Tuesday, September 11, 2007

Madison Square: Cinderella of the middle eastside

Once only drugs were sold here. Now it's $5,000,000 condos.

What happened?

When I moved into my condo in the brand new Stanford in 1986, Madison Square Park was a huge dog run. Drug dealers and prostitutes did business there. There was no grass. No flowers. Just a few trees, a lot of dirt, a lot of dogs and some squirrels that were said to be neurotic.

Animal wars

The dogs chased the squirrels. This created a great schism in the neighborhood.

The people who sided with the squirrels said their mental health was being destroyed by fear of the dogs who were constantly chasing them. They pointed out the serenity and general sanguinity of the squirrels in Union Square, where there was a dog run.

The dog people maintained that the Madison Square squirrels were being ridiculous because the dogs never actually caught any of them.

Voices were raised. Tears were shed.

Personally, I was a trees person. I figure you can have a park without dogs and you can have a park without squirrels, but you can’t have a park without trees.

You know what dogs do to trees, right? Well, these dogs were doing it to every tree in the park. This was not at all good for them.

If it was such a wasteland, why did I move here?

It was cheap! It was just at the start of the building boom of the 80s and a brand new condo building was going up. We bought a wonderful corner apartment with great light and fantastic views. I can see Chicago from my western wall of windows—swear to God.

And since we were coming from an even lesser location, the neighborhood didn’t look so bad to us. (Then it was we. Now it’s I.)

Of course there were still prostitutes and drug dealers. But we didn’t see the prostitutes because we weren’t on the street at 2 a.m. We ignored the drug dealers and they gave us the same courtesy.

[A momentary digression: Pioneering 101

It's axiomatic that if you want to know what’s going to be the next hot neighborhood, just think of whatever place you wouldn’t be caught dead in.

TriBeCa? The meat-packing district? Who knew?

You can always save money by going to a location you might not normally consider. And judging by what’s happened in the past, if it’s horrible now it will be cutting edge next week.

Just know what you want (a whole lot of space as did the artists who pioneered SoHo? Light and a view, which you can still get today in the west 30s at a reasonable price? A beautiful old brownstone like the ones in Harlem or Brooklyn?).

You also have to know what you’re willing to give up to get it (can you live without a doorman? Cachet? Whole Foods?).

And watch for the big players. Check with the community board to see if any big businesses are moving into the area, or anything else that will stimulate growth. More about this below.]

Dogs and squirrels declare peace.

After a number of extremely tense community board meetings, the squirrel/dog problem was eventually resolved by the addition of Jemmy’s Run (Jemmy was James Madison’s childhood nickname, in case you were wondering).

The large fenced-off dog run gives the dogs a nice big place where they can be off leash and chase each other instead of the squirrels. And all the squirrels are healthy, well-adjusted, and smart enough to stay out of the dog run.

But that was only the first step.

How did it reach what Malcolm Gladwell (and now everybody else) calls the tipping point?

First, Credit Suisse moved in…

In 1995, Credit Suisse First Boston’s principal lease in midtown was about to expire, and they were looking for space. Jersey City would have been quite affordable, but they wanted to stay here.
The Met Life buildings, though in what was then a thoroughly cruddy neighborhood, offered enormous floors and park views. Like any other pioneer, the CS First Boston people were willing to go to a less-than-great-location to get what they wanted, which was a lot of space at a reasonable rate in Manhattan.

What made the deal possible was the package of benefits negotiated with the city’s Economic Development Corporation, the New York Times reported at the time. The city’s package, linked to job growth, could provide as much as $50,000,000 (in 1995 dollars) over 20 years.

…with money for everybody.

By the city’s calculations, CS First Boston’s presence with 3700 employees was expected to generate $115 million a year in direct and indirect tax revenues. (Indirect revenues come mostly from sales taxes paid by employees.)

James Buslik, principal of Adams & Company, wrote in Real Estate Weekly that when CS First Boston moved to the neighborhood, the company gave it “long-deserved respectability in a single stroke.”

Met Life had restored its building for leasing. Adams & Company had invested in excess of $2 million on improvements at 11 East 26th Street. Other buildings did likewise, refurbishing facades and installing state of the art technology among other improvements.

Then some fairy godmothers brought their magic wands…

The City Parks Foundation organized the Campaign for the New Madison Square Park, which morphed into the Madison Square Park Conservancy. Credit Suisse, Met Life, New York Life, Rudin Management and the city, among others, all contributed funds totaling about $12 million.

