The Lab

Luxury apartment prices dropped in Manhattan in the second quarter of 2008, and sales were down in the first six months of the year compared to the two six-month periods immediately before. The end of an era in Manhattan luxury?

Not bloody likely. There are at least four apartments on the market in 15 Central Park West for $80 million or more, according to various sources and scuttlebutt, including one “quietly” asking $150 million (the city’s biggest listing ever), according to Douglas Elliman mega-broker Dolly Lenz. That’s just one example of the particularly heated luxury market that has seemed all these years, even during the hottest times of the hottest housing market, rather rarefied and detached.  read more »

A younger New Yorker could be forgiven for running up debt: Real wages for 20-something professionals in New York haven’t changed since the early 1970s. At the same time, the number of college grads competing for white-collar jobs has increased—as has the cost of everything from real estate to beer to MetroCards.

In 1970, the median annual wage for New Yorkers in their 20s was $35,385, according to a census sample analysis by Queens College sociologist Andrew Beveridge published in the Gotham Gazette. In 2005, that median wage, adjusted for inflation, had decreased to $32,597.

In 1970, 19.  read more »

The migration of Manhattanites into Brooklyn hit a decade-high point in 2006 that may not soon be duplicated, as the two boroughs’ real estate prices begin to mirror each other.

More than 3,700 Manhattanites moved to Brooklyn from 2005 to 2006, according to an Observer analysis of I.R.S. data from 2001 through 2006, the last year it was available. That’s the most this decade, and the most since 2001 to 2002, when nearly 3,500 Manhattanites resettled across the East River.

Manhattan was the only one of the boroughs to send more residents to Brooklyn than it took back annually.  read more »

The logic remains nearly sacrosanct: Wall Street layoffs equal falling apartment rents and sales prices across New York City.

Oh, really?

A laid-off Bear Stearns investment banker, one of at least 7,600 pink-slipped from the defunct firm in May, explained his financial outlook thusly: “We have nothing in terms of figures; the salary continues for approximately 8 to 12 weeks.”

In other words, don’t look for the sky to fall on New York City’s housing market, at least not anytime soon. A lot of this has to do with severance packages from Wall Street investment banks like Lehman Brothers and Bear Stearns, and from attendant industries like corporate law. A pink slip in May doesn’t equal a vacated apartment in June.

Lost amid the din of grimness is the reality that many of those recently redundant Wall Streeters are tumbling onto pretty significant cushions—in most cases, tens of thousands of dollars in lump sums. It’s true: The higher rents and prices with us now will be with us in the autumn, in no small part due to severance (and to a lot of other factors, including that the very rich keep buying en masse and new condo inventory remains bountiful).

“It varies from firm to firm,” said Above the Law blogger and Observer columnist David Lat, referring to severance packages for the corporate lawyers that service Wall Street. “But the market-level severance package seems to be about two to three months’ pay.”

Corporate law firms have not been nearly as hard hit with layoffs as investment banks have. But even banks seem to be skating on the edge of chaos.

The number of financial services employees in the city in April 2007 was 182,000, according to the State Labor Department; that number was 182,300 in April 2008, the last month for which data was available. The number of investment banking employees, in particular, was similarly steady—50,100 in April 2008, and 49,300 a year before. A Reuters report on June 4, via Labor Department estimates, predicted as many as 36,000 Wall Street layoffs. The city’s Independent Budget Office, in a May report, predicted slightly fewer by mid-2009.

Will these be enough to belt the housing market so far off its pedestal that landlords knock hundreds off monthly rents and sellers chop tens (hundreds!) of thousands off sales prices? If it happens, it’s unlikely to happen before the summer ends.

The bottom line: Severance packages of laid-off could-have-been Masters of the Universe and their proxies will cushion the financial blow to the overall New York housing market. No one’s suddenly short on rent because Bear Stearns went bust. No one’s forced to sell the Upper West Side classic six because the income may run out in September. No matter what.

So, sit tight. And renew that lease while you’re at it.

tacitelli@observer.com

New York apartment rents remain at or near records. This spring, many current city tenants are facing that Hobson’s choice of staying put or moving.

It’s cheaper for landlords and tenants if nobody moves. This, more than the city’s popularity, explains why it’s hard to find a deal on a good apartment, even in a dicier local economy: It’s not the college grads arriving in droves; it’s the tenants and landlords who’ve weighed the options and decided to renew at around the same rents.

“I think the rule of thumb goes like this,” said Daniel Baum, COO of brokerage the Real Estate Group New York. “If we’re talking about a fair-market-value apartment, there’s no landlord in this city, or none that I’m aware of, that would say to you, ‘I have a good tenant in the property, paying me market rate, but I’m going to kick him out to try to make a couple extra bucks.’

“They’re not going to do that because they would much rather know that they’re getting the rent every month like clockwork, without any problems, than anything else. That’s like the No. 1 to a landlord.”

The No. 2 is much costlier: renovations and repairs.

A gut renovation of a 650-square-foot apartment—new walls, floors, plumbing, appliances, the works—costs around $40,000, said Mr. Baum’s colleague, Andrew Barrocas, the firm’s CEO. Smaller-potato repairs—a fresh slap of paint, a floor sanding, some grout—can run near $3,000.

There’s also the maintenance of (and taxes on) an empty apartment that are all expense and no return. Thus, it behooves landlords to keep apartments full.

“They will prefer to keep a good tenant rather than gamble on an unproven tenant,” said Bruno Ricciotti, a principal at Bond New York, “and will usually give a renewal rate for the rents that is more competitive than the market. They want their tenant, if they’re thinking about moving, to go out and look for an apartment and realize that the deal they’re being offered is better, so they don’t move.”

This landlord logic helps explain why rents have remained so steady over the past few years. Many neighborhoods have tipped toward or over record rents, but the rates of increase have leveled out, and it’s likely to remain that way, even as apartment vacancy rates ride out the rougher local economy in the single digits. (A late May report from investment-sales brokerage Marcus & Millichap put the rate for larger Manhattan apartment buildings at 3 percent and holding.)

The average one-bedroom rent in an Upper East Side doorman building in May 2007 was $3,567, according the Real Estate Group. A year later, it was $1 more. In Chelsea, the one-bedroom doorman average was $4,018 last May; a year later, it was $19 less.

Better for a landlord to have a tenant renew at a slightly higher rent than to have an empty apartment gobble money at no return.

For tenants, the logic runs similarly. The expense of moving almost always exceeds the expense of simply paying a higher rent.

The financial burden of marketing a vacant apartment often falls on new tenants, and not on landlords, through thousand-dollar broker fees. Add in van rentals, security deposits, credit-check fees, money to have the lights turned on, missing work for the cable guy to show—the expenses multiply quickly, and the ease of renewal with the flourish of a pen becomes that much more appealing.

It’s the invisible clutch of the New York apartment market, setting rents based on demand—a demand to stay put.

tacitelli@observer.com

The price of beer has risen at least 4 percent in the past year, according to reports, as the prices of two main ingredients, hops and barley, have increased. A six-pack of craft brew costs $1 more, generally, than it did last spring.

