Manhattan luxury real estate prices fell between 17 and 29% in the second quarter of 2009. The luxury segment is defined as the top 10% of the market by price and saw bigger falls in value than the total market. The overall market saw falls of between 13 and 19% from last year’s prices and sales volumes are at 50% of 2008.

For once, everyone is in agreement - prices fell dramatically, and sales volumes are well down compared to 2008. According to Reuters, “Tougher mortgage requirements, rising unemployment and the recession took its toll on the market that had for more than three years had been the notable exception to the U.S. housing market crash. But the Manhattan market dropped precipitously as Wall Street and the rest of the New York’s private industries shed jobs.” Reuters

The New York Times says, “The number of closings fell more than 50 percent, and prices in some categories were reported down as much as 25 percent, compared with the same quarter in 2008. Sale prices were also down from those reported in the first quarter of 2009.” The NY Times

Perhaps the most shocking figures are those applied to new condominium sales - down 61.7%, and although most analysts expected a disastrous second quarter, it looks as though there is more on the way. The death of the “jumbo loan,” means mortgage companies are requiring deposits in the region of 30-40% of the value of the property, and even with a 24% drop, median prices for Manhattan apartments are still around $1.15 million.

Miki Naftali, President and CEO of Elad Group (and its subsidiary, Elad Properties), a leading international developer and owner of prime residential and commercial real estate will be giving a lecture entitled “How to Survive the Real Estate Crisis,” at 6:30 pm today at Morrison & Foerster, LLP, 1290 Sixth Avenue (between 51st and 52nd St.), New York, NY. The lecture is in Hebrew only and organised byThe Israeli Business Forum of New York (IBF). Tickets are $40 on the door.

Elad’s portfolio contains an impressive multi-billion dollar collection of luxury properties including the iconic Plaza Hotel in New York City. Mr. Naftali is developing the last high-rise luxury condo on the world famous Wilshire Corridor in Los Angeles and managing Elad’s activities in other premier North American markets.

Mr. Naftali earned an engineering degree from the University of Southern California and headed his own real estate company before moving to Israel to build residential neighborhoods and hospitality projects. He returned to the United States to launch and guide Elad’s successful New York operations and its national and global expansion.

If you are a James Bond fan, here is an interesting opportunity. The former Midland Bank HQ in the City of London’s financial district has just been offered for sale - again. The building’s vault featured in the 007 film “Goldfinger,” and was purchased in 2006 by Russian businessman, Vladimir Chernukhan, who reputedly paid £72 million ($135 million) for the property.

The Grade I-listed Edwin Lutyens designed building is located next to The Bank of England at 27-35 Poultry, and comes with planning permission to convert the 291,573 square foot property into a luxury hotel comprising 181 bedrooms, bars, restaurants, health clubs, private members’ club and roof garden. I must admit to wondering at the reasoning here - the City of London is dead at the weekends and after hours - nothing but destitute ex-bankers wandering the streets with their begging bowls, so why anyone would think of a luxury hotel here is a mystery.

The holding company defaulted on their loan back in February and London real estate agents, Knight Frank have been retained to sell the property. Commercial property prices in London have fallen anywhere between 40-75% recently, so the current value is anyone’s guess.

Midland Bank was one of the Big Four banking groups in Britain,  but is now part of HSBC. The bank was founded as the Birmingham and Midland Bank in Union Street, Birmingham, England in August 1836. It expanded in the Midlands, absorbing many local banks, and merged with the Central Bank of London Ltd in 1891, becoming the London City and Midland Bank. After a period of nationwide expansion, including the acquisition of many smaller banks, the name Midland Bank Ltd was adopted in 1923. By 1934 it was the largest deposit bank in the world. It was listed on the London Stock Exchange and was once a constituent of the FTSE 100 Index but in 1992 it was taken over by HSBC Holdings plc, one of the few British banks still standing.

Luxury Hotel anyone?

