State of Real Estate 2014
We explore the biggest market trends, where the key indicators say we’re headed and how to maximize your investment
The market giveth and the market taketh away. Just how much the Greenwich real-estate scene revolves around Wall Street’s general health was fully revealed in the dark days that followed the 2008 meltdown. But now that the outward signs of stability have been seen in the financial sector, so too does Greenwich gain rosy cheeks and a sunny disposition. Sure, there is always a hurricane or government shutdown to spoil the fun and halt the buying for a while. But then the bonuses come in and sunlight returns.
“Are things picking up?,” asks Chris Meyers, COO of Houlihan Lawrence. “They are. We’ve watched the recovery ripple like a wave from New York City. It’s almost like Manhattan is a radiator and the farther you are from it the longer it takes to heat you.”
In addition to the bonuses, our real estate is affected mightily by two distinct groups of immigrants—the roving wealth from overseas and the young wealth from Manhattan. The first is the sheer scale of international money that finds its way to our town. “Greenwich cachet resonates overseas the way it barely does for other communities,” notes Meyers. “We’re seeing all kinds of interest from Europe, Asia and Latin America.”
Let’s define the international “interest.” When you scan the newspaper in the morning and see photos of angry customers lined up outside of banks in Argentina, or read of shakeouts in the Chinese economy, just know that some well-heeled citizen somewhere in the world is deciding to put their money in a safe place.
It’s a unique market, says Tamar Lurie, who runs a boutique realty agency with Coldwell Banker. “The very rich Chinese, Russians, Brazilians and whoever else is out there want to park their money in the United States. The Manhattan real-estate scene is on fire, and is absolutely driven by foreign buyers. And when foreign families come here, Greenwich is the number-one destination. I hear them say it all the time—they want to put their kids in Greenwich schools.”
Greenwich has always been targeted by refugees from Manhattan. In recent years, those refugees have come in the shape of young parents in the city facing the demands of $35,000 preschool tuition, if they’ll accept you. But now the flow toward Greenwich has been augmented by people who are simply worried by the city’s shift from a billionaire mayor to the populist newcomer. In dozens of conversations with local real-estate observers, the term was heard over and over again: The de Blasio Effect.
Every broker has heard of it. “I think Bill de Blasio is going to be very good for the Greenwich market,” says Thomas Torelli, who specializes in commercial properties with Allied Property Group. “In the past when there’s been mayors who’ve leaned toward taxing high-net-worths, the natural response is for those people to move. I’m not saying it’s right or wrong, but capital moves where it feels it can do the best.”
When all this capital arrives here and starts scoping out our fair streets, they will find a town still a little chastened by past economic conditions, and a housing scene undergoing some interesting transitions.
1. Price Brackets: What’s Moving?
Let’s call this a sobering-up period. While business slowly picked up in 2013, there was not quite the same old hunger for the ultra-palatial. “There is a definite change happening in the size of house people are looking for,” notes Tamar Lurie. “The very big houses are not as sought after as they used to be. People are staying away from the mega-house. People are not looking to show off as much anymore.”
Russell Pruner of Shore and Country Properties has also taken notice. “We’re finding a trend that people are not wanting the larger homes with the greater cost of maintenance. This is the 10-, 15-, 20,000-square-foot house. So you’ve got four years of inventory in the upper end, which gives the buyer a feeling of control, but it also depends on whether the seller is listening to what the buyer is willing to offer.“
The market heat-up began, Pruner says, with the million-dollar homes. “They’re moving at a speed not seen since 2004.” Inventories have actually dropped.
Would some of these be the inevitable teardowns? “Oh, big time,” Pruner laughs.
The market under $1.5 million has been so hot that bidding wars (something once thought extinct) are now common. Jamie Tyndall, the manager of Mortgage Master, a firm that deals with sixty banks, has seen this action. “I have sixteen clients who have been looking since 2012. They find things and then lose out on their bids. They’re almost ready to give up.”
Another unique aspect of the Greenwich market is that the concept of the “starter home” here might be quite breathtaking. “The first purchase here is bigger than it is in other places in America,” Jamie says. “How many times have you heard someone say, ‘Oh, I bought a home.’ Then you walk in and it’s a palace. They don’t buy ‘starter homes’ here. They don’t get the cute little home where they say, ‘Oh, when we have kids, we’ll upgrade.’ No, they rent and rent and rent and then buy their dream home.”
Thus, the continued popularity of the $3 million house.
As 2013 drew to a close, and it was apparent that Congress was not going to commit hari kari, the higher-end market began to show life. “I sold three houses over $10 million,” Tamar says. Eleven others over that price point also sold, the tops going for $24 million and $25 million.
