Real estate woes follow Israelis overseas
Israelis in New York discover the frustrating real estate market not unique to Israel; $4,000/month for two room in lower Manhattan.
"Housing prices are going to fall, because the real estate market is a market of expectations," said Finance Minister Yair Lapid in a real estate convention held last week in Tel Aviv.
"Within a few months we’ll all be in a better situation, including contractors. There will be more available housing, more construction projects will get underway – in every aspect it will be better," Housing Minister Uri Ariel promised.
But is this real estate frenzy unique to the Holy Land?
Recently, New York topped headlines after a major US real estate brokerage firm published a report showing that housing prices soared by 18.5% in one year in Manhattan.
Real estate despair, it seems, is just as common overseas - unless, of course, you are a serious investor with deep pockets that can see the silver lining in the recovery of the NY housing market from the financial crisis that hit in 2009.
Rent Control
The real estate market in New York, in particular, and the US, in general, is different, of course, than the young Israeli market.
While in Israel the finance minister is only now promoting a plan to build multi-family complexes for rental, in New York real estate investors have been constructing such buildings for years – in addition to regular apartment buildings as well as the public housing projects which have also been built in Israel.
As in many other countries around the world, New York City has a regulated rental market called rent control. The scheme sounds similar to the one proposed by Finance Minister Lapid, which aims to limit rent hikes to once in three years.
"I would encourage Israelis to build rental projects and regulate the rental market - and leave the construction of homes for sale on the side," says Rick Gropper, a native New Yorker and a senior director at a local real estate development firm.
"Rental regulation is not that bad," he continues, "although I certainly also encourage the construction of affordable housing, because it is related to the tenant's income level - and also creates more jobs."
Gropper explained the method of regulation on New York's rent control scheme. "Rent control is an old method to control rents," said Gropper, "This is a way to gain control of the market, but is not the most logical one."
The real estate director said the scheme would be better if it had a mechanism for raising the rent according to the market, claiming that the people who live in rent controlled apartments "actually hurt the market."
"I live near a building where the majority of tenants are paying ridiculous rent thanks to rent control, and because of this the other neighboring tenants pay much higher rent," said Adam, a Manhattan native who works in a local investment firm. According to him, the wider implications of the old rent control method on the market are not positive, even if they serve, in the end, those tenants who are lucky enough to enjoy it.
How much for a doorman and swimming pool?
The price range of apartments for rent varies from building to building - depending on the services provided. "We pay $2,000 for a small studio, you can reach the tea kettle from the bed, and this price, along with the cost of living here, is just absurd to me," says Roi (not his real name), an Israeli from the Sharon region who has been living with his wife in Manhattan for two years.Today they live in the Upper West Side; previously the couple lived in Lower Manhattan.
Unlike Roi, Shai (not his real name) pays about $4,000 a month in one residential neighborhood in downtown Manhattan. Shai, an Israeli who works in finance and has been living for several years with his family in a magnificent rental building, enjoys the services of the 24-hour doorman, a swimming pool and fitness room, mail services, meeting room and playroom for children.
The price he pays includes these services, along with the two-room apartment where he lives, or as it is called in the US - a one bedroom – ie.. an apartment with one bedroom and a living room (which is considered a two-bedroom apartment in Israel).
"Two-bedroom apartments (three rooms in Israel) can easily cost $4,250 per month," says Guy, an Israeli from Tel Aviv who has been living in Manhattan for the past two years because of his job.
For a similar price he lived for two and a half years in the East Village in a building without a doorman. "There was just a maintenance man who used to come to the building every day,” he says.
According to Guy, "towards the end of the contract, the building was sold to an investor and the prices rose significantly - they wanted me to pay approximately $4,750 a month for an apartment that I thought was not worth it, even though it was considered to be in a good location and was in a relatively new building, which was first occupied in 2008.”
Guy's second apartment was in Midtown Manhattan. "It was a one bedroom apartment, two rooms in Israel, good size, a much fancier building with a doorman. That kind of apartment rents for $4,500 a month," he says.
