High end housing market halts, but isn’t dead

Between September 2007 and September 2008 record breaking sales of some of the most expensive properties in the world pushed East End real estate into the pecuniary stratosphere, even as housing markets across the country started to crumble.

The extraordinary deals being brokered in the ultra high-end sector of the local market—$30 million, $60 million, even $103 million (the largest ever residential deal at the time)—also served to mask the local beginnings of a substantial drop in sales of the more modestly priced “McMansions” that had been the fuel for the furnace of the East End’s overheated market.

But since the collapse of the financial industry last fall and the precipitous stock market decline, activity in even that once seemingly bombproof sector, the ultra high-end, has ground to a halt.

“Things have stopped,” Paul Brennan, managing partner at Prudential Douglas Elliman in Bridgehampton, said of sales activity at the most expensive end of the market. “Boom. Dead.”

In Southampton Village, the East End’s most valuable market, where multiple $10 million, $20 million and $30 million deals were brokered nearly every month in recent years, only two houses over $10 million have sold since Columbus Day. One of those, bought in January for $27 million by financier James Nicholson, who has since been indicted for investment fraud, is back on the market already.

Across the rest of the South Fork there have been only a small handful of deals—two or three at most, according to brokers interviewed this week—of properties priced at $10 million and up closing since December.

City tabloids have trumpeted the drop in activity as a sure sign the Hamptons real estate market has finally sunk to the same depths as other over-built resort areas all over the country. The doomsayers have apparently pegged the half-price mansion as proof of disaster, in the present or future.

A couple of extraordinary examples might hint that such pricing is possible in the future, but most of the area’s top brokers say that the high end of the market is unlikely to sink that far anytime soon.

“It’s interesting times that we’re in,” said Gary DePersia, a vice-president at Corcoran. “Some of those properties that were on the market for $60 million or $80 million are going to get picked up for a nice price. There will be adjustments, sure, but the trophy properties will continue to sell.”

Conventional wisdom among brokers is that local sale prices are off between 20 and 30 percent from their historic highs in mid-2007. Dire circumstances have seen some homeowners and developers forced to accept offers at even greater reductions but those deals have almost exclusively been in the mid-market $2 million to $8 million range.

Yet there are some instances where seemingly extraordinary deals in the upper echelons have given the gossips grist for the mill.

The most talked about “fire sale” on the East End of late, highlighted in stories in recent weeks by the Wall Street Journal and New York Post, is a giant Bridgehampton speculative project that was the “Decorators Showhouse” in 2006. Built by developer Michael Burns, the house was once on the market for a little less than $25 million. Now in foreclosure, the asking price has been steadily slashed and the house will, if no buyer is found, go up for auction this spring with an opening bid 
rumored to be as low as $12.5 million—half the asking price of two years ago.

Significantly, every broker spoken to over this past week agreed that the house—an 18,000-square-foot contemporary on two acres in Bridgehampton, south of the highway, with access to Sagg Pond but not waterfront—was never worth anything like $25 million.

“I told him to put it at 18 or 19” million, Mr. Brennan said. “He was offered $15 million when he had it at $26 million and he laughed at everybody.”

None of the brokers interviewed for this article knew specifically of any East End properties priced at over $10 million that have had their asking prices slashed or have closed more than 20 to 25 percent lower. Many have had potential buyers dangle offers at 50 cents on the dollar but, thus far, sellers have not been willing, or desperate enough, to bite.

“You’re dealing with a different animal there,” said Mr. Brennan. “People who have those types of homes, generally speaking, have the wealth to hold onto them. Unless they’re overleveraged, which is a problem sometimes, they’re going to rent them or use them. They don’t have to sell, so they won’t in this market.”

That is not to say that any of the brokers interviewed thought the market would be going up anytime soon or that it was entirely immune to further declines, particularly at the very top.

“Until things stabilize on Wall Street, until people know where things are at, you’re not going to see it again,” Jay Flagg, of Prudential’s Southampton Village office, said. “And you’re not going to have the same number of people making the same amount of money they were. It’s going to be a different kind of market.”

Mr. Flagg predicted that the slumping market, if it persists, will hit oceanfront properties the hardest in the long run. The most limited in supply and the most in demand for those with the means, oceanfront properties had inflated in value at a faster pace than any others in the area.

“It had appreciated so much in the last 10 years—probably 700 or 800 percent,” he said. “They were not real numbers. It was fed by the illusory market we were living in.”