The chance of major hurricanes hitting the U.S. this year has jumped. The National Oceanic and Atmospheric Administration this month forecasted a 65 percent chance of an above-average hurricane season, which starts June 1, with as many as five major storms.

A Brownstoner commenter on May 22 responded to a post about a shooting in Clinton Hill, which some labeled a “ghetto” on the Brooklyn blog. “[I]t is a charming … neighborhood,” the anonymous commenter wrote. “It’s also way overpriced—but a couple more high-profile incidents like this will take care of that rather quickly.”

And, according to the Constitution, Election Day must be held on Nov. 5.

All the above—beer, hurricanes, crime and presidential politics—have the potential to accelerate New York’s drop from its real-estate high.

Handicapping the local real-estate markets is never easy. The city typically follows the nation into recession by at least several months, and the economy here is heavily dependent on a financial services industry that’s as attuned to happenings in London as to those in Brooklyn Heights.

Still: Inflation, crime and job losses could wallop the market more than the credit crunch.

The simple costs of goods, including beer, and the goods that go into making the goods (hops, barley) have been increasing. Hurricanes could hasten price jumps for the very things used in property construction and renovation.

The devastation caused by Hurricanes Rita and Katrina in the fall of 2005 caused short-term price spikes for construction materials, as well as shortages in things like PVC, a piping used in insulation, and titanium dioxide, which makes paint white. The hurricanes also damaged or destroyed at least 16 oil refineries, a major hydrogen plant and dozens of natural-gas processing plants that produce the resin used in construction plastics.

Crime has increased in some traditionally safer neighborhoods. In Williamsburg, robberies in 2008 were up almost 20 percent over 2007, for the week ending May 18. In the West Village, burglaries were up more than 26 percent.

And job losses. On May 20, the city’s Independent Budget Office released a rather grim analysis of Mayor Bloomberg’s executive budget for 2009. The analysis predicted over 59,400 private-sector job losses between the first quarter of this year and the second quarter of 2009, including 8,600 as “coverage of the presidential campaign ends and other business diminishes.”

Some of the losses would come as the city in mid-2009 plumbs the deepest depths of a looming recession, according to the budget office. The rest of the nation would have already been months into it; and the price of beer would be that much higher.

It’s on again: the spring hunt for Manhattan apartments, and, according to the numbers, this season should be as grim for new tenants as the last one. A new report shows average monthly rents in many Manhattan neighborhoods, including perennial favorites the Upper West Side and the Upper East Side, virtually unchanged from the same period last year, despite the intervening economic worries.

The average monthly rent for an Upper West Side one-bedroom in a non-doorman building was $2,457 this May, according to the report from brokerage the Real Estate Group New York. In June of 2007, the average was $2,518—a pittance of a $61 change. On the Upper East Side, the one-bedroom, non-doorman average was $2,352 in May; it was $2,366 last June.

As this column has noted before, Manhattan rents (and those of much of brownstone Brooklyn) have remained very much the same since 2002. The rents went up as the city recovered from Sept. 11, and they’ve stayed up, with only minor fluctuations unnoticeable to the pocketbooks of many renters.

A big part of this stubborn rent stagnation is, of course, demand. Another report last week, from investment-sales brokerage Marcus & Millichap, put the vacancy rate for large, market-rate Manhattan apartment buildings at under 3 percent for the first quarter of 2008. It is not expected to rise above that percentage this year.

Why not? After all, conventional wisdom holds stubbornly that even the mighty Manhattan economy has begun an irreversible turn, joining the nation and the state in the prolonged doldrums. Not really: Four of the five boroughs in April had unemployment rates no higher than the nation’s 4.8 percent (the Bronx was the exception), and Manhattan’s, at 3.9 percent, was well under New York State’s as well. Plus, the imagined tens of thousands of layoffs in the financial services sector, that great driver of both commercial and residential real estate locally, have yet to materialize.

For all the bluster and fuss, the local economy remains on the precipice rather than over it. And that is why Manhattan rents haven’t dropped in any meaningful way in time for the spring rental season. The island’s doing just too damn well right now.

The Long Island housing market is often held as a mirror to the Manhattan one. The reflection’s been presciently accurate as of late.

Home sales—from the playgrounds of the Hamptons through the bedroom communities of western Nassau County—dropped sharply in the first quarter of 2008 from the louder boom times of early 2007.

Reports out in late April from appraisal firm Miller Samuel and brokerage Prudential Douglas Elliman show precipitous drops in sales even as home prices stayed steady.

In the Hamptons, home sales were down 42.4 percent from the first quarter of 2007 and nearly 29 percent from the fourth quarter of 2007. A blowback from the first drop in the Wall Street year-end bonuses total since 2002 (and from a general Street uneasiness)? Perhaps. Sales dropped sharply at the luxury end of the Hamptons and North Fork markets, too. This was not a winter for bullish summer preparations.

And the inventory of unsold homes on the market increased in both the Hamptons and the North Fork—27.2 percent and 19.9 percent, respectively. Ditto for the rest of Suffolk County (5.3 percent) and for Nassau County (6.5 percent). Long Island homes did not sell like they did a year ago.

Which was the case in Manhattan. Sales there dropped over 34 percent annually, according to Miller Samuel.

But! Prices on Long Island, particularly on the East End, stayed high year over year. In Nassau and Suffolk outside of the East End, prices have been sliding for years now. But, in the luxury North Fork-Hamptons market, the median sales price has increased 26 percent since early 2006. In Manhattan, the median (and the average) home prices set a record in the first quarter of 2008, as did the prices on the borough’s luxury end.

The Long Island mirror reflects both the good and the bad.

As all around it crumbles, Manhattan’s hotel market remains sublimely buoyant. But there are subtle signs of cheaper rooms to come.

On any given night in the first three months of 2008, over 80 percent of the borough’s hotel rooms were occupied. Moreover, nearly 85 percent of the rooms in Manhattan’s nicer hotels—the Four Seasons, the Regency, the Waldorf, perhaps—were as well, according to PKF Consulting, a firm that tracks hotel markets nationwide.

And these hotel guests continued to pay some of the highest rates anywhere in the Western Hemisphere: In that eastern midtown haven of nicer hotels, a guest was likely to pay over $300 a night at the start of 2008; in the hotels above 59th Street, the average for those first three months was even higher, at $348.73 nightly.

That Manhattan remains an expensive and often vexing place to get a room is no surprise. The hotel market’s been an exclamation point throughout Gotham’s real-estate boom.

There are many reasons: the strong euro and British pound (heck, the parity of the Canadian dollar and Swiss franc); a steady stream of tourists to the safest big city in America (a record 46 million in 2007, according to the Bloomberg administration); and a relative dearth of supply against demand despite robust hotel development, for Manhattan anyway.

Has it all peaked, though? Hotels would, of course, be following the path of the already weaker Manhattan housing and office markets.

The overall average daily room rate for Manhattan in the first three months of 2008 was $273.71. The same time last year it was $251.53, a not negligible $22-and-change daily difference in trying economic times. But these 2008 (and 2007) rates pale against the averages of only a couple of years ago: The rate each month in the last four months of 2006, for instance, averaged above $300.

