News released Thursday that new-home sales fell in May reflects a reality that's felt most deeply in one specific real estate segment: New York City luxury properties.
The elite sector of New York City property is taking a beating, and there's no end in sight. Olshan Realty reported last week that Manhattan recently saw a surge in sales of luxury properties priced at $4 million or higher, but there was a troubling reason: Sellers dropped their prices by an average of 11% after properties had sat on the market for an average of 311 days.
The trouble extends to new developments, as well. Extell Development has resorted to raising capital for its Central Park tower through the government's EB-5 program for its Central Park condominium tower, according to a report by The Real Deal. The EB-5 program provides permanent residency in the U.S. to foreign investors who put at least $500,000 into certain types of businesses. This move was seen as a matter of need rather than preference for Extell, and it appears the company wasn't able to obtain other forms of financing.
The pain is manifesting on Wall Street, too, as Equity Residential (EQR) , a real estate investment trust that is America's largest publicly traded multifamily landlord, was forced to cut full-year expectations for same-store revenue and net operating income. This was largely a function of a clear glut in supply of higher-end properties. In one of the year's most obvious understatements, COO David Santee in April commented that "there's some crazy stuff going on in New York."
The problem is simple: supply and demand. Since the Great Recession began easing, rental rates nationwide have skyrocketed as economic and demographic trends have driven home ownership rates to near historical lows. As a result, rental rates have boomed nationwide without pause. Data from the first quarter of 2016 show available units being offered at all-time high rental rates, with rates increasing at around 8% annually.
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