By CRAIG KARMIN
Real-estate broker Suzun Bennet had a Central Park West condo sale in hand last month when suddenly the buyer, a Belgian worried about Europe’s plummeting stock markets and currency, pulled out.
He returned, two weeks later, with a reduced offer of less than $5 million for the three-bedroom apartment. It was quickly accepted, but the sale isn’t expected to close until August. Ms. Bennet, a broker with Halstead Property, doesn’t want to think about the Belgian having second thoughts about closing if Europe’s markets and the euro take another turn for the worse. “That’s another scary bit,” she says.
Europe’s brewing economic turmoil that began with a government debt crisis in Greece—which saw its credit rating slashed to junk status by another rating agency on Monday—is spreading its malaise across the continent and has punished financial markets world-wide.
It also threatens to claim a more local victim: New York City’s residential market. That’s because the declining value of Europe’s main currencies—the euro and the British pound—has sharply increased prices that Europeans must pay after they translate their currency into dollars.
The euro’s 25% depreciation against the dollar, to less than $1.20 earlier this month means that Europeans are paying a quarter more for New York property in dollar terms than they did two years ago when one euro was exchanged into $1.60. The British pound, valued at $2 in March 2008 but recently trading below $1.45, has taken a similar plunge.
While some New York brokers say that affluent buyers from abroad will be attracted to a stronger dollar and the relative stability of property in the city, others say Europe’s debt crisis has already made some jittery about indulging in a Manhattan pied–à–terre or tying up cash anywhere outside their home countries.
“I’m spending a lot of time talking people off the ledge,” says Dolly Lenz, a top-selling broker with Prudential Douglas Elliman, referring to Italian, Spanish and English clients who are getting cold feet about buying in the city. “I’m doing this daily. People are losing confidence that it’s going to turn around quickly.”
Their reticence comes as the New York housing market is showing signs of a tentative comeback; any European pullback would be an unwelcome headwind in face of that recent momentum.
.While there are no official records of foreign owners of city property, appraiser Jonathan Miller estimates that overseas buyers typically account for 15% to 20% of the Manhattan condo market. But when the dollar declined against other currencies a few years ago, demand from foreign buyers picked up. During the boom, Mr. Miller estimates that foreigners represented about 30% of condo buyers, with Europeans representing most of those sales.
“The foreign buyer has always been an important contributor to demand for New York City real estate,” Mr. Miller says. “And there’s been a pullback,” especially among those who aimed to exploit the exchange rate. In the late 1980s, he added, Japanese rushed to buy New York condos, sight-unseen, when the yen and Japan’s economy were roaring. But that activity evaporated after Japan slid into recession.
For certain buildings that have leaned heavily on foreign sales, any further extension of the current decline in the euro could be especially painful.
At the Setai Fifth Avenue, a hotel and condo that is expected to open in November, virtually all the initial buying interest has come from abroad, in particular Italy and other parts of Europe.
European soccer players and chief executive officers were among the first to sign contracts, says Giuseppe Rossi, executive vice president for the developer Bizzi & Partners. “People saw a floor plan and arrived with a check,” he says. “There was a big excitement when the euro was very, very high.”
And now? “The market has changed,” Mr. Rossi says. Sales to foreigners have slowed considerably, and the developers are for the first time concentrating on domestic buyers.
At Trump SoHo, another new condo-hotel, foreigners account for about two-thirds of the contracts, says Rodrigo Nino, president of Prodigy Network which is marketing the building. Europe’s economic woes “are putting pressure on their investment requirements,” Mr. Nino says, making these part-time condos a tougher sell abroad.
Not that every Roman or Parisian is cowering under the once-again mighty dollar. Brokers are happy to reel off examples where the wealthiest foreigners see New York property as a sound investment at a time when European assets are under siege. While mortgage financing at U.S. banks remains tight, these buyers typically pay all in cash.
“I’m getting a lot of calls from Europeans,” says Charlie Attias, a Corcoran broker who says he recently sold apartments in Chelsea and Gramercy Park to buyers from there. “They say America is coming out of the recession faster and see positive signs in the real-estate market.”
Privately, however, much of the industry is growing anxious that European demand among the speculative or less well-heeled buyer may be softening. Brokers worry that some Europeans who bought New York property near the peak and took a hit of 20% to 30% may have made enough back in currency appreciation to cancel out investment declines. That break-even point could trigger sales among some of these owners, putting more supply on the market.
A certain type of European buyer that left a strong footprint on New York during the boom years may be gone for a very long time: middle-class professionals from countries like Spain and Ireland. Their buying presence in New York disappeared when the financial crisis erupted in 2008.
Spain and Ireland are now considered among the more vulnerable economies in Europe. As for their run as strong New York buyers, “That period was an anomaly,” says Mr. Miller.