Those big sales, of course, throw off our price modalities, but the numbers look like this: The average price in 2013 in Greenwich was $2,210,399, down slightly from 2012’s average of $2,316,389. The median price rose slightly to $1,650,000, up from 2012’s $1,600,000.
2. Grand Dames: The Highest of the High End
Bargain hunting? One house in Greenwich was just reduced by $60 million. We’re talking savings.
We’re also talking the estate known as Copper Beach Farm at 499 Indian Field Road, built by Harriet Lauder Greenway a century ago with Carnegie Steel money. Early last year, when it came on the market at $190 million, it gained fame as the priciest house in the nation. Its fifty acres of waterfront could be divided into two lots and sold separately. But if you snap up the whole thing, you’ll get an unfathomable mile of private beach. In Greenwich.
Turn to David Ogilvy & Associates’ web page to view the 13,519-square-foot mansion and grounds the likes of which will never be seen here again.
Another great estate returned to the market. Even though the actor sold it two years ago, the Old Mill Farm will always be referred to as “the Mel Gibson house”—at least until somebody else famous lives in it. The imposing Elizabethan Tudor sitting on seventy acres just north of the Merritt is currently priced at $33 million by Sotheby’s International. Like the Copper Beach estate, it is an eminently subdividable property.
And these would seem to be eminently reasonable prices, too, at least in an era when condos are going for $90 million in Manhattan. (Just check out the rumors about who is buying into One57, the new 1,004-foot-tall residence opening this year opposite Carnegie Hall. It will be the first of several skyscraper domiciles in Midtown. This is where the world’s money comes to roost.)
If you are offering a house that is not only water view but safe from the tides, you can demand much. One such beauty, represented by Coldwell Banker, is a 12,000-square-foot mansion perched above the water on Byram Shore Road. Price for the house and three acres is $32 million.
3. Trends in design: What’s en Vogue?
For the longest time the favored design style in our town was pretty singular. Designers simply called it “Greenwich Style.”Another description might be “Protect the Investment.” Don’t do anything rash.
But cracks have appeared in the world of Ye Olde Traditional. Indeed, design people up and down the coast have noted that the new generation of buyers is not going for the old formal look. Their brains are wired to contemporary style.
“The house exteriors are still relatively traditional,” says architect Charles Hilton, “but the furnishings are swinging drastically toward modern. It’s traditional, but on the lighter side.”
The word used by Hilton and other designers is transition. Hilton now finds ways of blending tall glass doors and windows with otherwise Georgian shapes.
The old reliance on antique furniture is giving way simply because, as Hilton says, “everybody is in a massive hurry. Collecting items and finding those special pieces, that might take a few years.
“People like things looking natural,” he says. “The materials we use are natural, authentic materials in earth tones, but with maybe a pop of color here and there.” Any new synthetic products must appear to be natural. He has discovered synthetic materials for use in countertops and floor that are better than natural stone, but the point is they have to look as good as stone.
Like all architects, Hilton is going to town with LED lights which, besides presenting big electricity savings, come in small sizes and shapes that can be used in subtle accent positions, contributing to new usages that help create, again, that natural feel.
The Greenwich customer today is, as we’ve noted, an international customer. “Our clients travel the world,” Hilton laughs, “and take snapshots. All the time you hear things like, ‘I was at this hotel bar in Italy, and the lighting, the mood, the texture were so wonderful, I want to recapture it in this space.’”
It is unlikely that there will be a full transition to glass houses or ultra-contemporary houses springing up on Round Hill Road, but at least the interiors are going to new places.
4. The Architects’ View: Going Green
The latest wrinkle in home design makes a powerful statement. It also provides real power. It is a new power producer called electrical co-generation. Architect Douglas VanderHorn is now employing them in his new houses and getting a great response.
“These are like miniature power plants that run 24/7 in the household and run off natural gas, which is vey inexpensive right now,” VanderHorn says. “This generates much of the electricity that the house uses while the family is sleeping. Surplus is directed back to the grid and is purchased by the utility because they’re required to buy excess electricity.” (Additionaly, if a utility buys electricity back from you, then the “peak power usage” surcharge is eliminated from your bill.)
After all the huge storms and freakish power outages of the past few years, everybody wants a built-in generator now, and electrical co-gen would suffice. “For a large house, it probably costs about $100,000, and it would probably take eight years to pay back.” But then, it keeps on giving. If it is used in conjunction with a geothermal system, it merits substantial government rebates.
These new technologies are only part of the growing trend toward the “smart house,” much of which can be controlled by the smartphone. It’s not just a matter of turning on the house lights while you’re riding Metro-North home, but the shades, the phones, cameras, HVAC, all can be manipulated via our phones now. “Nobody thinks they want a techie/smart house,” VanderHorn observes, “but they get quite comfortable doing it.”