And the high occupancy rates of this year—71 percent to over 84 percent—have been lower than during the busier months of 2005 and 2006, when as many as 90 percent of hotel rooms might’ve been booked on a given night.

Make no mistake: Manhattan hotels still cost more than in most cities, and they’re more difficult to reserve. But, as with much of Manhattan real estate in 2008, the cracks in the mighty edifice show; the prices have started to come down, or, at the least, have peaked. Prepare for a cheaper night’s sleep.

It is with a certain fear and loathing that New Yorkers think of Los Angeles. Seared into the Gotham psyche 31 years ago: Woody Allen’s Alvy Singer following Diane Keaton’s Annie Hall to La-La land—stop and go, stop and go, in a car; a house party full of phonies on the make; and then, thankfully, back East on a plane. We’re the careful pioneers; they’re nuts. But more Manhattan and Brooklyn residents this decade have relocated to L.A. than vice versa, according to an Observer analysis of I.R.S. data.

The annual numbers of L.A. émigrés from the two mainline boroughs are relatively small. They’re also steady and consistent.

From 2001 through 2006, the last year data was available, a net of more than 3,000 Manhattanites relocated to Los Angeles County. In the same period, 1,664 Brooklynites did.

Between 2002 and 2003, as many as 752 Manhattanites relocated, the peak for that borough’s L.A. emigration; for Brooklyn, the peak came from 2003 to 2004, with 391 net residents leaving. In no year has either Manhattan or Brooklyn, together or separately, experienced a net gain of Los Angeles County residents—always a net loss.

Why? For the same reasons people likely move anywhere, including real estate, no doubt.

In all of Manhattan and in a hefty slice of what the papers now call brownstone Brooklyn, home prices and rents have remained stubbornly high amid an otherwise collapsing national housing market.

In L.A., the collapse has been felt much more acutely. During the first quarter of 2008, according to research site PropertyShark, 8,877 homes in L.A. County entered foreclosures—about 0.28 percent of all households. In Manhattan and Brooklyn total, 163 homes did (a fraction of the 918 for the entire city).

And, like the rest of the United States, the dollar has stretched for years now much farther in L.A., real estate-wise, than it does in Manhattan and Brooklyn. The average sales price per square foot in L.A. County was $325.42, according to a report for January by research firm Radar Logic. The average is over three times that in Manhattan; and more than twice that for much of brownstone Brooklyn.

It’s a trade-off, though: Cheaper property 3,000 miles west; but what price victory in leaving New York, perhaps for good?

“Sure, you can get a house with a backyard, and kids can play outside, but L.A.’s very encapsulating,” a film critic who relocated from Manhattan to L.A. in 2005 told The Observer this past winter. “You don’t really get a sense of what’s going on outside of the city. Kids in New York have the potential to be more worldly.”

The average Manhattan apartment by the end of March cost over $1.7 million. The borough’s rents have been stagnantly high for over five years; $1,500 monthly gets you a studio on the Upper West Side.

What’s a Manhattanite to do if he or she can no longer afford Manhattan but doesn’t want to leave New York City?

Move to the Bronx, probably.

From 2001 through 2006, over 23,380 Manhattanites relocated to the Bronx, according to an analysis by The Observer of I.R.S. data. Every year, the Bronx led the three other outer boroughs in net gains of Manhattanites. That includes Brooklyn, traditionally perceived as the natural next stop in a priced-out Manhattanite’s real estate evolution.

But Brooklyn has consistently run second to the Bronx this decade as an in-city relocation destination; and Queens and Staten Island have run a distant third or fourth.

From 2002 to 2003, for instance, Brooklyn drew a net gain of 1,627 Manhattanites while the Bronx drew nearly three times as many, 4,417. Between 2005 and 2006, the last year I.R.S. data was available, 4,680 Manhattanites relocated to the Bronx and 3,731 to Brooklyn. That represents a decade-long annual peak so far for Manhattanite migration to Brooklyn; the only other time Brooklyn experienced a net annual gain of at least 3,000 Manhattanites was from 2001 to 2002 (an effect of Sept. 11?).

Speaking of peaks! From 2005 to 2006, just over 10,000 Manhattanites moved to the outer boroughs. This happened during the two years when Manhattan apartment rents and sales prices ascended to historic records—and kept ascending.

The average Manhattan apartment price was just shy of $1 million by the start of 2005, according to appraisal firm Miller Samuel; by the end of 2006, it was over a quarter of a million dollars higher.

Also, it should be noted, Manhattan’s population of children under 5 jumped 26 percent from 2000 through 2004, according to analysis of census data by The New York Times.

Perhaps the crucible of ever-rising real estate costs joined with living costs generally (education, parking, recreation, ad infinitum); and the Bronx never looked so good to so many unwilling to leave New York City but forced to leave New York County.

A few quick caveats on the data: They do not include those New Yorkers who didn’t earn enough to pay income taxes. They’re based on the addresses from which taxpayers claimed individual exemptions. Finally, remember that it’s net migration: the number of people who left Manhattan minus the number who moved in from a borough.

In the middle of 2000, vacancy rates in Manhattan’s cheapest office addresses started to increase. The increase was gradual at first, barely noticeable amid the boom times. Then, the pace of the increase quickened, and pretty soon vacancy rates for the cheapest offices were about double what they were barely two years before.

The reason, of course, was the dot-com bust, which sent tech firms scrambling from offices in areas like the Flatiron district and Soho. The national recession followed, and then Sept. 11 (the vacancy rates rose even higher after that); and pretty soon the entire office market—and the local economy—descended into a funk that it has spent the past five years gamely climbing out of.

Now, vacancy rates in Manhattan’s cheapest offices are increasing again. It’s subtle right now; but it could pick up substantially as the reverberations from the spectacular losses of companies like Bear Stearns—the companies that don’t rent the cheap space—take their toll on the sort that do.

“It’s hard to compare today with what happened in late 2000 and 2001 because it was the dot-com bust,” said Robert Sammons, the managing director for research at brokerage Colliers ABR. “In my opinion, I see the B market holding a little steadier, at least for now, because the financial services [firms] are being affected by all of this.” Mr. Sammons was referring to the economic downturn. “Other firms are going to be affected, but a little bit down the road as the layoffs increase here.”

Mr. Sammons authored a report for Colliers ABR released last week that shows a steady 12-month increase in vacancy rates for Class B and Class C office space in Manhattan. The last time the rates went up this consistently—aside from the bounce induced by Sept. 11—was in 2000 and early 2001.

In the spring of 2000, Manhattan’s Class B vacancy rate was 4.6 percent, according to brokerage Cushman & Wakefield. Barely a year later, by the end of September 2001, it had more than doubled, to 10.2 percent (largely because of the dot-com bust and not the terrorist attacks; those effects would be felt in the following months). The Class C rate during the same period rose from 6.1 percent to over 8 percent.

