Bad Data, Bad Analysis, Inept Real Estate Broker, and Misinformed Seller are All to Blame

Amanda

In the 25 years that I have been valuing and analyzing real estate, the term "Shadow Inventory" has never been presented before. What I gather is that this is a buzz word used to discuss inventory that has been built, is under construction or just coming on the market. This has never been called Shadow Inventory, but pending inventory.

Because the property data being presented in the article contradicts reports I have prepared and published, I started to review the information by outside sources that was provided to you in more detail. The 18 month supply issue baffles me because I simply cannot determine where this comes from. Also, the "glut" of Williamsburg has me confused. Analysis of construction activity, public records and sales activity clearly indicate that Manhattan alone absorbs about 9,000 new condo units a year. For 2009, sales activity indicates an annualized absorption of about 6,000 units. This would be 3,000 off the peak, so again how does 3,000 fewer units sales compute to 10,000 unsold units. Also, the 7,000 plus units coming on line in 2010 will be absorbed into the market based on Historical Sales and building Activity.

Your article is an amazing coincidence for me, because hours before I read it, I completed an in-depth analysis of Williamsburg/Greenpoint condo market for a client. What I discovered was not a "glut" of housing, but incorrectly priced housing. My clients project was listed by a real estate agent with unit values $100,000 above the market and incorrectly stated square footage. My firm has been arguing this point for years, it is all about the data. Based on the recommendations provided, the client relisted the units at the prevailing price per square foot rate for walk-up condo units of $550 psf. He has already received four inquiries, with one being a serious buyer. He did not receive a single call on the building in the past three months. My analysis does not indicate that this community is in a "bust stage".

The following is a summary of my analysis that was provided to the client:

"454 sales have occurred in the Williamsburg/Manhattan market in the past year. There are 192 sales classified as walk-up condominium projects with an average sppsf of $570.86 and Median of $569.17. Given the location of your property, I recommend listing at $550 psf for 1 Bedroom Units and be prepared to accept 10% less. Development around your complex will draw buyers, but there is a correlation to subway proximity and value. Hence the 10% lower acceptance. The number of new units coming on the market is meeting the demand of residents from the Lower Eastside, notably NYU students who cannot afford to rent or buy in Manhattan. Over the past 10 years, NYU has acquired many housing units south of 23^rd which has driven up housing costs. After 9/11 Williamsburg/Greenpoint experienced a revitalization effort that has brought a new wave of construction and demand for the area. Current market conditions mean that you have to price correctly, the prior listings could have potentially hurt your efforts, creating a distress situation perception in the market."

According to your article, Jonathan Miller states that there are 10,445 unsold condo units in Manhattan, plus another 7,000 coming on-line. He calls these shadow units. According to the New York City Department of Finance, for Manhattan there are:

Class I Condos: 198 total units

Class II Condos: 100,173 total units

A total of 26,699 units were constructed since 2000. This represents over 25% of all condominium units. Mr. Miller is stating that 10% of all condos are vacant or unsold? And by unsold, does that mean there is a current owner who wants to see or can't sell?

Based on Mr. Miller's comments, 10% of all condo's are on the market in Manhattan, with another 7% coming on. This just does not factor correctly and here is why:

Since 2003 there has been no more than 10,000 valid sale transfers per year of condominium units in Manhattan. (See table below). Mr. Miller states that there are 10,445 unsold units in inventory which appears to be a normalized number, so what is the point. This isn't of much significance given the history of sales for condominium units. As a matter of fact, all units constructed since 2000 have been absorbed into the market within a very finite time (less than 6 months). Following is more information to support our data points:

Since August of 2008 there have been 10,076 condo sales in Manhattan. This represents 10% of all properties. When only usable sales are considered, (indicated square footage over 200, valid sale price over $10,000), the number is reduced to 5,407 sales or 5.4% of all condo properties with an indicated Average Sales Price of $1,805,328 and Median of $1,089,527. The variance is rather significant. Analysis of 2009 Sales Only shows 1,764 valid sales with a Average sale price of $1,656,783 and Median of $1,025,000. Perhaps the use of the Average and Median Sale price is confusing some, because the Sale Price Per Square Foot provides a totally different view of the market.

Square Footage has a significant impact on the values, with less than a 7% variance between Mean and Median, and property values from 2008 to 2008 are only down 4%, not the 30% levels being reported by some. And we cannot just rely on the Average and Median Sale Price alone.

John Watch, President & CEO AccuriZ.com