Brown Harris Stevens’ Stephen Kliegerman On Selling New Condos in NYC

With so much uncertainty surrounding New York City’s multifamily market due to policy changes and costs, many developers are hedging their bets with luxury housing.

But, in all honesty, it’s always been a solid investment for all parties involved in New York City in the last 10 years with luxury districts like Billionaires Row and Hudson Yards on the rise, so it’s no wonder deals are getting done despite high interest rates and an equally high level of supply.

Why does luxury housing in the five boroughs continue to do so well? Commercial Observer sat down with Stephen Kliegerman, president of Brown Harris Stevens Development Marketing, who laid it out pretty plainly how the priciest housing is selling well in supposedly hard times — and amid a housing shortage to boot.

Kliegerman’s team at Brown Harris Stevens has advised major developers like Savanna, The Stahl Organization, L+M Development Partners and The Gotham Organization; and Kliegerman has managed $15 billion, and more than 10,000 units, in sales, according to Brown Harris Stevens. 

Kliegerman had intended on a career in affordable housing but jobs in that field were hard to find following his 1989 graduation from George Washington University. So he and a partner bought his father out of the elder Kliegerman’s brokerage and consulting business, Herbert H. Kliegerman Associates, setting about modernizing its operations. In 1998, it merged with Brown Harris Stevens parent Terra Holdings, where Kliegerman has been a member of the executive team since 2000. 

This interview has been edited for length and clarity.

Commercial Observer: What are some of the trends you’re seeing in the luxury market?

Stephen Kliegerman: Just this past weekend at one of our developments on the Upper West Side, we literally had four offers that all came in on everything from one-bedrooms to four-bedrooms. And the one-bedrooms are at the $1.8 to $2 million price point. A $2 million one-bedroom certainly fits the luxury category, even if it’s not a $5 million apartment because that’s a larger apartment. 

And what we’re seeing is a high demand for quality products. The luxury segment of the marketplace tends to have the highest-quality product. 

What we’re also seeing, though, is a little bit of a buildup of supply, because a lot of developers over the last seven years have geared themselves more towards luxury. Neighborhoods have evolved. There was no Hudson Yards 10 years ago or 12 years ago, right? There was no Billionaires Row 10 years ago or 12 years ago. So these are neighborhoods that have emerged where a luxury market never really existed in the past.

How are mortgage rates impacting negotiations and sale prices?

In the luxury market, we don’t really see mortgage rates having a tremendous impact on the actual marketplace. It’s more being used as a negotiating tool, if anything. But, you know, most of your luxury buyers, they’re not seeking traditional financing. They’re either borrowing against their portfolio or they’re paying all cash. Where we see interest rates impacting the marketplace is really the $1 to $3 million or $1 to $4 million category, more than in the $5 million and up category.

How much are all-cash transactions dominating the market?

There’s no hard and true stat, but I would say, just based on our portfolio alone and what I’m seeing in the marketplace, it could be as much as 50 percent of the transactions out there right now. Now they may have been cash transactions where the buyer obtained private financing either borrowing, again, against their portfolio or borrowing against a trust, or taking money out of a trust. But cash has definitely been driving the marketplace with a lot of what I call adult-age children buying with their parents or having them assist. 

In the $1 to $3 million market, I would say 70 percent of our buyers are getting assistance from family.

What really defines luxury from ultra luxury and what are the differences between buyers?

Both categories of buyers are a savvy buyer. The difference is that the ultra-luxury buyer is usually striving to purchase something that is not what we all call in the industry a cookie cutter, right? It’s a unique property, whether it be unique because of the size, the views, the interior design or the finishes. So that ultra-luxury buyer, although everybody wants to get what they believe to be a fair deal, it’s more important for that buyer to know that they have something that may be unique. Maybe it’s a one of a kind in the building, or two of a kind in the building — that they’re not going to be living in an apartment that half the building also lives in, and they’re willing to pay a premium for that exclusivity of whatever that property contains. Again: views, ceiling height, level of service, layout, finishes.

Let’s say they want a view, but there’s no real big view difference between the 20th floor and the 30th floor. So they could potentially drop down a little bit further in the building, get what they want, but pay a little bit lower price because it’s on a lower floor. And that buyer also, as I said, because they have some type of assistance — whether it’s borrowed money, gifted money, family money — in general, that buyer typically has a little bit tighter of a budget than your ultra-luxury buyer that can stretch their budget further for the right property.