Here’s the situation eight years later: The Class B vacancy rate increased from 9.3 percent in March 2007 to 10.4 percent in March 2008. The Class C rate went up during the same period, from 5.4 percent to 9.1 percent. In Midtown South, the area with most of the borough’s cheaper office space, the Class B vacancy rate increased from 8.7 percent in March 2007 to 10.4 percent a year later; and the Class C vacancy rate nearly doubled annually, to 12 percent in March.

Things may not get as truly bad as they did in the office market—or in the larger local economy—in 2000 and 2001. But a corner has been turned economically, and it’s illustrated aptly by the reality of companies unwilling to lease or to hold onto even Manhattan’s least expensive offices.

Just give the downturn more time.

“It’s been somewhat really slow to hit Manhattan,” Mr. Sammons said. “It hasn’t been terribly dramatic yet.”

Wow. The Manhattan luxury market scaled fresh heights in the first quarter of 2008, with the average luxury apartment price blasting to a record of over $7.66 million and the median price reaching nearly $5 million, another record. At the top of the market, no matter the uncertainties below—or west of the Hudson—luxury Manhattan continues to amaze.

The average sales price of a luxury apartment here increased 33.5 percent from the fourth quarter of 2007 and 65.2 percent from the first quarter a year earlier, according to numbers released on Tuesday by appraisal firm Miller Samuel and brokerage Prudential Douglas Elliman. The median price was up 16 percent quarterly and 45.7 percent annually. (Miller Samuel defines luxury as the top 10 percent of deals in a quarter.)

Some perspective: In 2001, the median sales price for a luxury apartment was $2.8 million. That median has increased nearly 80 percent. More perspective: At the peak of the national housing boom, in the first quarter of 2006, the average luxury sales price per square foot in Manhattan was $1,544. That average has increased over 65 percent to a record $2,556.

And on and on. Record, record, record! The Manhattan luxury market has defied odds and exegesis.

The explanations fall by the wayside. Foreign money? Perhaps; but foreigners make up maybe one-third of all new-construction buyers, and that’s not enough to truly tilt the market significantly one way or the other. Cheaper financing? Luxury buyers aren’t nail-biting over mortgage rates like most people. Wall Street? The Street’s had a bad stretch going back to at least the autumn months.

Perhaps it’s just money and demand—Economics 101. But how long till class let’s out? Luxury sales were down nearly 10 percent quarterly and over 34 percent annually in the first quarter, according to Miller Samuel. The number of days it takes to sell a luxury apartment increased on average 15.4 percent from the fourth quarter, to 135; and the inventory of unsold luxury apartments was up 8.8 percent quarterly.

Still, the leaps in luxury prices were truly stunning. The Miller Samuel analysis at one point took out all those mega-deals at the Plaza and 15 Central Park West, and prices still, in all levels of the market, either set records or came close. Put away the pessimism until the next time: The power of it all remains able to amaze.

Upper West Side one-bedrooms in non-doorman buildings rent for an average of $2,480 a month now. Upper East Side studios, also in non-doorman buildings, average $1,890 a month. Both rents represent small increases over the averages roughly a year before.

Manhattan remains the same. Like a large ship turning in open sea, the apartment market—that great equalizer and barometer of the borough’s real estate (and, by extension, of the borough itself)—is slow to change. It remains prohibitively expensive for many, and reduces others to charming living situations and illegal sublets.

A new report from the Real Estate Group New York, which analyzes rents below 155th Street monthly, shows a remarkable steadiness in renting even the most basic of Manhattan apartments. And the steadiness is remarkable only in the sense that everything was supposed to have changed a bit by now, right?

Perhaps everything still will. The Wall Street Journal last week reported that financial-services executives expect to lay off as much as 20 percent of the Wall Street workforce. That’s a sturdy amount (and an estimate made before the Bear Stearns debacle), measured easily in the tens of thousands, enough to ripple through the borough like a boulder dropped in a still pond. We will all soon know someone who knows someone who lost a six-figure job.

But that sort of bad news has been expected for a while now. And expected. And expected.

Look at the apartment market and one sees maybe a case of the sniffles; this isn’t a full-blown flu—yet. It is still, despite any wider uncertainties, the Manhattan of roommates, high-stress hunts and landlords’ big swingin’ keys.

Again, on the Upper West Side: The average rent for a two-bedroom apartment in a doorman building increased 5.7 percent from April 2007 through March to a Tribeca-like $5,122. Tribeca rents have jumped the past 12 months—doorman rents, especially—but that’s what rents do in more expensive neighborhoods in good economic times.

And, generally, since early 2007 (really, since 2002), Manhattan rents have stayed exactly how you’d expect: uptown neighborhoods cheaper, places toward downtown pricier. No cataclysmic downturn; no opening of the market to the masses. More of the same.

What’s surprising about the apartment market is not that it’s so expensive in so many places; it’s that it’s still so expensive in so many places, despite nearly a year now of nasty economic foreboding.

In a collection of essays released last fall, New York Calling: From Blackout to Bloomberg (Reaktion Books), the nonfiction writer Philip Dray writes about his emigration to Manhattan in the dead of winter in 1977—and of his eventual forced exodus from the far East Village to Williamsburg 11 years later.

“The new girlfriend and I are getting a bit claustrophobic in the studio apartment,” he writes. “So I look at larger places in the neighborhood, only to find the $200 apartments of just five years ago are now $1,100.”

Those were rent changes. Manhattan doesn’t have those anymore. Rents jumped; and they’ve stayed, so far, pretty much where they landed.

“We believe there are about a million freelancers in New York City,” said Sara Horowitz, founder and executive director of the Freelancers Union, the fourth-largest union by membership in New York State. “They’re driving the economic development of the city; so, if we want to keep them here, we better figure out ways to be supportive. … This is the future of the way people are working.”

Freelancing costs in New York—whether in a creative field or a more traditional trade—have risen in recent years, especially because of real estate, and not just residential but commercial as well. And no other borough has felt both the gain and the strain more acutely than in rapidly gentrifying Brooklyn, where more freelancers have emerged recently than in any other borough.  read more »

Manhattan investment sales have dropped to their lowest levels in more than a year. In January, $1.35 billion in property—hotels, office and apartment buildings, industrial and retail space—traded in Manhattan, according to research firm Real Capital Analytics; that’s the lowest monthly total since December 2006, and one of the lowest in the past three years. (The statistics include deals of at least $5 million.)

The conventional wisdom has since last summer held that Manhattan real estate in all its markets—home sales, office leasing, investment sales, apartment rentals and more—would dip from often record highs and stay down. But it is the investment-sales market’s drop that symbolizes the change in Manhattan’s real estate fortune more than any other.

Investment sales involve the billion-dollar office tower deals like the possible General Motors Building sale by noted debtor Harry Macklowe, which could garner $3 billion; or the truly historic portfolio trades, like the $5.4 billion acquisition in late 2006 by Tishman Speyer and partners of the Stuyvesant Town and Cooper Village apartment complexes. The big names come out to play in the investment-sales market, with big numbers (including big debt) and big results in the hemisphere’s biggest market.

