Everybody is an armchair quarterback when it comes to timing financial market cycles. We agree with Warren Buffett who wisely said, “People who think they can predict the short-term movement of the market — or who listen to other people who talk about timing the market — are making a big mistake.”
Our management team, led by Janine Yorio and Jesse Stein, has survived a few real estate cycles. We’ve lived through the correction in 2001, after the 9/11 terrorist attacks, and again in 2009 when the subprime crisis hit. Real estate is inevitably cyclical, but not one of us believes that this correction will be as abrupt or as obvious as those past two. This correction didn’t begin with a terrorist attack or a wave of bank failures. It’s more subtle than that.
Every single day, Compound’s investment team is on the front lines of the Manhattan condo market, actively bidding on residential properties and speaking to brokers, owners and developers.
Here is what we know for certain:
- The market peaked in 2015. Since then, we’ve seen a slow decline in prices, more listing discounts, and slower absorption.
- There is a ton of supply, and more on the way. Today, there is 17 months’ worth of supply on the market. A year ago, there was only 10 months’ worth. As of year-end 2017, there were 5,500 active listings in Manhattan according to Douglas Elliman. There are also 5,700 new units currently under development. (As a point of reference, there are 850,000 residential dwelling units in Manhattan.)
- Sellers are starting to hit our lowball bids, which are 15–20% off asking prices. This anecdotal evidence is backed up by actual sales price reports. According to Douglas Elliman, the average price per square foot dropped by over 20% in 2017 and prices continue to drop. It has been the focus of articles in both CNBC and the WSJ.
- Nobody really knows what to make of the new tax reform billaccording to the NY Times and the WSJ.
What does it all mean?
It means that we’re not waiting for the downturn.
Rather, it means that WE ARE CURRENTLY IN THE DOWNTURN.
And it’s the same with real estate cycles. No one is going to knock on the door and tell you it’s time to buy. The brief window of opportunity to buy Manhattan real estate at a discount is here and will close before you know it.
Our team recently met with a very senior guy at one of New York’s biggest real estate investment companies. We asked what he thought about trying to time the Manhattan market. His response? “It’s Manhattan, the best f —-ing real estate market in the world. There is never a bad time to buy.”
We couldn’t agree more.
About Compound Asset Management:
Compound is a venture capital-backed asset management firm that creates residential real estate funds designed for the next generation of investors.