Even as the media desperately tries to whip everyone into a buying frenzy in an attempt to rekindle the second housing bubble, the marginal, and less than pretty truth, is finally starting to emerge. Over the weekend we presented the first major red flag about the state of the housing market - in this case commercial - when we exposed that "New York's Ultraluxury Office Vacancy Rate Jumps To Two Year High As Financial Firms Brace For Impact [13]." What is left unsaid here is that if demand for rents is low, then, well, demand for rents is low: hardly the stuff housing market recoveries are made of. Today, on the residential side, CNBC's Diana Olick adds to this bleak picture with "Apartment Demand Ebbs as ‘Avalanche’ of New Units Open [14]." In other words rental demand for both commercial and resi properties is imploding. But at least there is always owning. Well, no. As we have shown [15], the foreclosure, aka distressed, market is dead, courtesy of the complete collapse in the foreclosure pipeline as banks are effectively subsidizing the upper end of the housing market by keeping all the low end inventory on their books (who doesn't love the smell of $1.6 trillion in fungible excess reserves to plug capital holes in the morning. It smells like crony capitalism). But at least the ultra luxury, aka money laundering market was chugging along at a healthy pace. After all there are billions in freefloating dollars that need to be grounded in the US, courtesy of the NAR which is always happy to look the other way, another issue we discussed this weekend [16]. Now even that market appears to be cracking, following the purchase of a duplex in New York's most iconic property: 740 Park, by, who else but a former Goldman partner, at a whopping 45% off the original asking price.
Now this is not some recently built, nouveau riche Central Park West abode populated by the abhorrent "new money", living in condos. This is the New York Co-op, one which has an entire (quite fascinating) book written about it [17]. The only limiting factor here is if an apartment, most of which are kept as legacy trophy pieces by their owners, is on the market, not what the asking price is. As a reminder, the tower has been home to former Merrill Lynch & Co. Chief Executive Officer John Thain and cosmetics billionaire Ronald Lauder. Just 5 months ago, Howard Marks, chairman and co-founder of Oaktree Capital Group LLC, set a record when he bought a 10,000 square foot duplex in the building for $52.5 million [18], the highest price ever paid for a New York City co-op.
That 5 months later a duplex, one which may not be on as high as floor, but a duplex nonetheless, has sold for a scant $19.3 million, compared to the $35 million originally demanded is hardly a good indication of what awaits the ultraluxury residential segment both in New York, and everywhere else.
As for the buyer, it is perhaps highly ironic that it just happens to be Jonathan Sobel, a former partner of Goldman Sachs, and the man who led its mortgage trading from 2011 to 2006, right around the time when every conceivable evil the firm was doing by selling CDOs to unwitting idiots, was the fault of just one person: Goldmanite Fabrice Tourre. And nobody else's.
From Bloomberg [19]:
Jonathan Sobel, a former Goldman Sachs Group Inc. (GS) partner who oversaw the firm’s mortgage division, bought a duplex on Manhattan’s Park Avenue for $19.3 million, a 45 percent discount from the original asking price.
The purchase of the co-op at 740 Park Ave. was completed on Aug. 31, according to records filed yesterday with the city’s Department of Finance. The 6,700-square-foot (620-square-meter) apartment was owned by Randolph Speight, the late investment banker, for more than 40 years. It features a private elevator and landing, four staff bedrooms and a butler’s pantry, according to the broker’s listing.
In June 2011, the estate decided to shoulder the cost of renovating the property to appeal to more buyers. The bathrooms and kitchen were gutted and redone, and all the wiring was replaced, Smith said in a telephone interview. The strategy resulted in the duplex receiving multiple offers, she said.
“They turned what was an estate-condition apartment into something that was in move-in condition,” Smith said. “And that was the key to the lock.”
Sobel, who was Goldman’s mortgage chief from 2001 to 2006 and left the firm in 2009, declined to comment on the purchase.
Now if anyone has a sense of what fair value for the marginal ultraluxury real estate market in New York is, it would be Sobel. That he paid nearly half per square foot ($2,880) compared to what Howard Marks paid just 5 months ago ($5,200) is probably an even bigger red flag than the freeze that has currently gripped the luxury new your commercial rental market.
Expect the mainstream media to be all over these developments promptly after the election, but not before. After all, the public will need ammo for yet more QEtc+1 justification. Especially when said media, now with a post-election agenda, finds the Transunion 60 day delinquent real estate data for New York:
[20]
In the meantime, this is what $19.3 million buys you:
[21]
[22]
[23]
[24]
[25]
[26]
[27]
[28]