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The Real Estate Collapse of 2020

The pandemic devastated the housing industry this year, but there were a few flickers of life.

New York City’s real estate industry was hit hard in 2020, as the pandemic disrupted every aspect of the market, making changes in the way people live in the city and beyond.
Credit…Stefano Ukmar for The New York Times
  • Dec. 25, 2020, 5:00 a.m. ET

At the beginning of 2020, the real estate market in New York City was still gaining steam. Sales prices had leveled off, but the rental market was strong. Then the pandemic turned everything upside down.

By the end of the year, the median rent in Manhattan had fallen to a level not seen since 2010, and hundreds of thousands of the most vulnerable renters faced the prospect of eviction. But sales were finally picking up, especially in Brooklyn and Queens, and in the suburbs, they rose steeply before cooling off. Still, deep discounts were the norm at the high end, and new developments across the city faced serious hurdles.

Developers and brokers, however, saw hope in a stabilizing market, eagerly anticipating brighter days in 2021.

Rental prices at the Kips Bay Towers, a condo in Midtown East, have fallen significantly in just a few months. One studio leased for $2,595 a month in June; a similar unit is now in contract for $1,800.
Credit…Katherine Marks for The New York Times

In just nine months, the coronavirus has reversed a decade of rampant rent growth in New York, as soaring vacancies and deep discounts have attracted a range of renters to neighborhoods that previously would have been unaffordable. But the cuts have not been universal, nor have they been sufficient to quell a wave of evictions bearing down on the city’s most vulnerable.

Rents in Manhattan fell from a median $3,509 a month in March to a median $2,776 a month in November, the lowest price since 2010, according to the listing website StreetEasy. That represents a 12.7 percent drop, compared with the same time last year, which exceeds the biggest price drop during the Great Recession, when prices fell nearly 10 percent.

The other boroughs saw similar, though less notable, declines. The median rent in November fell about 6 percent in Brooklyn and Queens, to $2,400 and $2,100, compared with the same period last year. Boroughwide data was lacking for Staten Island and the Bronx, although prices there have also slipped.

Even with mass vaccination in sight, it could take years for rents to return to pre-pandemic levels, because of permanent job losses and a glut of luxury rental inventory, said Nancy Wu, an economist with StreetEasy.

“It’s not so much that Manhattan will become cheap,” she said, “but it will bring new people on a broader income spectrum.”

The biggest discounts were at the top of the market, once sustained by the affluent set that was most likely to have left the city for second homes elsewhere. The surge in vacancies has inspired a number of rarely seen concessions, including multiple months of free rent, waived broker fees and complimentary services at the owner’s expense, said Beatriz Moitinho, an agent with Keller Williams NYC: “It’s absolutely insane, but I’m getting deals I couldn’t believe the landlord would accept.”

The change was sudden. At the Kips Bay Towers, a luxury apartment complex designed by I.M. Pei, Ms. Moitinho leased a 500-square-foot studio for $2,595 a month in June. Three months later, she leased a similar unit on the same floor for $1,900 a month, a 27 percent drop. Another similar unit is now in contract for $1,800.

Median Rent in Manhattan Over the Past Decade


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March

2020

$3,509

$3,700

3,500

3,300

3,100

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$2,776

2,900

2010

2012

2014

2018

2020

2016

March

2020

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$3,700

3,500

3,300

3,100

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2012

2014

2018

2020

2016

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3,300

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3,100

2,900

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2012

2014

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Note: Prices have been adjusted for inflation and are in 2020 dollars. Source: StreetEasy

By The New York Times

Still, many of the price cuts are temporary. Landlords often concede a number of “free” months that reduces the cost of living over the duration of a one- or two-year lease, rather than lowering the advertised rent. That means some tenants could be priced out of their discounted apartments at lease renewal, if the landlord is unwilling to extend the deal.