5. Mortgages: What’s Happening
There is some conjecture afoot that the quickening of our real-estate market this year is owed to suspicions that interest rates will rise later this year so folks want to get locked down now. This may indeed happen. The new Fed chairman Janet Yellen took office on February 3 and the biggest question before her is whether to keep applying the stimulus that has kept rates so low all these years. Home-buyers are not the only ones who are apprehensive about changes.
What really affected the mortgage business this year were the new strictures mandated by the Dodd-Frank Act. But it wasn’t like everyone started tearing out their hair. The new rules only solidified the caution that had already gripped most local banks in the past five years.
Suddenly the initials “QM” have entered the conversation, as in Qualified Mortgage. Borrowers are in for new, heavier scrutiny. A borrower who has changed businesses or simply reorganized business will be asked to provide rafts of documents. The examiners want to make sure all the W2s line up. A freshly divorced person dependent on alimony will have to collect a year’s worth of alimony payments before getting a mortgage.
“The crux of it,” says Motgage Mater’s Jamie Tyndall, “is your ability to repay.” The so-called “stated-income loan” is a nonplayer now. It’s not enough to tell the bank you own some business—lenders will want to comb through all your assets to make sure.
The hardest hit by the lending rules were people who had reorganized businesses and the self-employed; especially self-employed people who used the tax code to write off their income in the past. “Then when you apply for a mortgage,” Tyndall says, “you’re penalized because you said you didn’t make enough income.”
On the plus side of the ledger, money is a little easier now. The banks are flush with cash, says Michael Daversa of Atlantic Residential Mortgage, and very willing to make loans.
Although jumbo loans have required a minimum of 20 percent down for a few years now, there are loans to be found. Tyndall says 90 percent financing is once again available on loans up to $1,875,000. Banks, she says, have recognized what it takes to get a home here.
“Plan ahead and obtain a loan pre-approval,” says Beckie Hanley, senior vice president of William Raveis. “By having all your documents available, when the property you want comes on the market, you’re prepared to present a stronger offer.”
One very good reason to be ready to strike is that buyers here are facing competition from people who simply do not rely on mortgages.
“Last year, 30 percent of our buyers paid with cash,” says Hanley. “Now, I don’t know if people are closing with cash because they’re taking it out of the market for a sound investment in real estate, or if they’re paying with cash because of tightened inventory. A cash buyer will always attract the sellers’ attention. A clean and quick closing is very appealing in a bidding war.”
6. Key Market Indicators: The Economics of It All
So, what about those mid-4-percent interest rates? One banker reports that some borrowers are already hopping mad that rates might rise. Of course, today’s thirty-year-old buyer has no way of remembering the 13-percent rates of the late ’80s, or even the 9-percent loans of the early ’90s.
Buyers today seem a little more capable of remembering the good times.
“We came out of the economic crisis in a fragile condition,” notes Chris Meyers of houlihan Lawrence. “As we get removed from the shock of the Lehman Brothers fall, the more comfortable people get in their incomes and show more willingness to spend money. The rising stock market is certainly a good driver, and people see real estate as a good place to diversify. You have money to spend, but you want to rotate money out of the market and into hard assets, like real estate. It’s a good way to diversify exposure.”
And when a market gets busy, action begets action.
“People who have been waiting for the bottom are thinking that maybe the bottom has come and gone and they better get in while the tide is rising,” says Meyers. “People see the prices rising and want to be part of it.”
One difference between today’s buyer and the 2004 customer is folks now seem to want to spend serious time studying deals. “These are savvy, smart people,” says Barbara Zaccagnini of Coldwell Banker. “Where they once would get a bonus and wonder how to play around with the money, now they know what they need to do.”
So expect today’s buyer to be well-armed with data and cautionary notes. “We’re not finding emotional buys,” reports Shelly Tretter Lynch, senior global advisor at Sotheby’s International Realty. “I think we’re moving into steady time. People are moving slowly — they’re willing to walk away from a situation that they’re not quite comfortable with.”
7. The Pitfalls: What to Avoid
There are two big pitfalls arrayed before people in the real-estate market. One is to actually believe the numbers you read on the aggregator realty sites spread across the Internet. “If you go to the major players like Zillow, Trulia, AOL Homes and so forth” notes Russ Pruner, “the information they have can be way off. Because the diversity of housing in Greenwich, where you can have an inexpensive house next to a very expensive house, it throws off their analytic programs quite a bit.”
The second pitfall is the natural human assumption that one’s house is worth, oh, a couple hundred thousand more than it ought to be. “It’s human nature,” says Lynch. “No one was prepared for what happened in 2009 and it’s been a difficult couple years for a number of people. The values of all these properties have unfortunately decreased over the last five years. It’s a very hard moment for people to realize that their house’s price is not what they hoped for and for all the work they’ve put into it.” But, she says, once they get real on today’s prices, the house sells.
