For Wealthy New York Buyers, Small Apartments Aren't Cutting It Anymore

March 18, 2021
Wall Street Journal: Real Estate

         For Wealthy New York Buyers, Small
        Apartments Aren’t Cutting It Anymore
    As the market recovers from a Covid slowdown, well-heeled
    homebuyers are spending millions to upgrade their spaces

By Katherine Clarke
Impressions: 71,900,000

                                      ERIC PETSCHEK

S  oon Jang, a California-based physicist, and his wife, Laurel Jang, began eyeing
   apartments in New York last spring for their youngest son, who was slated to attend
Columbia University in the fall. They quickly settled on a roughly $2.3 million two-
bedroom property at the Vandewater, a new development in the Morningside Heights
area of Manhattan near the college, and put down a deposit to buy it sight unseen.

By the time they finally made it to the city last fall to physically see the building,
following the onslaught of the Covid-19 crisis, they had decided two bedrooms
wouldn’t suffice. Used to life in their sprawling 5,000-square-foot home in San
Clemente, Calif., and with their son expecting to have to study from home amid the
pandemic, the 1,400-square-foot unit seemed small and constricting. They reached
deeper into their pockets and upgraded to a $3.2 million three-bedroom apartment
with a home office.

March 18, 2021
Wall Street Journal: Real Estate

                  Soon and Laurel Jang in 2018. PHOTO: JANG FAMILY PHOTO

“We were going to buy it in cash anyway,” said Mr. Jang, noting that the couple were
fortunate to have the financial wherewithal to comfortably shoulder the additional $1
million expense. They ended up putting roughly $1 million down and financing the rest.

Though most Americans don’t have spare millions like the Jangs, the couple’s story is
far from unique. Real-estate agents across the city said they have seen a wave of
affluent buyers looking to supersize their apartments in recent months as they grapple
with working from home amid the pandemic and feeling cooped up in small
apartments. Some feel emboldened by low interest rates. Others have been inspired by
the negative sentiment around city living over the past year, which, in some cases, has
resulted in developers willing to negotiate on prices and foot the bill for buyers’ closing
costs and taxes.

The trend coincides with a more recent uptick in the New York market, which began to
turn a corner in November, following the Presidential election and the announcement
of an approved Covid-19 vaccine.

More than 140 contracts priced at $4 million or more were signed by Manhattan buyers
in February, a dramatic uptick from the quiet days of last year and an increase of more
than 30 contracts over the number signed in February 2020, before the realities of the
pandemic set in.

There were 40 contracts signed at $4 million and up in the week ending February 28,
the first time the weekly total hit 40 since August 2016, according to the Olshan
Report, a real-estate data provider.

At one Manhattan project, Beckford House & Tower on the Upper East Side, the
developers have done $150 million in sales of three- to five-bedroom apartments since
December, said Barbara Russo of Douglas Elliman, the building’s sales director.

March 18, 2021
Wall Street Journal: Real Estate

 Roughly $150 million in contracts have been signed for three- to five-bedroom apartments at Beckford
   House & Tower on the Upper East Side since December, according to the sales director. PHOTO:
                                          JOSHUA MCHUGH

The median price for a Manhattan condominium was $1.05 million in the fourth
quarter, a 5.1% increase from the same period a year earlier, according to a report by
Douglas Elliman.

Though it is still early, the numbers point to a market turnaround from last year, when
contract signings for properties priced at $4 million and up were down by more than
30%. While the bulk of the recent activity has been at midrange price points, a flurry of
recent ultrahigh-end transactions, including a couple of major townhouse sales on the
Upper East Side, suggest that that segment of the market may be heating up too. With
Covid cases on the decline and some buyers back in the city, many agents and
developers now say they believe the worst is over for New York.

 At 378 West End Avenue on the Upper West Side, a buyer recently decided to upgrade from a roughly
    $4.5 million apartment to a penthouse that was asking about $12 million. PHOTO: WILLIAMS NY
                                            (RENDERING)

March 18, 2021
Wall Street Journal: Real Estate

“Now that there’s a vaccine and a lot more certainly around the politics in our country,
everyone is feeling a lot better about New York,” said Joel Breitkopf, a principal at
real-estate development company Alchemy Properties.

For the Jangs, Covid changed their whole outlook. They decided their son should have
an office to study, rather than having to work from his room or from the dining room
table, so that his bedroom could remain “a place of rest,” said Mr. Jang, 57.

They also began thinking about an extra bedroom for visitors, since they wanted to
keep the second bedroom for themselves when they came to town. “The master
bedroom is a sacred area and we don’t want people staying in our bed,” he said.

Their son, who has been renting a room in an Airbnb in the area, will move in this
spring once the building is completed. The couple has already spent more than
$100,000 on furniture for the unit.