And while discounts citywide have been meaningful, they have rarely benefited the tenants most in need of relief. In a StreetEasy analysis of neighborhoods with the lowest rates of Covid infection, affluent areas like SoHo and the Upper East Side in Manhattan saw rents drop 6.7 percent from February to November. But in the neighborhoods hardest hit by the pandemic — predominantly Black, Hispanic and immigrant communities, including Corona in Queens and Kingsbridge in the Bronx — rents fell only 1 percent in the same period.

Even with prices moderating, analysts expect a wave of evictions, the size of which will depend on the level of government intervention.

Nationwide, there could be anywhere from about 760,000 to 4 million renter evictions in the first half of 2021, depending on whether Congress passes a $900 billion fiscal relief package, said Mark M. Zandi, the chief economist of Moody’s Analytics. In New York State, he estimated a range of 110,000 to 590,000 evictions. (Congress agreed to that package on Sunday.)

In New York City, there are more than 100,000 pending eviction cases, many predating Covid, of which 14,000 had active warrants, meaning eviction could be imminent, said Ellen Davidson, a staff attorney at the Legal Aid Society. And there are 40,000 cases, mostly filed after March, that could be at risk of a default judgment and eviction, because the courts have made answering the petitions — in person, by phone or online — very difficult, she said.

For now, the state’s moratorium on evictions ends Dec. 31, and some eviction cases are already proceeding.

“There absolutely needs to be intervention,” she said, “because we will never be able to climb our way out of the financial crisis if there are hundreds of thousands of people evicted.”

Credit…Tom Sibley for The New York Times

The pandemic has fundamentally changed the way buyers view real estate in New York City, and Brooklyn may be the biggest beneficiary.

The borough had 812 pending sales in October, the most in a single month since at least 2010, according to StreetEasy, extending a hot streak that began in the summer, after a monthslong shutdown in the city that essentially froze the market.

“Brooklyn has become the default choice, for all the factors that have become really important to people,” said Ms. Wu, the economist with StreetEasy. To a lesser extent, Queens has also benefited from the shift, with pending sales in November increasing faster than in Manhattan, and with modest price growth, too. The reasons: more outdoor space, less concern for commute time and bigger apartments at lower prices, relative to Manhattan.

Buyers are reconsidering the cost of living in core Manhattan, where, even after three years of mostly sliding prices, the median sale price was still $1.1 million in the third quarter, according to the brokerage Douglas Elliman. (The median in Brooklyn was $790,000.)

Shortly after the market reopened in June, the bulk of purchases came from first-time and move-up buyers, said John Walkup, a founder of UrbanDigs, a real estate data company.

“That first wave of buyers were the ones who had to move,” he said, and most deals were under $2 million. But since September, sales between $2 million and $4 million in Manhattan have begun picking up, exceeding the volume of contracts signed in the same months last year.

Still, buyers want their pound of flesh. From March to September, homes in Midtown Manhattan, the center of the real-estate universe before offices and businesses shuttered, sold for the biggest discount of any neighborhood in the city. The median difference between the asking and final price was 12.4 percent, or about $250,000, according to StreetEasy.

There were only five neighborhoods in that period where more than half of homes sold above asking, and none of them were in Manhattan: They were Downtown Brooklyn, Flatbush, Gowanus and Greenwood in Brooklyn, and South Jamaica in Queens.

“People feel that they’re safer in Brooklyn,” said Michael J. Franco, an agent with Compass. “Some of my clients see it as an alternative to moving to the suburbs,” because their dollars stretch further, and traveling to Manhattan, if and when it’s necessary, is convenient.

While discounting was widespread this year, prices did not collapse, as some bargain hunters had hoped — largely because prices began to dip long before Covid. In 2018, new caps on state, local and property tax deductions disproportionately affected high-price markets like New York, and tax changes in 2019, including increased transfer taxes for homes over $1 million, slowed sales further.

Even with the recent surge of sales in Brooklyn, there is a long way to go. The value of commercial and residential real estate sales from January to the start of December, was nearly 50 percent lower than the same period last year, which translated to a roughly $1.6 billion decline in tax revenue for the city and state, according to the Real Estate Board of New York.

Near-record inventory should extend discounting into next year. November had the second highest volume of listings on record for both Manhattan, with about 12,300 listings, and Brooklyn, with 6,400, according to StreetEasy.

