What Is an Address Worth?

The stately prewar co-ops long sought after by those affluent enough to afford a Park Avenue, Fifth Avenue or Central Park West address are adjusting to a jarring new reality. The explosion in luxury condominium development in Manhattan has siphoned off some of the cachet of even the most iconic co-ops, and values have fallen accordingly. Co-op boards in these high-end buildings – and in many less pricey ones – are suddenly wrestling with an unexpected and unwelcome question: how can we preserve values?
“Values in the famous Old World prewar co-ops have fallen 10 to 20 percent over the past five years,” says Jonathan Miller, president and chief executive of Miller Samuel, a real estate appraisal and consulting company. “New condos are ubiquitous, and most have better views than the co-op apartments fronting Central Park.” Many boast more lavish amenities as well.
The decline in values is readily confirmed on StreetEasy, the real estate listing site. A seven-room, full-floor apartment in the San Remo listed two years ago for $17.5 million underwent numerous price cuts before finally going under contract last December, when the asking price had reached $12.5 million. A nine-room apartment in the Dakota also went under contract that month, after its asking price dropped from $12 million to $9.95 million.
Values are also declining in less lofty prewar co-ops – meaning those trading at $3 million and up – because there is so much more competition from glossy new condos. And buyers are turning to them. In the mid-1980s, the ratio of co-ops to condos in Manhattan was about 85 to 15; today it’s 74 to 26. “Every decade or so we’ve seen a 5 percent uptick in the condo share,” Miller says.
Turn-Offs
For Young Buyers
Boards at high-end co-ops have long been able to set super-stringent standards for entry, confident in high demand from the well-to-do. And the guardians of the most legendary addresses are unlikely to raise the gates now simply because of a down market. As Howard Slavin, chief operating officer of Allied Partners, a real estate investment, development and property management company, puts it: “The 740 Park Avenues of the world aren’t going to lower their financial requirements because they don’t have to.”
But lesser known buildings may want to rethink their financing restrictions, their building rules, and their amenities if they want to attract more young buyers, say real estate brokers and property managers.
“There will always be a percentage of buyers who want to be in these more tony co-ops,” says Michael J. Franco, an associate real estate broker at Compass. “But I feel like that percentage is going to get smaller.”
Co-ops are up against buildings loaded with cutting-edge amenities. Beyond the usual fitness room, the newer condo towers have extras like rock-climbing walls, golf simulators, roof decks, and swimming pools. While many prewar buildings can’t compete on the amenity level – they simply don’t have the space – there are other ways to shine.
Franco recommends upgrading services and staffing, sprucing up the building, and creating more common areas. “In my building on West 81st Street, across from the Museum of Natural History, we’re taking that on right now,” he says. “We are undertaking a lot of capital projects over the next seven years.”
Slavin recommends that buildings keep their common areas in pristine condition, their front entrance and sidewalks clean and in good repair, and make sure the staff uniforms look spiffy. Beyond that, he adds, “the amenities that you do have must be up-to-date. If you have a gym, you have to continually upgrade it. You can’t have the same crummy old equipment.”
Boards might also reconsider their financing restrictions. Many of the top prewar co-ops prohibit buyers from financing more than 50 percent of the purchase price. Financing restrictions, as well as financial disclosure requirements, are thought to have protected many co-ops from the foreclosure wave that followed the housing market crash in 2008. But they can also be a considerable deterrent to qualified young buyers, brokers say.
“If you’re a young couple and you have strong income but low liquidity, and a board is telling you you can only finance 50 percent, why would you do that if you can go to a condo and finance 80 percent?” says Lisa Chajet, a broker at Warburg Realty.
Mortgage interest rates have been so low for so long that savvy buyers commonly choose to finance most of a property purchase rather than put down a lot of cash, says Franco, the Compass broker. “When there are limits on how much you can finance, that can be perceived as a constraint on being able to put that money somewhere else, like the stock market,” he says. “And the other thing is, you can get a bigger apartment if you can finance.”
Slavin’s co-op, at East 84th Street and Fifth Avenue, lowered its requirement from a minimum of 50 percent equity to 25 percent two years ago. “We definitely got much more traffic in the building,” he reports. “A young couple moved in right next door to me.”
Another turn-off for young buyers is a prohibition on subletting. Millennials place a high priority on mobility, knowing that flexibility is more important than ever for career progression, particularly in the gig economy. When they decide to buy, Franco says, the notion that they can’t rent their apartments if they need to move away temporarily doesn’t always sit well.
“Some buildings have looked at being more amenable to subletting,” says Neil Davidowitz, president of Orsid Realty, a management company. “Historically, some of the most prestigious buildings have ruled it out. But if a buyer knows they would have the right to do that, it might be a good thing.”
Let the Market Set Prices
Finally, boards should resist the temptation to kill a sale because the price is lower than they like. Such attempts to protect values might wind up backfiring. “It’s happened to people in my office, and I feel it’s completely irresponsible,” says Chajet, the Warburg broker. “It’s not the board’s decision to dictate what an apartment is worth. It’s the market’s decision.”
There are instances, however, in which brokers don’t command the price they should, and boards do have a duty to step in and protect the building’s value by rejecting a lowball offer, Franco says. But generally, he adds, “the market is pretty darn efficient. It’s not great for a building’s reputation if the board turns away a buyer simply because they don’t like the price.”
Slavin says his property managers warn boards about killing sales in a down market. “We always tell them, you don’t want to be seen as a difficult board,” he says. “Brokers aren’t going to bring their clients there, and values are going to fall even further. The market sets the price.”
All of that said, boosting unit values may ultimately matter less to some of the old traditional co-ops than keeping their standards in place, says Davidowitz of Orsid. Markets are always changing, and some boards may not feel the need to change along with them. “For somebody who is 60 or 70 and plans to stay in the building until they die, the value proposition is not the sole driving factor,” Davidowitz says. “They will say: ‘We have this wonderful community because of the standards we’ve had. I want to be in a good community of good people who pay their bills. Not every decision we make has to be rendered relative to the value of the apartment.’”