Celebs in Hollywood, real estate agents in Manhattan
Six years have passed since the financial crisis began in the US, causing a 50 to 70 percent drop in housing prices, but in the past two years, real estate prices there have been rising continuously.
On a national level, prices increased by 30 percent, although in some areas they increased by 50 percent or more. New York apartment prices surged significantly in 2013 and moved to the level of 2007 prices - then considered a record year.
"Today we have a new record," said Real Estate broker Shimon Shkury, president of Ariel Property Advisors, which sells investment properties in New York. "Rents also significantly increased: In 2010, the rental rates, mostly residential, began to stabilize and rise slowly - and between 2011 and the end of 2013 rents have skyrocketed - especially in Manhattan."
Shkury, an Israeli who lives with his family in Manhattan, got into the US real estate market after working in finance, but very quickly discovered the potential for investors in the Big Apple’s real estate market.
"In 2013, about $38 billion of investment real estate assets were sold citywide in New York, not just in Manhattan," said Shkury, who founded his company in 2011. “For comparison - in 2007, $60 billion of assets were sold, in 2009 which was a slump year, only $6 billion in assets were sold.”
In 2013 Ariel Property Advisors' team, headed by Shkury, completed 70 deals worth $600 million, along with 700 valuations of assets with a total value of $4.5 billion.
The American-Israeli real estate mogul Ofer Yardeni, who founded Stonehenge Partners, which builds mostly luxury apartment rental complexes, and met Shkury when he brokered a deal between Yardeni and an American who sold one of the buildings that Yardeni now owns and manages.
"Real estate is a world in itself in Manhattan," says Yardeni, "The same way you find celebrities in Hollywood - celebs in New York are real estate professionals." According to Yardeni, those who live in his rental buildings can usually afford to enjoy the services provided in those complexes - thanks to the high-income that characterizes Manhattanites.
Shkury and Yardeni do not operate in a vacuum. According to a report by Ariel Property Advisors, the number of multi-family investment properties sold in New York in 2013 increased by 19 percent compared to 2012; the total value of the transactions rose by 4% to $8.87 billion.
They are not alone. Among the other Israeli real estate players in the city are the Israeli American Investment Company called HAP, and April Investments.
"You cannot ignore the dramatic rise in prices of residential buildings for investment in all boroughs of New York in 2013, resulting from increasing demand for investment due to the rise in rental rates and the low interest rates," explains Shkury. "The largest profits were recorded in northern Manhattan, especially Harlem, and also in Brooklyn. But Queens showed great profits too.”
One reason for the soaring prices in northern Manhattan and the Harlem area is the expansion of Columbia University in West Harlem.
This template of massive new massive new construction projects is not unique to New York City, but has also infected its nearby neighbors.
"In Long Island City, for example, benchmark prices of new buildings began to reach the threshold prices of Manhattan," says Daniel Wechsler, a vice president for Ariel Property Advisors and its broker in Queens, Long Island and the surrounding areas.
He emphasized that "the prices surged in recent times also in Astoria, Queens - which is only one stop away from the main station In Manhattan."
Even Brooklyn is in a similar predicament.
"This is the hottest place in New York right now," said Daniel's colleague at Ariel Property Advisors, Daniel Tropp, a Brooklyn-born sales agent who frequently visits Israel.
Tropp is showing a potential investor a six-apartment residential building on the border of Bushwick, Brooklyn that will cost a little more than $1.3 million - a worthwhile investment, especially considering that the price of this building is the same as the price of a standard apartment in Manhattan.
"Everyone has a solid opinion, ask 10 people what they think about investing in the US real estate market - five of them will say not to buy, the other five will say that now is the time," explained Guy from Tel Aviv, who recently completed his relocation period in Manhattan and returned to his hometown.
"The question is, are you planning to live in an apartment, is it intended as an investment, and how much will the mortgage costs be. Regardless, everyone I know who bought real estate in New York made a profit. The moment you gain basic knowledge, you will make a profit. The island is small, and there is always demand."