But there were signs, just before Covid struck in March, that the market was ready to turn a corner. Now, with the election settled, vaccines en route and mortgage rates expected to remain near record lows, the momentum could carry into next year, Ms. Wu said: “As long as sellers keep giving discounts and are willing to negotiate, we’re going to see perhaps one of the busiest sales seasons ever.”

Credit…Tony Cenicola/The New York Times

The strength of sales in the suburbs surrounding New York became a sensation in the early spring months of the pandemic, and an overused symbol of the city’s purported demise.

“It was a rocket ship,” said Jonathan J. Miller, a New York appraiser who also tracks sales in parts of Long Island, Westchester and Fairfield, Conn. “The trajectory from May to July was straight up — it was unprecedented.”

In markets where sprawling homes had been sitting empty for months or years, the pandemic suddenly brought a wave of outbound New Yorkers whose income afforded them much more house than they could buy in the city, coupled with near record-low mortgage rates. “What’s median in the city is high-end in the suburbs,” Mr. Miller said, and the influx of money meant once hard-to-sell homes were now the focus of bidding wars.

Prices rose in kind. In Westchester County, the median sale price of a home last quarter rose to $680,000 from the same time last year, a 20.4 percent jump, the biggest in more than 28 years, Mr. Miller said. With prices now at their highest in at least 34 years, buyers who bought at the peak of the frenzy should not expect to break even on a resale for two to five years, he said.

The pandemic didn’t create a new class of suburban buyers — mostly, it accelerated the plans of New Yorkers who were already thinking of moving, Mr. Miller said. And while sales remain elevated in several suburbs, compared to last year, their meteoric rise plateaued in the late summer.

“I think peak suburb has passed,” he said.

Change in Number of New Signed Contracts


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Suburban Neighborhoods

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Brooklyn

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Westchester

Long Island

Fairfield

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2020

Nov.

2019

March

July

Nov.

2019

March

July

+150%

Suburban Neighborhoods

+100

+50

0

Westchester

Long Island

Fairfield

-50

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Nov.

2020

Nov.

2019

March

July

Urban Neighborhoods

+150%

+100

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Brooklyn

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Manhattan

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Nov.

2020

Nov.

2019

March

July

Suburban

Neighborhoods

+150%

+100

+50

0

Westchester

Long Island

Fairfield

-50

-100

Nov.

2020

Nov.

2019

March

July

Urban

Neighborhoods

+150%

+100

+50

Brooklyn

0

-50

Manhattan

-100

Nov.

2020

Nov.

2019

March

July

Note: Long Island excludes the Hamptons and North Fork. Change is shown relative to November 2019. Source: Jonathan Miller

By The New York Times

One of the more permanent changes to the suburbs, however, could be a growing interest in apartment living. Initially, buyers chased single-family homes, in search of more space and privacy. But condo sales have also climbed in places like Westchester, parts of Long Island and Greenwich, Conn.

“The shift happened when these young families from Manhattan came out in volume,” said Jodi Stasse, a senior managing director at Corcoran Sunshine Marketing Group. Many of the empty nesters who sold their homes, often at higher prices than they anticipated, have decided to stay local, and condo living has been a popular option, she said.

Kensington Estates, a 55-and-up condo community under construction in Woodbury, Long Island, about 50 minutes by car from Midtown Manhattan, has seen inquiries increase significantly in the second half of the year, said Evan Petracca, the chief operating officer at Triangle Equities, the developer. Prices range from $1.2 million for a 1,600-square-foot carriage house to $1.7 million for a 2,600-square-foot townhouse, and most units include a basement and outdoor space.

Private houses still dominate the landscape in most suburbs around New York, but rental and condo apartment development is making inroads, said Michael Maturo, the president of RXR Realty.

“People are starting to realize that the age of the single-family home is starting to wane,” he said. Over six or seven years, his company has amassed about 2,000 apartments in the suburbs of Long Island and in New Rochelle, N.Y., Stamford, Conn., and other areas. Over the next three years, the company plans to complete another 2,000 units, doubling its portfolio.