…and dressed Cinderella for the ball!

The money provided beautiful seeded lawns, flowering plants, the restoration of the 19th century fountain, a reflecting pool, newly polished monuments (James Madison and William H. Seward both look much happier), new benches and a shiny new children’s playground full of adorable children and their nannies, monitored in the summertime.

There are free concerts. There is Art in the Park--fascinating outdoor sculptures that appear, disappear and are replaced by other fascinating outdoor sculptures. There are many special activities for children.

The park is now a center of activity for people all over Chelsea, the Flatiron district and Gramercy. Check http://www.flatironbid.org/events.html for what’s going on this week.

If Cinderella gets hungry… (ok, I’m aware the Cinderella thing is aging rapidly!)

…there is Danny Meyer’s Shake Shack. I’ve yet to actually have anything at the Shake Shack because I’ve never seen it when the line didn’t look about two hours long. (But there must be a time when it isn’t. Will somebody please tell me when? I’m serious! E-mail me! cstimpson@stribling.com!

11 Madison and Tabla, directly on the park, offer excellent food if you want to dine expensively rather than just eat. And Cipriani has moved into the ground floor of what used to be the Toy Building.

By the way, if anyone has information they would like to share on these or other neighborhood hot spots, please let me know!

Of course, there’s a palace… (forgive me--I can’t seem to stop.)

Farther north (but not much), Michael Achenbaum, whose Hotel Gansevoort on West 15th Street was an early sign that the meatpacking district was getting hot, is building a new hotel, Gansevoort Park, at the southwestern corner of Park Avenue South and East 29th Street.

“The hurdles, though, might be more daunting,” writes C. J. Hughes in the New York Times, “since the area — squeezed between Murray Hill and the Flatiron District, with an unremarkable hodgepodge of phone stores, pharmacies and 16-story offices — does not have a catchy name, or much cachet.

”Still, Mr. Achenbaum is thinking splashy, and big: a 19-story glass-and-limestone building with 225 rooms, which will cost $200 million.”

Who knows? Pretty soon this unremarkable hodgepodge could be crawling with out-on-parole supermodels and hotel chain heiresses. Hey, they all need telephones.

Suddenly, people want to live here.

The park is now a draw for a lot of new and expensive condo conversions--50 Madison, the Grand Madison, 15 Madison Square North and others, with more to come. And people are buying.

Today, you can pay up to almost $3,000,000 to live on East 28th Street. East 28th Street! Of course, you are paying that to live in The Parkwood, a large, luxurious and beautifully finished condo with a doorman.

For a beautiful new, very large penthouse directly on the park, you’ll pay in excess of $5,000,000. And with the southernmost Met Life building rumored to be converting to condos, who knows what prices will be for Madison Square?

As you’ve probably noticed, a developer from Rockland County is demolishing the two buildings at 20-22 East 23rd Street. The Real Deal said in March that he is planning a 60-story, 90-unit residential tower on the site. Rumor has it that he has bought the air rights to some nearby buildings, including 16 East 23rd Street.

Many of these units should have spectacular views both north and south. I’m betting they’ll be going for an average price per square foot of $2200 or more. And if it’s really 60 stories (I’ve seen it reported as both 60 and 40), the building will tower over everything for miles.

Does anyone actually want to live right on 23rd Street?

Well, Philippe Starck thought so. And it appears he’s right.

Way over at 340 East 23rd, in a neighborhood that make Madison Square Park look like the gardens at Versailles, the studio to three-bedroom units are selling just fine, thank you. Average price per square foot is between $1300 and $1400.

At Crossing 23rd, 121 East 23rd Street, average price per square foot for unsold units is also north of $1300.

As recently as 2000 only five apartments in the area sold for more than $1,000,000. And only one of those was above $2,000,000. In 2006, according to our data base, there were 36 sales over $1,000,000, out of a total of 85.

In 2003, the average price per square foot for a condo in Madison Green was $877. In 2006, it was $1230. That’s an increase of almost 40% in just three years

Believe it or not, there are still ways to save.

If you’re an early buyer in a brand new condo building, you’ll pay less—maybe even less than market value--than if you wait awhile. It seems counterintuitive that developers raise prices on the units that haven’t sold. But they do.