So when that Masters of the Universe market quiets after such economic symphony—well, it’s time to stop blathering about a downturn and to start analyzing its duration.

Office-building trades drove investment sales to a record annual high of $54 billion-plus in 2007. But that same sector precipitated the dip in the market’s performance. In February of 2007, over $10.29 billion in Manhattan office space traded; in January of 2008, barely $612 million did, less than one-sixteenth of the monthly total 11 months earlier.

No Manhattan office address has sold for over $1 billion since December. In that month, landlord giant SL Green and a Canadian partner closed on the $1.575 billion purchase of 388-390 Greenwich Street; and developer Larry Silverstein, along with the California teachers’ pension fund, closed on 1177 Avenue of the Americas for over $1 billion.

The ripple effects of the subprime mortgage crisis that started to spread last summer have spurred such a phlegmatic pace. The conventional wisdom was proven spot on. Money is costlier to borrow; and lenders are wary. The general economic malaise blanketing the U.S. (and now, increasingly, parts of Western Europe, which provided Manhattan some of its more voracious investors of late) can’t possibly help the situation.

The low January investment-sales total and the low preliminary February total—$519 million—were to be expected, in spirit if not exactitude. The January 2007 total was $6.78 billion, over five times that of the same month a year later; and every month after except February 2007 failed to exceed it.

Is it time to hit Ctrl-Alt-Delete on Silicon Alley?

On paper, the stretches of Fifth and Broadway from Madison Square Park through Union Square look much like they did in 2000, just before the dot-com bust. Office vacancies are few and rents are just as high. Tech firms with names like Alexander Interactive and Proclivity pock the commercial landscape. Young people operate them out of offices that were considered technologically cutting edge less than a decade ago. Finally, the number of IT pros in New York City jumped mid-decade.

Still, in 2008 Silicon Alley exists more as a spiritual home than as a physical one—and it probably will forever, because the very nature of what created the original has evolved irreversibly.

“None of us consider the area we’re in Silicon Alley,” said Alex Schmelkin, 31, the president of Alexander Interactive, a Web design and engineering firm with offices at 149 Fifth Avenue. “It’s rare you even say the term. It feels much more common to say ‘Flatiron.’ People just say ‘Soho area’ instead of ‘I’m running a Web business in Silicon Alley.’”

Mr. Schmelkin’s firm moved to Fifth and 21st Street from the Union Square area last April for the most understandably pedestrian business reason: It was cheaper to expand.

“Just looking around,” he said, “we’re probably the only Web- or tech-focused business in our building.”

Sheldon Gilbert, 32, was in Silicon Alley at MagicBeanStalk.com (those were the days!) when it was truly Silicon Alley, the East Coast answer to California’s much vaster Silicon Valley. Young entrepreneurs in blue jeans and Pearl Jam T-shirts sparred and partnered to make these new-fangled things called the World Wide Web and the Internet engines of lucrative commerce. Some succeeded splendidly; others failed and moved on.

Mr. Gilbert left the Alley after the bust. He returned this January as CEO of his own company, Proclivity Systems, which tracks online consumer behavior. Its first client was New York retail institution Barneys.

“A lot of our retailers are not too far away and a lot of our clients are not too far away,” Mr. Gilbert said of the Alley move.

He referred questions about his office rent to his publicist and his real estate broker, but he did say the move was part of a firm expansion. Proclivity took 4,500 square feet at 134 Fifth, the building’s entire third floor, moving from a smaller spot in Chelsea.

The Alley’s office rents are cheaper than even most of the cheapest in midtown, according to brokerage Cushman & Wakefield, and are comparable to downtown’s. At the end of 2007, an average square foot of Silicon Alley office space would rent for just under $49 a square foot; midtown prices are at least $10 higher a foot.

Such amounts add up in a city teeming again with tech workers. Between 2003 and 2006, the number of Internet-technology employees in New York increased 12 percent, to 200,000-plus, according to the State Labor Department.

But it’s not like they all have to line up along an Alley wiring itself to take advantage of new technology, as was the case in the late 1990’s. The wiring is everywhere now (or it’s wireless), and the technology is no longer new. Take hegemonic dot-com Google: Its East Coast mini-headquarters rests along Eighth Avenue in West Chelsea, at least three long blocks from Silicon Alley.

And a long way from 2000.

Times are tough: Manhattanites are ditching doorman buildings.

That’s what new numbers suggest: Rents dropped from January through February in doorman buildings throughout Manhattan, according to a report from the Real Estate Group New York. The drops—which hit neighborhoods from hip (SoHo and Harlem) to not-so-much (Battery Park City and the Upper East Side)—imply a scramble by doorman-building landlords to entice tenants to fill more vacancies through cheaper rents.

In some neighborhoods, doorman rents fell steeply. In Battery Park City, doorman rents were down in every apartment size surveyed, including over 5.6 percent for two-bedrooms. In SoHo, the average rent for doorman one-bedrooms dropped 6.1 percent; in Tribeca, doorman studio rents fell 6.3 percent. And, in Harlem, the least expensive neighborhood polled by the report, doorman rents for two-bedrooms dropped over 7.1 percent to $2,804 monthly.

At the same time, non-doorman rents in many neighborhoods rose in February. In Chelsea, in non-doorman studios, rents increased 7.5 percent on average; and, in two-bedrooms, 6.2 percent. In Gramercy, the two-bedroom doorman average dipped 1.2 percent, and the non-doorman one jumped over 5 percent.

The differences between doorman and non-doorman rents remain stark, and the doorman drops don’t necessarily portend a tumble in the nation’s most viciously competitive apartment market (the rental vacancy rate was well under 3 percent by the end of 2007).

On the Upper West Side, over $1,000 separates the two monthly averages for doorman and non-doorman one-bedrooms: $2,563 for non-doorman versus $3,567 for doorman. On the Upper East Side in February, the difference was similarly sharp: $2,448 versus $3,516, according to the preliminary Real Estate Group report.

Long term, these differences could start to matter a great deal more to even affluent Manhattan tenants. Although the local economy, buoyed perennially by the mighty financial services industry, remains strong, New Yorkers can’t help but see and feel the signs of change for the worse: profit write-downs at major investment banks; layoffs by the thousands; dips in demand for even luxury retail; and a lending industry in shambles.

The financial uncertainties spawned by these recent developments appear to have forced the issue for the typically harried Manhattan renter, who might need to start squirreling away several hundred extra dollars a month: Can’t I open my own front door?

At least 1,000 New Yorkers annually have settled in Philadelphia since 2002. The sobering number comes from the Philadelphia controller’s office, which gleaned it from IRS and census information.

Since 2001, 8,334 New Yorkers have moved to Philadelphia and stayed. Most—3,957—moved from Brooklyn. After Brooklyn, most émigrés hailed from Queens (2,160); and the Bronx, Manhattan and Staten Island, respectively.

What makes Philly so attractive? The Rocky statue atop the art museum steps? That’s been moved. No: It likely comes down to real estate.

Although exact numbers are difficult to find, Philadelphia home prices, generally, are absurdly low compared to almost any area in New York. The median Philadelphia home price by the end of 2007 was $137,500, according to a report from Prudential Fox & Roach, a residential brokerage there.

