Amid a glut of new luxury towers and a shrinking foreign-buyer pool, sales in the fourth quarter of 2019 reached its lowest level in the past decade.
Developers of the Waldorf had reason to be bullish, however.
Its Park Avenue address and storied history was bound to attract the kind of wealthy buyers that highly leveraged developers in New York typically covet. And after a $1 billion renovation, the revamped property included 50,000 square feet of private amenity space, an 82-foot lap pool and two trophy penthouses in the pinnacles of The Towers with price tags among the highest in the city.
But just weeks after its sales launch the coronavirus struck the United States, a global pandemic that has killed more than 70,000 Americans — including more than 25,000 in the hot spot of New York — and dealt a shock to the global economy. Since then millions of Americans have lost their jobs, millions more are staying home and wealthy New Yorkers are seeing their stock portfolios dwindle.
“The entire real estate industry is seeing a slowing time right now,” says Dan Tubb, senior director of sales at The Towers of the Waldorf Astoria. The project is still fielding inquiries from potential buyers, but clients are being more careful, he says. “People are being more cautious because they don’t know what’s ahead.”
Jonathan J. Miller, the president of Miller Samuel, is less sanguine.
Despite several big Manhattan apartment sales in April — including four deals that each closed above $50 million — Miller says those transactions were in contract well before the pandemic hit and predicts sales will fall sharply as the city remains locked down.
“It’s virtually impossible for something like this not to severely impact every facet of the luxury sector of the housing market,” says Miller, whose widely followed market reports have been tracking luxury real estate sales in the United States for three decades. “And the longer this goes on the longer it will take to see anything resembling a recovery.”
The coronavirus and its economic fallout have left the broader U.S. real estate market scrambling to adjust amid lockdowns and travel bans. But real estate professionals in wealthy locations across the country say they fear the spreading contagion will deal the most severe blow to the upper end of the housing market, a sector that has long relied on a wealthy, globally connected jet set to help keep it afloat.
Despite registering a surge in million-dollar home sales in 2019 — rising nationally 11.4 percent compared with the prior year, according to Realtor.com — brokers from expensive pockets across the country say they are already seeing signs that wealthy buyers are pausing as the pandemic unfolds.
Foreign buyers — an important slice of the luxury sector — aren’t traveling or are skittish to close expensive property deals that seemed a lock just a few weeks ago. And many local buyers at the higher tier of the income scale are in locations with strict stay-at-home orders that have effectively prohibited open houses and in-person property showings.
“We’ve had some buyers hold off on closing deals in this market,” says Louis Birdman, co-developer of One Thousand Museum, a 62-story luxury condominium tower in downtown Miami designed by the late Pritzker Prize-winning architect Zaha Hadid.
The high-rise with its private helipad and indoor lap pool is one of the fastest-selling developments in the city.
Though the property closed two multimillion-dollar sales in March — including a $19.8 million sale to retired soccer star David Beckham and his wife, Victoria — Birdman says he expects some wealthy clients to wait. “Real estate is a face-to-face business and many clients still want to see a property before buying it,” he says. “At the moment no one is really able to do that.”
While buyers are pausing, a growing number of sellers are taking their homes off the market as the pandemic spreads — in some cases to abide by shelter-in-place laws to restrict the contagion. Others simply don’t want their homes lingering unsold on the market as lockdowns are extended.
Nationally, the number of newly listed properties declined in March by 15.7 percent compared with the same month in 2019, according to a housing report by Realtor.com. The Washington metro area had 24.4 percent fewer listings in March compared with the same month last year.
The spread of covid-19 is already denting the usually busy spring buying season in the District. Pending home sales dropped 28.8 percent in D.C. during the final week of March compared with the same period last year, according to housing data from Redfin. New home listings fell 17.6 percent during the same period.
But Leslie White, a broker in D.C. for Redfin, says she’s seeing motivated clients still participating in this market, including at the upper end. “We’re certainly not seeing as many buyers and sellers as we typically would this time of year,” she says. “But while some people are holding back we’re seeing a number of clients focused in this market and seeing opportunity.”
While the United States registered strong home sales at the start of the year, buyers began holding back last month as the coronavirus pandemic shuttered large parts of the economy.
Sales of previously owned homes decreased 8.5 percent in March from the prior month, according to the National Association of Realtors. That’s the largest month-over-month decline since November 2015 and comes during the normally active spring home-selling season, the realty group says.
The Los Angeles real estate market started strong this year, but as the pandemic grew in Southern California, sales shrank as a flood of buyers pulled out of the market.
Fifty-four percent of real estate agents in California had clients back out from a home purchase in March due to the coronavirus outbreak, according to a survey by the California Association of Realtors. Forty-five percent of those surveyed said they had a client back out from a home sale.
A shift in the sales paradigm
“It’s really changed the reality of how we conduct business,” says Tomer Fridman, a sales agent with Compass in Los Angeles. While his business typically relies on face-to-face meetings and home tours, he’s shifted to more 3-D home tours, social media and digital ads to connect with clients.
Several multimillion-dollar home listings he had been planning were shifted to what he calls “whisper listings,” where he shops the properties quietly among a small cadre of wealthy clients and real estate contacts. If the listings fail to sell in this market, he can still list them publicly later, he says.
“This is a way to stay competitive in this new normal that we’re enduring,” says Fridman, whose home listings for Compass include the Owlwood Estate, a 10-acre property in Los Angeles priced at $115 million. “There’s a sense that clients still want to purchase real estate, especially foreign buyers,” he says. “But they’re being more cautious in the short term.”
Despite the economic uncertainty fueled by the spread of the virus, some wealthy second-home communities are still landing big sales.
“People invest in real estate as a safe haven when there’s economic worries,” says Dianne McMillan Brannen, a broker with Douglas Elliman in the Hamptons, the affluent beach community on Long Island, N.Y., that has been attracting wealthy summer residents for decades.
In March, the area recorded its highest sale of the year after the East Hampton estate of the late James H. Evans, the onetime chairman of railway giant Union Pacific, sold through Douglas Elliman with an asking price of $55 million. The sale followed a strong month for expensive summer rentals in the Hamptons, McMillan Brannen says.
“Most luxury buyers will be patient, but they will still act on good real estate investment.”
Even with pandemic concerns, there are signs that home buyers in many luxury markets are already adjusting. Several big sales closed in March amid quarantines and safety concerns, including multimillion-dollar deals in New York, Miami and Los Angeles.
While the bulk of those transactions were negotiated prior to the lockdowns, brokers in many places report that virtual tours and targeted digital ads have kept motivated clients engaged. Some tight property markets like Seattle, Washington, D.C., and Boston are still seeing multiple offers, bidding wars and all-cash deals, brokers there say.
A National Association of Realtors survey in mid-April shows a quarter of agents with clients putting contracts on homes had at least one do so without physically seeing the property. Ten percent of agents in the survey report the same level of or even more business activity now than before the lockdowns, with a third reporting no closing delays.
“Expect second-quarter home sales activity to slow down with the broad observance of stay-at-home orders,” says NAR chief economist Lawrence Yun. “But sales will pick up when the economy reopens as many potential home buyers and sellers indicate they’re still in the market or will be in a couple of months.”