Early on, the developer wants to get as many contracts signed as possible so it’s clear to him and his financial backers that the project is a success. Later, as more units are sold, the prices go up.

The trade-off for buying later is that you’ve had a chance to see how the units are selling and thus how well the project is doing.

Either way, it will definitely help to have a really good, experienced broker (that would be me!) and a good lawyer on your side.

[Another digression: Okay, forget about Madison Square Park for a minute. What’s up with the market?

As I write, people are getting nervous about the foreclosure rates, especially for subprime loans. This is indeed a big problem in some parts of the country, and indirectly, yes, it will affect all of us. But as we all know, New York is a different world.

Les Christie, CNNMoney.com staff writer, reports that the New York-White Plains-Wayne area ranks 82nd among the 100 largest metropolitan areas, with one foreclosure filing for every 305 households. (Stockton, California is first.) And Manhattan ranked fourth among the five boroughs (Staten Island had the fewest foreclosures per capita.)

Much of this is because of the relative illiquidity of co-ops, which require strong financials and high cash investments from their buyers. This has a halo effect over the whole market. But the condos shouldn’t be hurting any time soon, either.

Let’s not forget the weak dollar.

It’s made the Manhattan pied a terre the new “In-Bag,” like an Hermes Birkin. (And for people with euros and pounds, there’s not much difference in the price).

Today the pound is worth $2.20. The euro is worth $1.38. And foreigners in droves are bringing their pounds and euros to Manhattan.

It seems nobody in the entire population of Europe, Asia and the UK will be satisfied until they all have apartments in Manhattan.

Additionally, the Department of City Planning estimates the number of residents will swell from 8.1 million in 2004 to nearly 9.4 million in 2025. Probably the fact that New York has been named the safest big city in the country three times now has something to do with this.

But what about financing?

Melissa Cohen, president and CEO of Manhattan Mortgage, writes in her newsletter, “This is a storm that will calm down. There will always be banks out there willing to lend with competitive rates and the market will normalize again in the months to come.

“Many of the changes that have been made are focused on the no-income and high percentage financing - 100% is now hard to get - but the bulk of the changes DO NOT have major impact on the Manhattan marketplace.

• You CAN still get a No-Income Verification loan
• You CAN still borrow 90% on a mortgage – in fact there are still lenders allowing 100%
• You CAN get a fixed rate at 6.75% with 0 points up to $1 million
• Banks ARE still lending on super jumbo loans – no loan size too large
• You CAN still get a home equity loan
• You CAN still get financing for an investment property

”Yes, the playing field has changed and many of the banks that we have done business with over the years are going through a period of correction and they will be back but, in the meantime, we have a large number of portfolio lenders that are ready to lend money and they have not increased their rates. We are simply going back to doing business the old fashioned way – and this is a good thing for the future of the Real Estate Market."

Learn more from Melissa at www.manhattanmortgage.com]

Plus, with what’s going on in the stock market, it makes sense to take money out of the market and put it into something solid, like real estate. After all, any sound financial portfolio should include quality real estate, and besides, while it’s appreciating, you can live in it.]

Okay, back to the park.

Where will it all end?

Well, why does it have to?

New product continues to be absorbed at a rapid rate. An informal survey of buildings on Madison Square Park that have closed in the last twelve months shows that on average, the time between listing and contract signing is about 87 days, or less than three months. Sometimes it’s as little as 13 days.

The neighborhood continues to be more and more attractive. New restaurants in all price ranges open up on Park Avenue South almost daily. And the park is now so beautiful you can hardly walk through it without tripping over a fashion or film shoot.

So what's the bottom line?

My prediction is, while it may take a little longer, all the new condos coming on the market will sell, thanks to the weak dollar and Wall Street bonuses. (While bonuses are expected to be lower for 2007, they went up 40% from 2005 to2006. Those guys aren’t hurting.)

An influx of new, affluent residents will continue to attract more and more upscale retail businesses and restaurants to the Madison Square neighborhood. And prices will hold.

The key is finding expert guidance through these changing waters. That includes a professional who knows the neighborhoods, what’s being planned, and can match your unique needs to the opportunities that are arising.

If you’re thinking about buying or selling, or even if you just want to chat about real estate, give me a call. I’ll buy you a shake at the Shake Shack.

Confidence Stimpson, SVP
Tel (direct) 646-613-2722
Tel (office) 212-243-4000

See other real estate blogs at http://www.real-estate-blogs.com

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