In Manhattan by the end of 2007, the median apartment price was $850,000, according to research firm Radar Logic; in Queens, it was $460,000. In brownstone Brooklyn, the median co-op price was $450,000, according to brokerage the Corcoran Group, and the median condo price was $665,000. Also, monthly rents over the past couple of years have ascended to records in several neighborhoods, especially in Manhattan and western Brooklyn.

But New York City has nearly always been more expensive than the rest of the country. Perhaps the driving force of this decade’s mild exodus to Philadelphia isn’t the housing costs per se, but the convergence of two fairly new realities: unprecedented increases in housing costs and the desirability of urban living.

In Staten Island—perhaps the most affordable of the five boroughs—the median single-family home sales price increased 101 percent from 2000 to 2006, according to the state’s Association of Realtors.

Such a rise is emblematic of an era in New York when housing blasted into the stratosphere, essentially shutting out many residents and prospective residents from homeownership, perhaps forever—or, at least, for long enough to drive them to other locales for ownership (and for escape from expensive New York rents).

At the same time as housing costs here spiked, urban living came into vogue nationally. No longer were major cities like New York to be fled for suburbia at the first opportunity. People wanted to live in downtowns; and developers responded to the demand. They built literally thousands of condos in the downtowns of cities like San Diego, Charlotte and, yes, Philadelphia. Spurred by a 10-year development tax abatement, the Center City neighborhood there added over 8,200 housing units from 1997 through 2005, and kept adding; and Center City’s homes generally cost more than those in the rest of Philadelphia.

Philadelphia’s geography—it’s the closest major city to New York, a couple hours away as the crow flies—placed it in a unique position to capitalize on the convergence of this urban-living popularity and the increasing difficulty of such living in New York City.

Cheesesteak, anyone?

Welcome to the long view of the Manhattan investment-sales market.

It came into 2007 strongly, with the biggest building sale in American history, 666 Fifth Avenue for $1.8 billion, closing in January. It traveled past the midyear mark with expectations of an annual sales record: By Sept. 30, $42.5 billion worth of property had traded, besting the amount in all of 2006, according to brokerage Cushman & Wakefield (and that calculation only included deals of at least $10 million).

Along the way were tidbits of triumph. The median sales price for Manhattan apartment buildings below 96th Street cleared $500 a square foot for the first time ever in the first half of 2007, according to a report from investment-sales firm Massey Knakal prepared by appraiser Miller Cicero.

But as 2007 slid toward 2008, the perception behind the investment-sales reality shifted. Those scoring at home began tossing off a phrase—“credit crunch”—to describe the underpinnings of a looming crisis. Simply put, the crunch was going to make it much more difficult for building buyers to borrow money.

Perhaps the biggest poster boy for the change was Harry Macklowe. He had borrowed heavily to make one of 2007’s most stunning deals—the $7 billion purchase in February of seven Manhattan office buildings from Equity Office Properties (via the Blackstone Group). He owed his creditors money, and his creditors were more reticent by the end of 2007 to loan him more.

It could all come to a head this week, in fact, as Mr. Macklowe owes creditors Deutsche Bank and Fortress Investment Group some answers regarding $6.4 billion in loans by Feb. 8, according to The New York Times. Reports emerged last week that he had struck a tentative deal with Deutsche Bank, ceding control of the seven buildings in exchange for an extension on $5.8 billion worth of loans; and Mr. Macklowe has hired CB Richard Ellis to market his prized tower, the General Motors Building at 767 Fifth Avenue. Acquired in 2003, the building could sell for over $3 billion.

This would make it the most expensive single-building deal in history. One has the feeling, however, that should the GM Building sell, the deal will be an anomaly in 2008.

The Manhattan investment-sales market likely peaked in the first half of 2007, when over $32.7 billion in property traded, according to research firm Real Capital Analytics, which tracks closed deals of at least $5 million. The market slid in the last six months of 2007.

Will it keep sliding into 2008? The long view would suggest it has to; it’s already been to the top of the skyscraper.

For over a decade now, Manhattan and Brooklyn have competed for the affections of younger or first-time renters. Manhattan was Manhattan, the gentrifying New Rome with all the amenities and nightlife one could want, often with shorter work commutes. Brooklyn was ever-emergent, the cool capital with reservations—longer commutes and sparser retail, plus the burden of pioneering in neighborhoods that didn’t always welcome newcomers.

But, oh, Brooklyn! What deals! Compared to Manhattan, Brooklyn apartments in the brownstone satellites like Carroll Gardens and Park Slope seemed—in fact, were—so cheap. And yet the neighborhoods looked and felt like nascent versions of SoHo or the West Village.

The latest numbers suggest this trend is ending. It’s not just that Brooklyn brownstone neighborhoods are getting comparably expensive to Manhattan; it’s that they’re getting a lot more expensive at a time when Manhattan seems to have topped out.

While the Manhattan apartment market did scale tremendous heights in 2007, it also exhibited signs of softening. And some neighborhoods like Hell’s Kitchen and the Lower East Side slipped below Brooklyn locales like Park Slope and Williamsburg in rent medians.

In 2007, through January of this year, rents increased in almost all parts of Manhattan. The average rent on a two-bedroom in a non-doorman building below 100th Street increased 14.2 percent from January to December, to $3,949, according to brokerage the Real Estate Group New York. For a non-doorman one-bedroom, it was up nearly 3 percent, to $2,919.

New numbers out for this January show that rents kept increasing after December. The average two-bedroom rent in a non-doorman building was $3,919 this month, up from $3,459 last January, according to the Real Estate Group, which incorporated Harlem into its monthly reports for the first time this January.

Of course, divining the rental market in any borough remains a frustratingly inexact science. Subleases almost never make it into the calculations of the brokerages that produce rental data; and, to say the very least, Gotham has spawned some of civilization’s most creative living situations.

And Manhattan has long grappled with (or long benefited from, depending on perspective) an absurdly low vacancy rate. The investment-sales firm Marcus & Millichap, which does not broker apartment leases, estimated the Manhattan vacancy rate at under 3 percent by the end of 2007.

But the dimly lit signs of softening are there this month: “Layoffs and reported losses at some of the country’s largest financial institutions sent the stock market and the value of Manhattan apartments lower in January,” the Real Estate Group’s report concluded.

Average rents dropped from December of 2007 to January for non-doorman studios, one-bedrooms and two-bedrooms; and for one-bedrooms in doorman buildings. The gulf, too, between the most expensive neighborhood surveyed of Tribeca and the least expensive of Harlem was relatively narrow in January. A mere (by Manhattan standards) $1,572 a month separated the two neighborhoods’ non-doorman studio averages.

More startling: Parts of brownstone Brooklyn now appear much more expensive than Manhattan.

In 2005, the median monthly rent for Park Slope and Carroll Gardens in Brooklyn was $1,090, according to the Furman Center for Real Estate & Urban Policy at New York University. Now, barely two years later, the Park Slope median is $3,050, according to an analysis of apartment listings for The Observer by research firm StreetEasy.com, and the Lower East Side’s median is $2,700.

