” Fountain says, “the kitchen-family room is still Number One. Anything cosmetic I’m in favor of, but don’t do major renovations in hopes the buyer will like it. Make it super-presentable and you will get a huge return. Make sure every window is clean and every wall is freshly painted. Spend $20,000 [on cosmetic improvements] and you will get a return.”
One renovation that earns high marks from a number of Realtors is the redrawn front entrance—new front gardens, perhaps, and a new Belgian-block driveway. “Landscaping seems to make a difference, says Fountain. “Also, screen off your neighbors with holly or Leyland cypresses.”
9. What about commercial property?
The commercial real estate numbers, whether for leasing or sales, are slowly recovering strength, even though, as one broker points out, things are still down between 25 and 35 percent from the 2007 highs.
This change has meant a change in the appearance of downtown, where the national chains are buttressed by more businesses run by local entrepreneurs.
“For a while the landlords had the ability to pick and choose among prospective retailers who would want their space,” says Alan Murphy of the New England Land Company. “I think we’ve seen more landlords take a chance.” Thus, we now have the likes of regionally owned businesses like Ruby and Jenna Clothes, Winston Flowers, Letarte Swimwear and the Tomatillo Taco Joint.
In matters of office space, the transition away from corporate offices to investment banks has continued apace. The preferred aesthetic of the boutique bankers is decidedly contemporary, too: newer, more open designs with lots of glass. The more traditional, dark-paneled look favored by law firms (and most people in their residences) is not the favored look among the hedge fund set. Oh, and if you want the traders, your building better have its own generator.
Another matter giving a boost to local landlords is the surging popularity of what some people call the Friday office. “People from the city are coming out here and opening up offices,” says Hvolbeck. “They’re making so much money now, if you only work one day out of New York City, it’s a big income tax savings. For someone who makes $100 million, that’s a big savings.”
10. So should we feel good about the future?
In a factory town, let’s say, the mood of the citizens usually rides on what’s happening at the big plant. In Greenwich, our “factories” are the engines of international finance. We’re only one more debt crisis in Greece away from someone having a meltdown on Steamboat Road.
So, while good times might be slowly returning, there’s always the air of watchfulness.
“We don’t expect Wall Street to be our savior this year,” notes Tamar Lurie, “because bonuses are not that great. And even if they get a good bonus, they don’t want to show off. The investment bankers are buying houses that are a little lower in profile.”
The biggest, brightest upside to being a draw for the international crowd is, of course, international money. Thanks to the hedge funds, the local banks get their fair share of kroners, yuans, wons and euros. This will not be changing soon. “We have the European buyers,” says Tamar, “who are taking their money out of there and buying here because we still have the best economy in the world.”
“With the international buyers,” Bland says, “they are always looking for capital preservation, not necessarily capital appreciation.
“And I think people are generally optimistic. The stock market seems up. As long as we don’t have volatility, people will have confidence. In August we were worried about market volatility. It goes up and down so much, especially with the European situation. People were looking but they weren’t pulling the trigger. But we had a great year—sales were up
Why Greenwich? Ogilvy has the ready answer. “They’re buying safety: a safe investment in a safe place. And it’s an amazing town. When you drive down Greenwich Avenue and see the policeman directing traffic, you get a nice feeling. Greenwich is a destination place. It’s an outdoor mall in one sense, but in a nice way. It’s a very interesting main street now, and thirty years ago it was not like that.”