The global financial crisis has taken a serious toll on Dubai, and the latest news from the emirate suggests things are far worse than the government is prepared to admit to. Transparency in Dubai’s property market has long been an issue, and just last week, the press releases coming from the emirate suggesting the problem is over/never existed/didn’t happen/has reached bottom were still as strident as ever, but the latest news suggests the problem is even bigger than previously thought.

Emaar's Burj Dubai project

Emaar properties has announced that it intends to merge with three entities owned by Dubai Holdings: Dubai Properties, Sama Dubai, and Tatweer. Dubai Holdings also owns the Jumeirah group and is largely a govenrnment owned company. Emaar is already 31% government owned. Although this merger will require stockholder approval, it certainly looks likely to proceed, and is probably the only course of action that will allow Emaar to survive the current crisis.

All four of the companies involved in the merger have canceled billions of dollars worth of projects recently and there are substantial outstanding debts still unpaid to sub contractors and angry investors. The luxury real estate market in Dubai is certainly facing some serious challenges, and the lack of transparency plus poorly thought out new laws have been adding to that burden for some time. None of the details of this merger were clear during the announcement and Emaar shareholders reacted negatively as this is tantamount to a government bailout - there is a strong liklihood that existing shareholders will, if not lose all their investment, almost certainly see it substantially diluted. Emaar’s shares fell another 10% on the announcement, dragging the Dubai stock market down with it.

A $12 million luxury condominium project in Loudonville, NY has been stopped indefinitely and the developer is saying “luxury living and this market just don’t mix.” The project was started October 2008. Two weeks later,  the financial world collapsed and has yet to recover. Buyers suddenly couldn’t access financing and withdrew their letters of intent to purchase. By January, the development had come to a standstill.

The development was pitched as “the perfect canvas for showcasing each homeowner’s personal sense of style. Large windows, gracious floor plans, and high ceilings create airy and inviting master suites. Exquisite interior details in every room evoke an atmosphere of serenity. Your home at The Loudon House is your personal sanctuary.”

I am thinking it was just in time - the development is barely started, and if they have any sense, they will tear it down and turn it into affordable housing. The luxury real estate market has been seriously over-built and I don’t see this one being viable any time soon. Financing is becoming more and more difficult for these types of development, and until the liquidity crisis in the banking system is over, we are not going to be seeing any more 125% homeowner loans and mortgages.

It is easy to think of the luxury real estate market in New York as being exclusively city-based, but the countryside is becoming littered with failed developments and the assumption seems to be that “it will all get better soon if we just pour enough money into the system” but that is a big if, because I do not see a light at the end of the tunnel just yet.

Debtenfreud - "taking pleasure in another's real estate pain."

As the credit crunch continues to depress real estate prices across much of the world, even in some very high profile regions, a new term has been coined in Los Angeles - debtenfreude. Apparently this is the latest buzzword and is a sub category of the German word, “schadenfreude,” the “taking pleasure in the suffering of others.”

Meghan Daum of the LA Times writes,

As a homeowner, I know it’s counterproductive to take delight in the real estate misfortunes of my neighbors. But massive price reductions on a house down the street from me have left a lot of us in the neighborhood gloating. A hulking McMonstrosity that’s jaw-droppingly out of place among the modest bungalows that surround it, the house was clearly intended by its owner/builder to be a cash cow. But it’s been sitting empty for nearly two years since it was finished, and the price just continues to drop. LA Times

Similar situations are appearing all over the globe, and invariably it is the markets that saw the most benefit from the boom years that are feeling the pain most, and the current glut of empty McMansions is unlikely to go away any time soon. Even such previously untouchable areas such as The Hamptons is seeing it’s fair share of foreclosures and price cuts. So, the next time you walk your dog past a two-years-empty McMansion and start feeling a little smug abut your affordable mortgage, you know what to call it - debtenfreud.

Image courtesy - Curbed