Covid has expanded the boundaries of where New Yorkers are willing to consider living full time, because of the possibility of remote work. And there are many development opportunities near railway stations that reduce the commute time into the city, which will encourage more urban-suburban planning.

“Over the next 10 years, we’re going to see tremendous development along transit lines in downtown areas” in the suburbs, Mr. Maturo said. “This is just the start.”

Credit…Katherine Marks for The New York Times

The luxury housing market in Manhattan could largely be observed in two ways during 2020: There was 220 Central Park South, and then there was everything else.

For much of the year, sales of high-end homes struggled with mounting inventory, a shrinking foreign-buyer pool and uncertainty over a looming pied-à-terre tax and the presidential election. And, of course, the pandemic cast a long shadow.

But towering above it all was 220 Central Park South, the imposing limestone complex near Columbus Circle that holds the national record for the priciest single residence. Sales there closed at a brisk pace and included the year’s most expensive transaction: a $99.9 million duplex at the pinnacle of the main tower. It was also the third highest sale ever in New York City — behind the hedge fund manager Kenneth Griffin’s $240 million record purchase in 2019 a few floors below and a $100.5 million duplex atop 157 West 57th Street bought in 2015 by Michael Dell of Dell Technologies.

Of the city’s top 15 closings in 2020, 14 were at the almost-sold-out 220 Central Park South tower and adjacent villa building, and all but two exceeded $50 million. “There were just as many sales over $50 million in that building as there were across the country,” said Jonathan J. Miller, the appraiser.

The lone standout on the list: a full-floor unit at 4 East 66th Street, a.k.a. 845 Fifth Avenue, acquired for $43 million, the year’s highest priced co-op.

“It was better than a grand slam,” said Pamela Liebman, the chief executive of the Corcoran Group, whose new-development arm handled sales at 220 Central Park South. Buyers and brokers gushed over the nonpareil park views, prewar-style architecture, and opulent finishes and amenities. Adding to its cachet was the low-profile approach of the developer, Vornado Realty Trust, which spent a decade on the project (and around $5,000 a square foot to build it).

“It was like you had to interview for a spot,” said Steven James, who heads Douglas Elliman Real Estate’s New York City brokerage, which represented Mr. Griffin in his purchase. “Money didn’t guarantee that you could buy there, which is unheard-of, isn’t it?”

While discounts were scarce at the Central Park South condominium, buyers did find plenty of deals elsewhere in 2020, as developers and individual sellers were willing to negotiate in the face of the year’s challenges, and even offer some concessions. “It’s not selling if it’s not at a discount,” said Hall F. Willkie, the president of Brown Harris Stevens, adding that the reductions he saw ranged from 7 to 20 percent.

In Manhattan, 96 percent of the year’s contracts for properties over $5 million were negotiated, Ms. Liebman said, “and the rate of discount from the last asking price was around 13 percent.”

Large reductions were especially notable along Billionaires’ Row in Midtown, where a number of units at the vitreous skyscraper at 157 West 57th Street sold for well under their original purchase price, including one just below Mr. Dell’s duplex.

In demand, brokers say, were homes with more space, both inside and out, especially penthouses and townhouses. (A duplex penthouse at Quay Tower in Brooklyn Heights sold for $20.3 million, a record for the borough.)

For the year, though, closed transactions for condos and co-ops overall plummeted. A year-end survey by CityRealty, which tracks apartment sales, projected they would reach 7,452, totaling $13.9 billion. For comparison: In 2019, there were 11,673 transactions and $23.7 billion in sales.

About $1 billion of the year’s closed sales were at 220 Central Park South, according to CityRealty, with an average price of $31.3 million, or $7,039 a square foot. Many of those closings went into contract while the building was under construction. “The buyers could have walked away, but nobody did,” Mr. James said. “That’s reassuring in itself that there was a belief that the real estate market will recover and be healthy.”

Brokers are optimistic about 2021, citing low interest rates, pent-up demand and coronavirus vaccines on the horizon. Already, buying activity is up.

