Time to Shop for Manhattan Real Estate

Manhattan residential real estate has performed better than the broader U.S. real estate market and comparable major cities such as San Francisco and Los Angeles.

For potential buyers, now is the time to shop. We are in an uncertain period where the Dow is at 10,000 without justifying fundamentals. Unemployment is at 10%, the dollar is weak and inflation is coming. Relative to the stock market and comparable major cities, Manhattan has performed well. I'll explain why, and I'll tell you why it will continue to do so for the next decade.

The Numbers

While cities like Los Angeles and San Francisco have seen their real estate prices decline more than 40% from their bubble highs, prices in Manhattan have taken a significantly smaller hit. Miller Samuel reports that the peak price per square foot was $996 in the third quarter of 2009, vs. $1,289 in the first quarter of 2008. That represents a decline of only 23%.

Third-quarter 2009 data show prices declined at a lower rate while transaction volume surged 46%, a sign that the Manhattan market is starting to find its bottom. I expect it to decline another 10% with an eventual U-shaped recovery. But the duration and the magnitude of the decline have been less than for comparable major cities.

Wall Street firms are expected to pay a record $140 billion in bonuses this year because of the resurgent stock market, an easing in credit markets, an increase in dealmaking and government programs, according to The Wall Street Journal. This is despite the recession and despite an unemployment rate of 10.3% in New York City. Regardless of whether these bankers deserve their lavish bonuses, one thing's certain: Their payday will boost Manhattan real estate prices.

Landlocked

Manhattan is a landlocked island. While developers in most cities keep expanding outward, developers in Manhattan do not have this alternative. Yes, we can expand upwards, but with the city's stringent regulations, it is easier said than done.

Capital of the World

Manhattan is a global must-see destination. Emerging markets like Brazil and China are creating wealth at a very high rate and churning out millionaires. New York is often the first international destination these new millionaires from emerging countries want to visit. It's also one of the first places where they want to buy investment property or a pied-a-terre.

Diversity of Industries

While finance has been the dominant industry in New York, the economic landscape is diverse. Besides finance, New York has media, hospitality, advertising and professional services like law and accounting firms. These industries will be serving emerging-market economies and will benefit the local New York economy in terms of job creation and housing demand.

The city's unemployment rate was at 10.3% in August. If not for the diversity of the current New York City economy, the unemployment rate would be even higher. Eastern Consolidated reports that the securities industry lost 1,000 jobs in August and has lost a cumulative 31,200 jobs since November 2007. However, sectors like education, health, leisure and hospitality gained jobs, which partly offset the negative impact of the financial job losses.

Quality of Life

The air in Manhattan is pristine compared to air in other global metropolises like Hong Kong. Transportation, although via a 100-year-old subway system, is still efficient and dramatically reduces commuting time for those living in Manhattan. The legal system is established and there is a better work-life balance compared with countries like China. These are major considerations for attracting global talent.

What to Do

Investors worried about expected inflation may be considering gold, which is at a high of $1,060 an ounce. Of course, the yellow metal might increase -- maybe even to $2,000 as Jim Rogers predicts. However, gold is not income-producing. Manhattan residential real estate, on the other hand, has a net rental yield of 4% and still benefits from rental income and price increases. Similar to gold, real estate prices and rental income will increase with inflation. One can live in real estate. There is no such practical use for gold.

For the primary residence buyer who is still renting, the value of your saved dollars is getting weaker. The Dollar Index is now at 75, down from 88 in March, reflecting the world's pessimism about our currency. Rents will increase. So start shopping for real estate. It's better than sitting on a pile of cash with weakening buying power.

Wei Min, CEO of Castle Avenue Partners, is a real estate entrepreneur focused on brokerage, investments and management. Previously, Wei Min was VP at Citigroup responsible for a $500 million portfolio. He received Ctigroup's prestigious Chairman's Award, a recognition awarded to the top 2% of managers. He was also Director of Travel Insurance at American Express where he managed a $180 million portfolio. Wei Min's first exposure to real estate was in 1998, when he helped develop mortgage strategies at Citimortgage. He has traveled to many cities to view thousands of properties. In addition to English, he speaks Cantonese, Malay and is conversant in Mandarin. He is a runner who frequently races at 10K and half marathon distance events. Wei Min holds a black belt in tae kwon do and works out at the gym almost everyday. He graduated with an MBA from the University of Illinois at Urbana-Champaign and a BBA from Marshall University. He can be reached at tan@castle-avenue.com www.castle-avenue.com.

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