Williamsburg, the beachhead 15 years ago of Manhattan migration to Brooklyn, has a median rent of around $2,900, according to the StreetEasy’s analysis, which included over 100 apartment listings in Williamsburg. That would make Williamsburg pricier than not only the Lower East Side, but also Hell’s Kitchen in Manhattan.

Will the Williamsburg-Greenpoint apartment hunter soon look to Hell’s Kitchen and the Lower East Side for deals? Maybe. And maybe soon.

While Manhattan overall does remain more expensive than brownstone Brooklyn—with a median rent in mid-January of around $3,100 versus $2,050—the intimation is there: Manhattan’s rental market likely peaked in 2007, and parts of it will descend (or continue to descend) below parts of Brooklyn. Queens, anyone?

“Look at Harry’s deal, for example. He bought how many billions of dollars of real estate for only $50 million?”

Adelaide Polsinelli sells real estate all day for her clients as a top broker at Besen & Associates. She was talking last Thursday about developer and landlord Harry Macklowe’s recent troubles. In February 2007, Mr. Macklowe bought several New York office towers for $7 billion in one of those titanic deals that perfectly reflected this decade’s rowdy, triumphant real estate market.

It was big, first of all: The portfolio included seven prime office towers in Manhattan, North America’s most coveted office market. It had big names: Mr. Macklowe is one of the most well-known landlords in New York, with a portfolio that includes the General Motors Building at 767 Fifth, which he bought in 2003 for $1.4 billion. It involved big amounts: Worldwide Plaza at 825 Eighth Avenue sold for $1.73 billion as part of the deal, the second-biggest building buy in U.S. history.

And, like so much of the recent real estate market, it included a lot of debt.

Mr. Macklowe’s Macklowe Properties put up $50 million for the portfolio; the rest came from lenders. Now, the bills are coming due in early February—one year to the month since the purchase—and “Harry” has put his prized building up for sale: He’s retained ace brokerage CB Richard Ellis to market the GM Building, arguably the world’s most valuable.

Mr. Macklowe is perhaps the most extreme example of real estate debt as the animating factor of the New York City economy right now. Without debt, the city would go broke.

Not exactly, perhaps, but it would be a very different place. It would not be as shiny or as profitable for investment, nor as largely buffeted as it is now from the housing market woes afflicting most of the United States. It would be New York, but it would not be the record New York of the past several years.

The creation, securitization and trading of large-scale debt has sustained the city for so many consecutive years now that it’s difficult to imagine New York since 2001 without it. We owe so much to it.

It’s simple, really—ironic, though, considering the complications it’s now causing. Banks would sell mortgage debt to Wall Street houses, which would, in turn, sell the debt to investors as securities. The initial debt was plentiful because interest rates for borrowing were incredibly low.

It was a terrific run. Wall Street’s year-end bonuses set records for four consecutive years through 2006. The amount of major property traded in Manhattan shattered records every year starting with 2003. Home sales nationwide boomed, and locally too: Manhattan saw 10,000 home sales in 2007, a feat not reached since at least the Koch administration.

But so much of it hinged on debt, whether a mortgage to buy a $400,000 studio apartment; a sophisticated loan to buy a $7 billion office tower portfolio; or debt to back securities, the trading of which swelled the profits of investment houses (whose employees, in turn, became even busier buyers of New York homes).

A lot of the debt was understandable. One couldn’t blame investors for wanting to get in on the boom times or people in general for pursuing the ur-ingredient of the American Dream, homeownership, when the money was cheap and the interest rates low. Top office towers in this town cost more than $1,500 a foot; top apartments, about the same. And debt has always been a part of trading New York real estate.

Also, the debt created jobs. Residential and commercial brokers, mortgage brokers, real estate appraisers, interior designers, architects, construction workers of all sorts, publicists and marketers, advertising reps (reporters, too!)—all found ample work via a real estate industry high on debt.

Plus, the city found ampler monies via the taxes involved in property trades. The combined revenue from the mortgage recording tax and the property transfer tax jumped 255 percent between 2000 and 2005, according to the city’s Independent Budget Office.

The fallout from the subprime mortgage defaults has finally ebbed this tide. The defaults spooked lenders, whether lenders were directly affected or not. Going into debt has gotten a lot more difficult for buyers.

“There has been a huge spillover effect [from the subprime crisis] because the fundamentals of the commercial market couldn’t be better and are very solid,” said Howard Michaels, chairman and CEO of the Carlton Group, a real estate investment bank. “There’s a lot less capital now.”

Indeed, lending has decreased in the past few months—“January is terrible,” said Ms. Polsinelli—and investors have soured on mortgage-backed securities. The reverberations have forced some of the most august names in finance into embarrassing write-downs on 2007 profits, as well as mass layoffs. And the Wall Street year-end bonus total did not set a record in 2007, slipping 4.7 percent from 2006’s $33.9 billion.

Is debt no longer a popular Street drug? Will it lose its grip on the city and its real estate?

The Real Estate Board of New York, the powerful industry trade group, held its annual gala last Thursday evening at the New York Hilton in midtown. At the after-party, a leading investment-sales broker, the sort who regularly trades multimillion-dollar building portfolios, said the housing market downturn nationally and the attendant economic troubles were good news for the city.

Why?

Interest rates will drop again, he said. That will make borrowing money cheaper.

In a speech on Jan. 10, Federal Reserve Chairman Ben Bernanke suggested that the Fed would lower interest rates to stem the bad economic tide first sparked by subprime defaults. He made the same suggestion in Congressional testimony a week later (on the day of the REBNY gala, as it turned out). The Fed then did so on Jan. 22.

Borrowing money may soon get easier. Again. Let the good times roll.

New York City’s in the midst of a grandparent boom, or at least getting there fast. The Bloomberg administration projects the population percentage of those 65 and older to grow by over 44 percent from 2000 through 2030, while the overall population increases only 14 percent; and by 2030, every baby boomer in New York will be at least 65—all this against the backdrop of a growing U.S. and world population.

Somebody will be pinching those newborn cheeks and putting out the ribbon candy, throwing on Jay-Z CDs (yes, children, our music came on these big things!) and babbling about the time George Bush won the presidency even though he lost the popular vote.

More importantly, more people in the coming decades will be visiting their New York grandparents in more assisted-living developments throughout the city; or crashing for a weekend in their grandparents’ New York pied-à-terres; or, somberly enough, picking through and divvying up the New York property of recently deceased grandparents.

While it’s impossible to say exactly how many grandparents claim New York as their home city, the numbers suggest that there’s got to be a lot more than there used to be, maybe more than there’s ever been—and that will continue to be the case toward midcentury.

“It certainly suggests there will be a lot of grandpas and grandmas out there, and a lot of happy children out there—or, I should say, a lot of spoiled children out there,” said Jonathan Bowles, director of the Center for an Urban Future, which has analyzed the effects of the elderly increase on New York’s economy.