“Traffic has improved each month, and there are offers,” said Susan de França, the chief executive of Douglas Elliman Development. “History shows New York City is still a solid, stable investment. Just like after 9/11, I feel confident that in a year from now we’ll see a big surge come back into the city.”

Credit…Karsten Moran for The New York Times

For some new developments, 2020 started, and ended, with a whimper.

Sales were already sluggish before the explosion of coronavirus, which crimped supply chains and prompted a monthslong shutdown of construction sites, causing some developers to miss deadlines. Even as promotions like free common charges appear to have softened the blow, some condos are still facing a barrage of setbacks, including broken contracts, skittish lenders and looming foreclosures.

“It was challenging regardless of Covid,” said Sha Dinour, a partner at Hope Street Capital, a development firm. “And obviously, Covid just made it a lot worse.”

At the very least, the one-two punch of a slow market and stopped construction appears to have knocked many projects off track.

Of the nearly 4,000 condo units projected to open in Manhattan this year, for instance, only about 1,000 did, according to Nancy Packes Data Services, a real estate consultancy. While developers often fall short of expectations, Ms. Packes said, they usually don’t miss by such a wide margin.

A Slow Year for Condos


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The number of new units often falls short of expectations. But 2020 was a particularly bleak year.

2019

2020

Planned

Opened

Percent Opened

Planned

Opened

Percent Opened

Manhattan

Brooklyn

Queens

3,853

3,870

2,676

1,723

1,647

1,094

45

43

41

%

3,963

3,583

2,947

962

729

178

24

20

6

%

The number of new units often falls short of expectations. But 2020 was a particularly bleak year.

2019

2020

Percent

Opened

Percent

Opened

Planned

Opened

Planned

Opened

Manhattan

Brooklyn

Queens

3,853

3,870

2,676

1,723

1,647

1,094

45

43

41

%

3,963

3,583

2,947

962

729

178

24

20

6

%

Period surveyed: January to mid-December

Source: Nancy Packes Services

By The New York Times

And bright spots were not always what they seemed. In the third quarter, the average sale price of new developments, at $5.87 million, set a record, according to the brokerage Brown Harris Stevens. But a single address, 220 Central Park South, a two-towered creation of Vornado Realty Trust, skewed the figure, as it saw 10 closings at more than $30 million. And because Vornado negotiated the deals years ago, they aren’t reflective of the current climate.

Some developers seem almost relieved to be on the sidelines. “We will live to fight another day, and there is nothing unheroic or discourteous in that,” said Robert Gladstone, the owner of Madison Equities, which has shelved plans for 45 Broad Street, a 226-unit tower on an $86 million site in the financial district, a neighborhood dotted with half-built towers.

“Prices were being cut across downtown,” Mr. Gladstone said, “and the market was just inundated.” The high price of materials like steel, which has seen production slashed, he said, was also a hurdle.

A new gauge of success this year was the halfway mark. Many banks were reluctant to approve loans for buyers unless a new condo was 50 percent sold, developers said. “If you are not a slam-dunk buyer — if you’re a student or have blemishes or don’t have your post-liquid assets in order — you’re going to have fewer options,” said Mr. Dinour, whose 98 Front Street, a 165-unit condo in Dumbo, Brooklyn, inched past that benchmark in 2020, even as two buyers walked away from deposits.

To help, anxious developers reached deeper into their own pockets. Deal-sweeteners, like covering closing costs and taxes, became nearly standard in 2020, brokers said — sometimes behind the scenes, but also as part of marketing, at buildings like Parlour, a 19-unit condo with arched windows in Park Slope, Brooklyn.

Between 2019 and 2020, the condo sold just two apartments, said Aran Scott, the agent with Douglas Elliman handling sales. But in June, after Brodmore Management, the developer, waived each unit’s common charges for two years — a $20,000 credit — Parlour unloaded another 10 apartments.

“But there is not just one strategy that will be a winning strategy,” Mr. Scott said.

For weekly email updates on residential real estate news, sign up here. Follow us on Twitter: @nytrealestate.

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