8. Commercial: What’s Happening on the Avenue
It was clear to everyone here how hard downtown was hit by the recession. The pains were probably felt all the way to Hartford. Because people like to shop in Greenwich, whether for mattresses or Maseratis, the state collects about a half-billion in sales tax from us.
“In 2009, the world shut down,” notes James Ritman, managing director at Newmark Grubb Knight Frank. “Everything dried up. Before 2008 nobody cared what the rent was—it was a rounding error. Then from 2009 to 2011, everybody was suddenly cost-conscious and wanted value. Last year was the first sign that activity was up and people were willing to pay bigger numbers. The deals that were done last year were very, very positive.”
“In 2014 we’re already seeing some activity coming from Manhattan. The political scene is making a few groups of people nervous where New York will go in the next three or four years.”
The, ahem, de Blasio Effect?
“Yes. We’re already hearing that on tours.”
But that sword cuts both ways. While Ritman could readily name an investment group that was motivated by the tax situation to move to Greenwich last year, he also knows of other companies saying goodbye. “You do have one group that moved to Florida” over taxes, Ritman says, “and we do know of another Greenwich-based group that’s thinking of doing the same thing.”
It’s not enough, in brief, for us to count on our beauty and our tax rates. “The town,” Ritman says, “could make it easier for businesses to move here.”
As far as commercial rentals go, the situation is much improved over the 2009 cratering, when retail business came down by a factor of 30 percent, estimates Thomas Torelli with Allied Property Group. “We saw a lot of leasing on Greenwich Avenue. It took one year to get rid of the excess inventory that took three years to build.”
Around the country, mid-price retailers have suffered the general shift to box stores and the Internet. But Greenwich is not Main Street USA. And Torelli was happy to see the arrival of boutiques like Vince, Joe, Marmot, Sandro, Maje, and rag & bone. He just brokered a big lease for Shreve, Crump & Low, the high-end Boston jewelers, for a store in town. “Our customers want to touch and feel, and want service,” notes Torelli. In brief, forget Amazon, let’s get down to Greenwich Avenue.
9. Capital Improvements: What’s Worth It?
One of the hallmarks of the current banking scene is the amount of the rewards piled on to young traders. As these people enter the housing market, one thing is very clear: They only want new. The prospect of fixing up a house is anathema to them. “Today’s buyers aren’t interested in projects anymore,” says Beckie Hanley of Raveis.
The worst thing a house seller can do in this market is offer something with a patina of age. Old paint can be rectified quickly. But what about redoing the kitchen and master bath? There is no rule of thumb to cover every scenario, but two areas are critical.
And if you really want to sell that house, that kitchen should be as big as a ballroom. Make that “the great room.”
“The kitchen has to open up to the big family room,” says Hanley. “When you walk into an older style kitchen now, you wonder which wall you can take down to make the kitchen and great room more appealing to today’s lifestyle. That’s how people live now.”
If preparing for a sale, says Barbara Zaccagnini, “you need to show it in its best light. You need to clean it and stage it so the perception is that it’s a prime property.” Professional staging these days will cover everything from the driveway to the lightbulbs. You’ll know when they arrive with the video cameras if that comfy ol’ kitchen passes muster.
10. Looking Ahead: More Transitions
While inventory seems to be hollowing out in the $3 million-and-less range, Barbara Zaccagnini wonders if this is about to change. “I think there’s a bunch of foreclosure houses that banks are sitting on,” she says, “and they’ll be coming to market in the next year or so. The layman thinks that short sales have gone. But banks have been releasing inventory this way to help build demand.”
In other towns along the Gold Coast, notably Westport and Southport, there has been a brisk business in tearing down the 1950s-era houses and replacing them with the shiny new stuff demanded by the younger market. Though Greenwich does not have a lot of Capes and split-levels to lose, builders are still knocking on doors.
As builders move into middle-income areas, says Russ Pruner, neighborhood transitions happen.
“You’re seeing the whole demographic change. They’re buying the million-dollar house, or million-five, owned by somebody who’s lived in the house for fifteen years and maintained it well, but it doesn’t have all the bells and whistles that people are looking for today. It’s very much happening in Riverside. If you go down Bramble Lane, Druid and Hearthstone, there are probably ten homes that have been built in the past two years, trading in old houses for new construction around $3 or $4 million.”
Tom Torelli sees other possibilities for the old neighborhoods. “When Bridgewater, the largest hedge fund in the world, moves from Westport to Stamford in 2016,” he says, “it will definitely have an effect on Riverside and Old Greenwich.”
Indeed. Money keeps moving here. “There is a lot of money out there,” says torelli. “And the money that’s there is deep. It’s not leveraged.”
And the money keeps buying houses.