By Michelle Higgins
New York City’s ultraluxury real estate frenzy — with its sky-piercing condominium towers and $100 million price tags — has finally come to an end.
Even with every conceivable amenity, the eight- and nine-digit prices attached to trophy homes with helicopter views and high-end finishes never bore much relation to actual value. Rather, a class of superrich investors primarily drove the market, choosing high-priced real estate as their asset of choice, because it was less volatile than other investments and they could use shell companies to hide their identities.
But today a four-year construction boom aimed at buyers willing to spend $10 million or more has flooded the top of the market just as global market turmoil has caused wealthy investors to pull back and the federal government has moved to scrutinize some all-cash transactions.
It’s not just the volatility of financial markets that has big spenders sitting on their wallets. Other global trends that have put the lid on high-end spending include China’s tightened restrictions on capital outflows, uncertainty surrounding Britain’s decision to leave the European Union, lower oil prices curbing wealth in the Middle East, and tax increases and other measures that have driven up property transaction costs in some countries.
As the volume of sales at the uppermost level has dwindled, some sellers have made drastic price cuts and some projects have been delayed.
Developers of the skyscraper planned for 111 West 57th Street said they would postpone marketing materials and events for condominiums in the building, some priced as high as $57 million, until next year.
At 432 Park Avenue, the tallest residential tower in the Western Hemisphere, full-floor apartments originally listed for $78 million to $85 million have been split in two and priced at approximately $40 million each.
New York is not alone. After the global financial crisis hit in 2008, investors turned to high-end real estate around the world as a safe place to park their millions. But since the middle of 2014, prime property values have dropped in Paris, Singapore, London, Moscow and Dubai, said Yolande Barnes, director of world research at Savills, a global real estate firm. “These cities have acted as a store of wealth,” said Ms. Barnes, who sees the current decline in values as “an inevitable setback that you get after a long bull run.”
Though the market still has a long way to go before fire-sale pricing sets in, the declines may indicate that a ceiling has been reached. And even as sales over $10 million drop off in Manhattan, the bulk of the market remains robust, with competition particularly heated for homes priced for less than $3 million.
In the first half of the year, contracts signed for Manhattan residences costing $10 million or more dropped by about 18 percent, to 107 units, down from 130 a year ago, according to data compiled by Olshan Realty.
In the Miami area, 216 homes and condos priced at $10 million were on the market at the end of June, a 43 percent jump from a year ago, according to data compiled by Esslinger-Wooten-Maxwell Realtors. “By anyone’s measurement, that’s more than you’d like to have,” said Ron Shuffield, president of that firm, pointing out that only 26 houses and condos in that price range sold in the 12 months through June.
“The global misperception was that the demand would be endless,” said Jonathan J. Miller, president of Miller Samuel, a real estate appraisal firm. “The reality was the market was not as deep as what was thought.”
As supply has overtaken demand, prices of luxury properties have fallen. Last month, after more than three years on the market, the crystal-bedecked penthouse at the Baccarat Hotel & Residences on West 53rd Street in Manhattan sold for $42.55 million — 29 percent less than the original $60 million asking price. After a year on the market, the $45 million triplex penthouse at 10 Sullivan Street, developed by Madison Equities and Property Markets Group, was divided into two units, now listed for $11.5 million and $28.5 million.
Some sellers are even showing a willingness to take a loss. At One57, on West 57th Street, the Midtown tower credited with starting the boom in skyscrapers aimed at the extremely wealthy, four apartments up for resale are priced at less than the seller paid, including a three-bedroom listed for $27.95 million that sold for $31.67 million in 2014, according to Streeteasy.com.
Extell Development Company, which is still selling units at One57 four years after beginning sales, reduced the projected sellout value of the tower to $2.56 billion in March, a markdown of $162 million from its 2013 projections.
Developers who cling to their original asking prices are either rejiggering their product or casting a wider net to reach buyers. At the Woolworth Building in downtown Manhattan, where the top floors are being converted to condos, ornate interiors are being toned down in favor of a more contemporary look to appeal to a wider pool of buyers.
To find buyers for Le Palais Royal, a $159 million mansion in Hillsboro Beach, Fla., that has $7 million worth of 22-karat gold leaf and a 27-foot waterfall, Joseph Leone, the developer, has flown to London, Los Angeles, Dubai and Singapore to put together a team of brokers to sell the property rather than hiring just one firm. “I believe clients are looking for something unique,” Mr. Leone said. “They are still here, but you need to change your strategy. You need to be creative.”
While prices at the high end continue to set records, that’s largely because many of the deals that are closing now involve contracts that were signed as long as 18 months ago, when many of the buildings were still under construction and the market was stronger.
Developers insist that sales at the top are continuing, just at a slower pace than in recent years.
“There is still very good activity,” said Gary Barnett, the president of Extell, “but it’s hard to close deals because people are not in a rush.” To help attract buyers to an unsold $20.1 million, three-bedroom apartment on the 45th floor of One57, Extell hired the designer Jennifer Post to decorate it at an estimated cost of $1 million.
“Unless you give them a real imperative to buy,” Mr. Barnett said, “they think, ‘I can come back in a month and it will still be there or maybe the price will be lower.’ That’s why we’re doing these things, to get these deals closed.”
Mr. Miller of Miller Samuel was less optimistic.
“It takes a while for sellers, whether in new development or resales, to capitulate to sudden changes in the market,” he said. “It’s not that there aren’t any buyers at this level. It’s that there aren’t buyers willing to pay 2014 prices.”