Wall Street Sneezes; Hamptons Catches Cold

Wall Street Sneezes; Hamptons Catches Cold

Residential News » Residential Real Estate Edition | By Scott Kauffman | December 19, 2008 5:51 PM ET

(NEW YORK, NY) -- There's a saying when Wall Street Sneezes, the Hamptons catches a cold.  Right now, with one of its worst years in memory about to be laid to rest, Wall Street has definitely done more than sneeze. Consequently, the ultimate oceanfront playground for the rich and famous has caught a little more than just a cold.

Basically, the Wall Street meltdown not only crippled Main Street, but also hurt the high-end Hamptons - a market some perceived as untouchable. So how sick is the Hamptons?

Generally speaking, the market is dramatically down on a number of fronts, based on feedback from several Hamptons-area real estate experts. For example, according to a report by broker Prudential Douglas Elliman Real Estate and New York-based appraiser Miller Samuel Inc., the median sales price of a Hamptons residential property was $830,000 at the end of the third quarter, down 19.4 percent from $1,030,000 reported in the same quarterly period in '07.

Meanwhile, total sales are sharply down, with 1,296 transactions posted through the third quarter of 2008, down 25.3 percent from 1,734 sales recorded in the previous year. This sluggish sales pace all but guarantees 2008 will see the fewest number of Hamptons-area sales in more than a decade.

So what does all of this mean for someone looking to hop into the Hamptons real estate market? For starters, suffice to say there's never been a better time to get a piece of the Hamptons. At the same time, real estate veterans are saying there's never been more uncertainty about the ultimate direction of the high-flying Hamptons located about 100 miles from Manhattan.

Gary DePersia, senior vice president/associate broker with the Corcoran Group's East Hampton office, knows the Hamptons real estate market as well as anybody having sold more than $200 million worth of property in 2008. Now in his 13th year in the business, DePersia says year-end prices are hovering at levels last seen in '05 and '06, even 2004 for that matter.

"It's a great time for renters and buyers to look," adds DePersia. "There's never been more negotiability. We have some wonderful listings on the market for both rent and for sale. Obviously there's people who think they're going to wait and time the market and see if prices go down considerably more, but they're going to risk missing houses particular for sale - on the way down - as people pick off the best properties as they get a little more negotiable on price.

"So we've been seeing people doing just that as the prices become negotiable -- whether the prices have been reduced or the sellers are more negotiable on the listed price. It's a great time to buy."

DePersia figures buyers were benefitting from 10-20 percent negotiability off the last asking price by year end '08, yet he predicts top oceanfront properties will still command premium prices in the coming year.

To get an idea about the type of properties the Corcoran Group sold in '08, DePersia cited a 6,500-square-foot home with a finished basement and two-story pool house on two acres that listed for $10 million, but closed for $8.5 million in Bridgehampton. Another Bridgehampton South residence similar in size on one acre was listed for $6.75 million and sold for $5.4 million. Meanwhile, DePersia says several residences were selling for almost list price -- $2.795 million for $2.45 million and another one in contract for $4 million, down from $4.3 million.

Then, there's extreme examples like the East Hampton oceanfront home DePersia hears is "trading for $27 million and it was initially listed for $40 million."

While business certainly hasn't come to a standstill, and fantastic deals are being made like the latter East Hampton home, in many respects the Hamptons market is frozen or illiquid.

"If we could just round this corner of uncertainty and fear, everything would thaw and become much more liquid," says Michael Daly, who specializes as a buyer's agent for True North Realty Associates in Sag Harbor. "I mean there's deals to be made at the best pricing levels we've seen in the last 3-4 years, and probably won't see in the next 3-4 years. There's incredible deals out there right now but it takes someone with a lot of courage and confidence in looking at things realistically that this (recession) too shall pass. ...

"People aren't sure if we hit bottom. And they're like the banks, afraid of giving up their cash.  But the problem is by the time the news reports that we've hit bottom, we're going to be on the way back up and you risk losing these advantages."

John Gicking, a senior vice president for Sotheby's International Realty, likens the Hamptons real estate market to the luxury art world.

"In general, you can draw a parallel to the art market which we often do in luxury real estate, since we track both markets," adds Gicking, whose East Hampton office recently closed on a 2.5-acre oceanfront residence on one of the best streets for $20-$30 million. "I think one thing you can say is what is selling (both in art and real estate) is the best of its class, whatever class it is. And it is usually not only the best quality but the best price.  Not necessarily the cheapest, but there's a perception of value.

"Buyers are not overpaying. Buyers are very smart right now. They're cognizant of what's going on. And they're well educated. What's important for us is to educate our sellers and make sure they're understanding of what's going on in the market. In good times and bad times buyers will come back to the table if they feel they can get the best bang for their buck."

Managing Director/associate broker Camille Duvall-Hero of Warburg Realty Partnership lives and works in New York City, but she owned a home in the Hamptons up until a couple years ago. She notes Hamptons' market fluctuations typically lag about 12 months behind what happens in New York City and the Big Apple is still feeling big aftershocks from the country's economic collapse.

That means she forecasts some really good opportunities lasting at least through the first part of '09.

"If you are a buyer put your boots on the ground, get out and find the deals out there because they're out there," Duvall-Hero adds. "If you have some money to spend, and you've got some financing in your pocket, I would be looking right now positioning myself for a slide of the market in the first part of ('09). ...

"I must tell you there are acres and acres of McMansions out there built on spec that aren't going to go anywhere. And that's where there's going to be some real opportunity for buyers if they want to get into that marketplace. I don't think (the Hamptons) is much different than any other place in the country. It's just the numbers are a lot bigger."

Indeed, the Hamptons market has experienced some Manhattan-like malaise for the moment, but Hamptons native Paul Brennan is hopeful the market can begin to fully recover sometime during the spring. If anything, the Prudential Douglas Elliman's Hamptons regional manager is counting on some real "direction in the marketplace."

"I'm not saying things are going to be rosy, but I think you're going to see people begin to (make moves) because smart people are going to start to buy soon," Brennan believes. "No one knows when the bottom of the market is or the top for that matter.

"With all the money being pumped into the system, you've got to believe at some point... When the banks balance their balance sheets and start to feel a little bit better about themselves, that they'll begin to lend that money that's been pumped into the system."

For now, though, Brennan uses the following analogy to describe the state of the market.

"I heard somebody say, 'You know what it feels like getting into a car and you have one foot on the gas pedal and the other one on the brake,'" Brennan says. "Meaning you know there's a lot of pent-up energy out there but no one's released the brake yet."

Brennan is confident the Hamptons will be back humming along eventually.

"Don't count out the second luxury home market", says Brennan, who expects the number of rentals to rise significantly this summer at yet-to-be determined pricing. "It's like any other luxury item. It's always one of the first to go in terms of people's budgets. But at the same time, there's only a few places in the world like (the Hamptons). People will always come back for it. It's just a matter of when."

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