NEW YORK — In the annals of Manhattan real estate, the sale of a penthouse inside One57, a gleaming new condominium tower overlooking Central Park, is still legendary.
Spanning two floors atop the 1,004-foot-tall glass-and-steel building, the 11,000-square-foot apartment with six bedrooms, a steam room and an indoor movie theater fetched $100.5 million last year, a record sum in a city long accustomed to eye-popping price tags.
The building, completed in 2014, has amassed more than $2 billion in sales. It is one of at least six new residential skyscrapers in various stages of construction on or along a stretch of West 57th Street in Midtown known as Billionaires’ Row.
Yet a lower-profile transaction in the building late last year is proving more prescient for Manhattan’s market for high-end real estate. A four-bedroom apartment on a lower floor quietly sold for $20.3 million. The deal represented a loss of more than $1 million from its purchase price and is nearly $2 million off its original $21.9 million asking price.
“We didn’t know it at the time, but it was probably the first real sign that things were slowing down at the luxury end of this market,” says Jonathan Miller, chief executive of Miller Samuel, a real estate appraisal and consulting firm. “The strength at the top was starting to wane.”
Few real estate markets in the United States have enjoyed a sharper rise the past few years than Manhattan, where the average price of a home stands at a record $2 million, according to Douglas Elliman Real Estate. But despite a few record-shattering purchases, New York’s priciest borough is in the throes of a softening at the very high end as a glut of expensive condominiums floods the market and demand for top-tier properties tapers off.
In the first two months of the year, contracts for apartments priced at $4 million or more declined 30 percent from the same period last year, according to a report by Olshan Realty.
The lethargy comes on the heels of a sluggish 2015. The number of Manhattan apartments that were sold for more than $10 million last year fell 12 percent compared with 2014, according to CityRealty, which tracks home sales in New York City. Most of the decline came in the second half of the year, the realty group says.
The slowdown is unleashing a chorus of doomsday talk among usually bullish real estate professionals in the city and sparking discussion of a correction not seen since the property crash of 2008. Bidding wars for luxury properties are less frequent and fewer open houses have lines around the block, brokers report. Shrinking bank bonuses are further dampening demand. The average Wall Street bonus fell 9 percent in 2015 to the lowest level in three years, according to the New York state comptroller.
“No one is predicting an all-out crash,” says Donna Olshan, president of Olshan Realty. “But a number of factors clearly show that the top of the market is contracting.”
The slump is sparking some sellers of luxury real estate to slash prices for the first time in years.
In the first quarter of this year, the asking prices for 861 available listings in Manhattan were cut, according to data compiled by the real estate services firm Compass. That’s 18 percent of the roughly 4,779 properties on the market, the reality group says. The average reduction was 10 percent.
Among the discounted listings: the asking price of a condominium on Central Park South — just a few blocks from One57 — was slashed by $7 million and is now listed for sale at $11 million. A listing for a townhouse on Park Avenue lost $18.5 million off its price tag. It now lists for just under $30 million.
A construction boom targeting the upper end of the real estate market is the biggest culprit, says Robert Dankner, president of Prime Manhattan Residential. “We’ve simply had too much building of luxury products in the city,” he says. “There’s a penthouse glut and now we’re seeing a penthouse correction.”
This year, 5,126 newly built apartments mostly targeting the top of the market will be offered for sale in Manhattan, the most since 2007, according to Corcoran Sunshine Marketing Group. And more units are in the pipeline, with an estimated 5,740 apartments in more than 140 buildings expected to hit the market next year in Manhattan, Corcoran says.
The wave of new apartments is creating stiff competition and leaving many Manhattan homes without a buyer, says Leonard Steinberg, president of Compass. “We’re now seeing thousands of very expensive new condominiums sit empty,” he says. “That hasn’t happened in years.”
The glut arrives amid a thinning of foreign buyers, long a primary engine of Manhattan’s luxury sector. The decline is being fueled by a stronger U.S. dollar, lower oil prices and economic slowdowns in emerging markets such as China and Brazil, says Jonathan Miller, of Miller Samuel. While foreigners account for about 15 percent of total Manhattan sales, they make up about 30 percent of high-end condo purchases, Miller says.
Another factor sending shudders through the upper echelons of Manhattan’s real estate market is the Treasury Department’s new rules on identifying and tracking secret buyers of expensive properties.
Concerned about illicit money flowing into luxury real estate, the department is now requiring title insurers to send the government the names of the owners behind limited liability companies on residential transactions valued at $3 million or more in New York.
The new rules, which took effect March 1 and continue for 180 days, are designed to lift the veil of secrecy from all-cash transactions behind anonymous shell companies. It is the first time the federal government has required real estate companies to disclose names behind cash transactions.
“A market like Manhattan has benefited a great deal from all-cash buyers because many of them are foreign transactions,” says Nataly Rothschild, a broker with Engel & Völkers NY. She estimates that cash transactions make up about 50 percent of New York’s overall market. “New rules like these won’t necessarily discourage all foreign buyers, but it will make them a bit more cautious.”
Manhattan is not the only affluent real estate market suffering a slowdown, of course. Across the United States, from Miami to Los Angeles, real estate agents are reporting sluggishness at the very top of the market as inventory piles up and wealthy foreign buyers remain hesitant.
In the District, luxury home prices fell 4.3 percent year-over-year in the first quarter, according to data compiled by real estate brokerage Redfin. Home prices in that sector fell 6.9 percent in Alexandria, Va., 2.4 percent in Arlington, Va., and 2.5 percent in Potomac, Md., the realty group says.
Not all luxury communities in the Washington area saw prices fall, however. Home prices at the higher end of the market were up 22 percent in Bethesda, Md., and 10 percent in Falls Church, Va., the data shows. Redfin defines the luxury market as the priciest 5 percent of homes sold in a given quarter.
In January, 4.1 percent of U.S. homes priced at $5 million or above got a price cut, a 50 percent increase over January 2015, when only 2.7 percent got a reduction, according to Realtor.com. The median reduction was $501,000, or 7.2 percent of the listing price.
But Manhattan has proven resilient in past downturns thanks in part to a robust job market, population growth and a disproportionate number of wealthy individuals. The city also benefits from the strict rules that govern cooperative apartments, which still make up two-thirds of homes available for sale. Notoriously onerous, co-op boards vigorously review prospective buyers’ finances and require down payments of 25 percent or more. Some buildings even ask for 50 percent cash to purchase.
“These measures appear excessive to people outside New York, but they really insulate Manhattan from defaults and market gyrations,” says Jeannie Woodbrey, a broker at Corcoran.
Despite a softening at the top, the broader market in Manhattan is still showing strength as home values continue to rise and inventory remains tight. While construction is ballooning for luxury apartments, there are much fewer listings for more moderately priced homes.
“Land prices are high in Manhattan, so many builders focused on wealthy sectors of the market to reap the highest financial benefits,” says Gabby Warshawer, head of research for CityRealty. “That neglect has left a fairly large section of the market with tight inventory and rising prices.”
The average price of all Manhattan home purchases completed in the three months through March was $2.05 million, up 18 percent from a year earlier and the highest since 1989, according to a report from Douglas Elliman Real Estate. The median price of those purchases jumped 60 percent, to $2.6 million, the highest on record, the realty group says.
Sales of previously owned apartments fell from a year earlier for the seventh consecutive quarter as there were too few apartments to satisfy demand, the report shows.
“Manhattan is not just one market, it is a series of sub-markets,” Olshan says. “So what you’re seeing while the top slows, is the rest of the market still remains relatively strong.”