And where do foreign buyers play into all of this?

Foreign buyers are still prominent in the marketplace, particularly the Asian buyer. I think there’s still a lot of flight capital coming out of China. That would be where most buyers are coming from. Although a lot of those buyers have family here in the U.S. helping to search, or they’re coming here because their late teen/early 20s child is going to school here. 

But, definitely, they’re still a healthy percentage of the market. Everyone always talks about what percentage of buyers are foreign — probably between 10 and 20 percent — but in some buildings it could be up to 40 percent. It really depends on location. 

The foreign buyer, particularly the Asian buyer, likes new, they like views, they like things that are reasonably high-end. You’re talking about the upper teens to low $2,000 a square foot. And they want to be in neighborhoods they recognize — so neighborhoods they’ve either seen on TV or in ads or in social media. So, you know, if it’s near Madison Square Park or Brooklyn. 

In the last six or seven years, Brooklyn has become a destination for the Chinese buyer, where in the past, it wasn’t, but now Brooklyn is a brand of its own. But, in the Manhattan market, it’s usually taller buildings, buildings with views and some types of amenities other than just a lobby attendance.

What are some of the crazier amenities buildings are offering to draw in buyers?

The newest amenities that are going in buildings are squash courts, basketball courts and pickleball courts. Those have become all the rage. Golf simulators or multi sport simulators; swimming pools are definitely back, where they were not popular for a number of years in the mid-2010s when people were really trying to reduce their monthly expenses. A pool is a costly amenity, right? You have to have a lifeguard, you have to maintain the pool, there’s pool equipment, there’s heating the pool. But pools have become, for the luxury buyers, something that is very important as well as some type of food and beverage service in the building whether it be a restaurant or a cafe. 

How are office-to-residential conversions, or potential conversions, impacting the luxury market?

They aren’t complicating things because while there’s a lot of discussion about office-to-resi, there hasn’t been a lot of execution on it yet. So we haven’t seen the pipeline of supply come to any type of reality. 

We’re looking at, let’s say, three to five office opportunities a month. And the reasons they can’t be converted have been kicked around for a long time. There may be tenancy in the building that may go out in a couple of years so it makes it more difficult to convert the building. Debt on the building may be so high that it makes it difficult to convert the building for either the current owner or a new owner. So there’s a lot of anticipation of adding inventory to the marketplace, but the reality is it’s probably going to be five to seven years before actual inventory starts to impact the market.

It seems as though landlords are excited by the opportunity but disappointed by the lack of real potential.

The problem is, when you peel back the onion, you realize that the opportunity isn’t as good as you thought. And then there are so many factors that go into this, because if you’re an office landlord, let’s say you have a 100,000-square-foot building, right? But office landlords basically lease 100 percent of the building because they factor everything into their lease calculations… they’re leasing more floor area. 

In residential, you’re really selling the interior space and there’s a loss factor. Usually residential has about a 15 to 20 percent loss factor. A landlord will come to us and say, “I have $400 per square foot of debt on the building. But, if I’m going to convert that to residential, I only have 80 percent of that building to sell.” So the debt on the sellable square foot is $600 or $700 square foot. 

All of a sudden, it makes the conversion of that building more difficult because now you have less space to sell at higher per square foot and it makes the financial equation more difficult, because the commercial landlord looks at the assets differently than the residential assets.

Where do you see the luxury market going in the next few years?

If you look at just straight supply and demand, the three- and four-bedroom market, there is a little bit more supply coming than demand is absorbing at the moment. I think what you’re going to see over the next couple of years is that very well-located luxury products in buildings that offer a boutique number of units — under 50 — are going to continue to do very well, because the luxury buyer loves anonymity. 

In a smaller building, you have a much better opportunity to have a more diverse unit mix so that you do not have too many competing units in one building, or competing types of units, or sizes of units, or layouts of units, so that almost every floor has some type of unique situation that feels special. 

The luxury market is a bit oversupplied in neighborhoods that may not support as much demand, versus if you’re building something in the 80s on the Upper West Side or the Upper East Side. These buildings are absorbing very well, because that’s where your luxury buyer wants to live as opposed to in the 90s or Midtown. If you’re not with a park view, or you’re not in the park, you see demand slow down and drop off so that your sales cycle is longer.

What do you think will happen with that oversupply?

In time, those developers will adjust their prices so that it’s a more attractive opportunity for somebody.

Mark Hallum can be reached at mhallum@commercialobserver.com.