Sales in The City
by Kelly Kreth
New York City is surely a melting pot and atracts buyers from all over the world. This diversity makes it an even hotter commodity. According to Bloomberg, "Wealthy foreigners have bought high-end U.S. properties for their safety and because they're denominated in dollars, the world's reserve currency," said Mitchell Roschelle, real estate advisory leader at Pricewaterhouse Coopers LLP.
We interviewed five top NYC real estate experts, each with extensive experience working with aforementioned foreign investors, about the NYC foreign investment market and what it means for NYC sellers.
What percentage of your business is spent working with foreign investors?
HEDAYA: I would say about 60% of our sales business is derived front foreign investment. This has increased drastically since 2009. We started deriving a lot of business from our Paris office after its launch. Most recently we had a buyer come through our Paris office who purchased a multifamily building in the East Village as an in¬vestment.
ROSABIANCA: In my brokerage, 75% of the clientele is comprised of foreign nationals and in the law offices I oversee, 50% of clients are international.
FROTA: About 50-60%
What factors are currently influencing the foreign investment market in NYC?
HEDAYA: I think the foreign markets and political climate have a strong influence in foreign investment into NYC. Foreigners are looking for places to diversify their investments and considering the fairly stable market in NYC, it has been shown to be one of the most sound investments they can make.
KATZEN: Main cities such as Paris. London and New York are the hubs for business international tourism and fashion. Foreign in¬vestors want to invest in cities that hold wealth, exposure and population. Diversification of overseas money to the United States is key. The United States is considered "cheap” when compared to other countries at this time in terms of property and therefore there is still a value against the euro.
ROSABIANCA: The current global state of economic affairs greatly affects how many investment dollars the New York market sees. In the present reality of our global village, New York often becomes the preferred and safest option.
SAGIEV: It's always hard to say whether it’s a market trend or our company trend. We made a lot of effort to attract clients from Brazil and China this year and that may be the result of our marketing campaign. We have been getting a steady interest from the Russian buy¬ers over the last years due to our strong ties with the Russian market and a solid expertise in the region.
The factors that are always important apart from the general NYC appeal are exchange rate fluctuations, availability of credit (believe it or not many of our international buyers seek financing), and politico-economic situation in a particular region.
Argentinians share their concerns about a more socialist government in Argentina and their worries on the safety or their assets in local banks.
Many Russians demonstrate increasing concerns about the local po¬litical situation, risky small business environment, recent anti-gay legislation, increasing right and nationalistic rhetoric. As a result, many choose to move their assets, and even their family oversees, while continuing to run businesses in Russia. They see investment in the US as a much safer way to save for their own retirement and children.
The Chinese often buy for children who either already study or work in the US or might do so one day in the future.
As for Brazil, there seems to be a lot of fascination and love for NYC among the Brazilians. We don't see that many investors planning to rent their apartments out. Most of our clients from Brazil buy for personal use, pied-a-terre or a second home.
What type of property best attracts foreign investors?
HEDAYA: The tyro of property that appeals to individual investors depends on their goals. Some investors look for a property that will appreciate over time, some look for properties to derive regular income from, while others may look for something dilapidated to fix up and flip. Ultimately, by doing a brief interview with the investor we can accurately target the types of properties that will suit their needs/goals.
FROTA: Condo, condo, condo! Good location, good rental income, good history of price increase in building. They usually like to buy in central locations of Manhattan (50’s-70's) and property condition is very important.
SAGIEV: Most of our clients require that the property can be rented quickly and bring them maximum possible return on their investment. When that requirement is satisfied, they tend to like newer, cleaner apartments, ideally with views. So we mainly sell new developments completed in the last five years or so. Even those clients who prefer older buildings with higher ceilings, details and fireplaces usually choose new conversions. Amenities are more important for clients looking for a personal residence. One of our Brazilian clients really wanted to have a children's room and a gym. Investor clients focus more on the quality of the apartment itself for the price and return.
What are you seeing right now compared to last year in this market?
HEDAYA: As a result of the higher price points that are evident in new developments, I have seen a stronger push towards developments just outside of Manhattan. People who are looking to in¬vest smaller sums of money are looking either in Brooklyn, Long Island City (LIC), or even the gold coast of New Jersey, along the water, for new development properties.
I think that foreign investors prefer to purchase new properties, rather than resales, so they are forced to go outside of the city to get the investment size they are looking for. At the same time, the higher end of the market seems to be dominated by foreigners.
The super-high end ($10M+) has been increasingly active for the very wealthy foreigners who have cash that they are looking to park in a safe place.
KATZEN: I am seeing tremendous purchase power and very high numbers for new projects, like never before seen. I am seeing people who have to diversify very efficiently and are using New York real estate to do so.
ROSABIANCA: My level of business with foreign nationals is on par with last year. We continue to see all-cash investors coming from Western Europe, but an influx from China and Russia has been more recent. With regards to Italy in particular, while residential buying and selling activity is down 20-25% across Italy and will likely continue to be through the year's end, the number of Italians buying property abroad is up 26% when compared to 2012. And many of those transactions taking place right here in NYC. Additionally, in the past, such investors have been very conservative. They've sought predictability and wealth preservation. But we’re increasingly seeing more speculators in the game, such as investors who are willing to take risks on up-and-coming neighborhoods, new developments, etc.
FROTA:The inventory is low and foreigners are having a harder time getting their offers accepted because of bidding wars. Brokers have to work much harder educating their foreigner buyers about the current situation on the market (encouraging bids above asking price, creating more options of apartments to bid on in case their preference is not available, etc). Usually the investors come to NY for a short period of time to make a decision and it is important to have various options so they don't leave empty-handed.
SAGIEV: The new region we are seeing this year is Africa. We are working with investors from Chad, Ghana and Morocco. This is unusual. At the same time, we don't see that many European investors, especially Italians any more. Italians have constituted al¬most 40 percent of our business in the past. This is not the case anymore.
What are your predications for the foreign investment market as 2014 progresses?
HEDAYA: I think that the increased activity from foreigners has had a large hand in the quick rebound of the real estate market since its crash. The foreign element of this city's population helps to keep the market more resilient than any other city in the world.
ROSABIANCA: My brokerage and legal colleagues anticipate the continued flow of Western European capital into NYC, as many of those countries are facing a serious economic and social im¬passe. Not that we don't have our challenges!
FROTA: If nothing "dramatic” happens in our economy or the world, I expect the prices to go up.
Daniel Hedaya President Platinum Properties
Frances Katzen Licensed Real Estate Salesperson Douglas Elliman
Luigi Rosabianca Lic, Real Estate Broker WIRE International Realty and oversees law offices of Rosabiana & Associates
Wigder Frota Licensed Associate Real Estate Broker Halstead Property, LLC
Karina Sagiev Founder Evans Real Estate Investments