“It’s a prison cell about 8 by 10,” his father said of the Airbnb. “He’s going to be
moving into a luxury condo building with a pool built into it.”

Mr. Breitkopf said he was pleasantly surprised in February when a couple of empty-
nesters from the suburbs decided to upgrade in one of his new buildings, an under-
construction condo tower at 378 West End Ave. on the Upper West Side. They
swapped a two-bedroom apartment asking about $4.5 million for one of the building’s
four-bedroom penthouses, which was asking roughly $12 million.

He said he believed they were enticed by the unit’s 1,000-square-foot outdoor space
and some Covid-19-related tweaks his firm made to the design, including a more
sophisticated air-filtration system and no-touch elevator access.

At 130 William, a high-rise tower in the city’s Financial District, developer Scott Avram
said he’s had 10 buyers move to upgrade their contracts to larger spaces within the
building in the last six months. He speculated that at least some were motivated by the
low interest rates. “It’s almost free money and if your qualifications allow you to do it,
why not?’” he said.

Mr. Avram said he’s pleased to have buyers upgrade if they have the means though he
noted that all 10 buyers paid list price. They didn’t get a discount because they had
already bought in the building.

March 18, 2021
Wall Street Journal: Real Estate

 At 130 William in the Financial District, the developer said 10 buyers have sought to upgrade to larger
                         units in recent months. PHOTO: MICHAEL KLEINBERG

Stephen Kliegerman, president of Brown Harris Stevens Development Marketing, said
he believes buyers are responding to the more flexible terms offered by some
developers, who struggled to court buyers virtually during lockdowns. In some cases,
developers have offered lower down payments of 5% rather than the usual 10%. Some
buyers, such as the Jangs, were able to negotiate a contingency in their contracts that
stipulated that they could back out of the deal if what they finally saw in person didn’t
meet their expectations.

“We didn’t want buyers to feel like they were going to have too much money tied up
for too long particularly when worry about the economy was heightened,” Mr.
Kliegerman said.

Karl Yee, a 25-year-old accountant, said he signed a deal for a $2.25 million, two-
bedroom apartment at Essex Crossing, an under-construction project on the Lower
East Side, in February. He began his search virtually the end of last year from Taiwan,
where he was living with family. He had originally been looking at one-bedroom units,
ranging from about $750,000 to $1.2 million. He said his mother was helping him pay
for the apartment.

“We thought it was a good investment and it could be more for the long term,” Mr.
Yee said. “We figured the housing market was going to rebound and we wanted to
jump in before it rebounds too much. To be honest, I think my mom was more on
board with it than I was. I was a bit more hesitant. It’s a big decision.”

March 18, 2021
Wall Street Journal: Real Estate

                    Rob and Jessica Zizza. PHOTO: ROB ZIZZA FAMILY PHOTO

In Brooklyn, buyers are also looking to upsize while the market is still in their favor. Rob
and Jessica Zizza, a pair of newlyweds who met at Columbia’s business school, began
their search with a $3 million budget but decided to pay an additional $1 million to get
the layout they felt would accommodate their desired post-Covid lifestyle; flex space
for a mudroom and a home office. They are now in contract to buy a $3.995 million,
three-bedroom unit at 1 Prospect Park West in Park Slope. They said the decision was
motivated in part by the fact that they bought a unit off plan at the building and were
able to negotiate. They are also hoping to have a family in the next few years.

 The Rauschnabels had been shopping for a two-bedroom apartment in Manhattan but found that their
budget bought them a lot more space in Brooklyn. PHOTO: LOUISE PALMBERG FOR THE WALL STREET
                                             JOURNAL

“We had the ability if we wanted to do it all cash, but where interest rates now made it
sort of a no-brainer,” said Mr. Zizza, who works in real estate and private equity.

March 18, 2021
Wall Street Journal: Real Estate

  Kathrin and Markus Rauschnabel at their newly purchased townhouse in Brooklyn. PHOTO: LOUISE
                          PALMBERG FOR THE WALL STREET JOURNAL

Others, such as attorney Kathrin Rauschnabel and her husband, Markus Rauschnabel,
have nabbed property that previously wouldn’t have been within their budget thanks
to last year’s downward slide in activity.

They were looking for a two-bedroom apartment in Manhattan before shifting gears
when they realized their money could now get them an entire townhouse in Brooklyn.
In early March, they bought a townhouse near the Brooklyn Botanical Garden for $1.26
million; it had previously been on the market for about $1.7 million, according to their
agent, Veena Prakash of R New York.

“If all of a sudden we live at work, I want to live at a workplace that’s a little bigger,”
Ms. Rauschnabel said.

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                          cutting-it-anymore-11616083215