Americans are living longer. A 65-year-old in 2001 could expect to live another 18.1 years and a 75-year-old another 11.5, according to the Centers for Disease Control. An American born in 1955 can expect to live to nearly 70. And an American born in 2005 can expect to live 77.9 years—an all-time high for the nation—and the death rate by that year had dropped to a record low of 800 deaths for every 100,000 Americans.

This longevity trend certainly includes New York. The share of people over 65 is expected to increase in the next 25 years in every borough. By 2030 in Manhattan, nearly 295,000 of the borough’s projected population of 1.83 million will be at least 65, according to the PlaNYC long-term study by the Bloomberg administration. About 410,000 of Brooklyn’s projected 2.72 million residents in 2030 will be over 65 (a 45 percent jump from 2000). The city’s median age will be 37-plus, meaning most of us will be in middle age or getting there fast.

And, according to census estimates, the nation appears in the midst of, if not a birthing boom, then definitely a bump. Nationally, the number of people under 5 years of age increased 6.4 percent from July 2000 to July 2006, faster than the U.S. population’s growth of 6 percent.

In Manhattan, the number of children under 5 increased 29.4 percent from 2000 to 2006, according to census estimates. In Brooklyn, the number was up 5.6 percent. Both increases far outpaced the general population growth of each borough.

The growth in grandparents could represent the sort of seismic demographic shift that affects not only the routines of New Yorkers—it’s Thanksgiving in Manhattan this year, kids!—but also the physical makeup of the city’s real estate.

Stephen O’Neal is a top broker with Bellmarc Realty. About a year and a half ago, he sold a co-op in the Lincoln Towers on West End Avenue to a woman expecting twins. Her parents visited often, Mr. O’Neal said, after the twins were born; they stayed in hotels and slept in their daughter’s second bedroom.

“Eventually, they said, ‘Find us an apartment,’” Mr. O’Neal said.

He did, and the grandparents last March bought in a co-op next door, where they can literally see from their balcony the entrance of their daughter’s—and grandchildren’s—building.

Such pied-à-terres have grown in popularity in recent years, though hard numbers are difficult to come by; Manhattan housing numbers do routinely show studios and one-bedrooms, the likeliest pied-à-terre material, constituting at least one-third of apartment sales, and anecdotes like Mr. O’Neal’s abound. And it’s not just grandparents with children in the city snatching up the pied-à-terres. It’s also, quite simply, grandparents, regardless of where their grandchildren reside.

While it might seem odd to older New Yorkers long enough in the tooth to remember the bad old Gotham of high crime rates and subway graffiti, the reality now is that people want to grow old here. The city’s fun and safer and accessible (perhaps not so much by public transportation, but generally so).

Developers recognize this new reality, of course, as do brokers and marketers. The Real Deal magazine reported in November 2006 that as many as 50 assisted-living developments had sprung up in the previous 18 months in the five boroughs, plus Long Island. And one has to wonder if all the new luxury condos of the past few years weren’t intentionally made as self-contained worlds, replete as each building was with gyms, social areas, concierge service, even lobby fridges for Fresh Direct.

But so what, these amenities? Will they please the grandchildren some day?

The average sales price for a Manhattan condo has grown by over $820,000 this decade, marching to $1,750,634 by the end of 2007, according to a report out last week from brokerage Prudential Douglas Elliman and research firm Radar Logic. That’s a nearly 90 percent increase from the year-end average in 2000, and is 17.8 percent above the fourth-quarter average in 2006.

The sales-market share of condos has also increased fairly steadily since 2000, despite condos being outnumbered in Manhattan by co-ops nearly three to one—and despite condos being much pricier than co-ops.

Perhaps it’s the aging of co-op boards. Perhaps it’s the relentlessly sexy marketing for newer condos. Perhaps it’s just easier to buy the real property of a condo than the shares of a co-op. Or perhaps, more simply and yet significantly, the regnancy of condos can be explained as a grand, literally gleaming part of New York’s recovery from Sept. 11.

After the terrorist attacks, much of Manhattan’s residential real estate market softened amid a cascade of pessimism about the city’s ability to fully recover.

It has, of course. And one of the biggest signifiers of this recovery has been the dozens of condos, with thousands of units within, that have sprouted throughout the borough in the past few years. A perfect storm of supply and demand coalesced underneath a reassuring umbrella of an ever safer and robust city to create monuments to home-buyer confidence.

Condos make up about 25 percent of the for-sale housing stock in Manhattan, but they now account for half of the borough’s home sales. In the fourth quarter of 2007, condos accounted for nearly 49 percent of home sales; in the third quarter, it accounted for 48 percent. In five of the past eight years, condos have accounted for at least 40 percent of all Manhattan apartment sales, according to Radar Logic, giving them an outsize slice of the residential pie here.

And some of these condo sales have been titanic. Two of the three biggest apartment deals in New York City history involved newer condos, and both closed in 2007. (The third was Rupert Murdoch’s $44 million co-op purchase in 834 Fifth Avenue in 2005.)

In July, one still-unknown buyer closed on six apartments in the Plaza for $51,539,180; and, in September, the family of former Citigroup CEO Sandy Weill closed on the purchase of a $42,405,000 penthouse at 15 Central Park West, according to city records. (A co-op at 1060 Fifth Avenue was sold in late 2007 for $46 million, but that deal has yet to close.)

It’s such demand at such higher prices—condos, as usual, were much more expensive in the fourth quarter than co-ops, on average—has driven developers to build, build, build this decade. At the same time, the number of new Manhattan co-ops has dwindled to basically zero after peaks in the late 1980’s and in parts of the 1990’s.

The number of condo and co-op conversion plans statewide submitted to the state attorney general’s office, which must approve them before sales can start, increased 300 percent from 2002 through 2006. Most of these plans involved condos. A 2005 analysis by The Real Deal magazine found that developers had submitted plans that year for over 9,000 condo units in Manhattan alone. Next Page >

The bad news spread through the train. The 7:35 p.m. Amtrak regional from New York to Washington on Dec. 13 would be late because of signal problems along the tracks. Every train north of Philadelphia, including New Jersey Transit ones, would have to lumber through each signal one at a time. The regional, which normally takes just over three hours to reach Washington, would take nearly six.

As housing prices and other higher living costs drive more New Yorkers to the suburbs and exurbs, transportation becomes all the more essential. But it’s going to be a long haul before the Northeast’s transportation grid, the most extensive of any North American region, rises to the challenge. In the meantime, more New Yorkers, the numbers suggest, will simply leave the Northeast altogether, partly because of the hassle of simply getting around.

Housing prices in much of the city have increased manifold in recent years. In Staten Island, the median price of a single-family home increased 101 percent from 2000 to 2006, according to the New York Association of Realtors. In Manhattan, the median apartment price increased 128 percent from 2000 through 2006, according to research firm Radar Logic.

Over 42 percent of the city’s homeowners with a mortgage spend at least 35 percent of monthly household income on housing costs, according to 2006 census estimates, and over 40 percent of renters do.

It’s little wonder more New Yorkers are exiting the city, opting for more affordable (for now) areas throughout Long Island and upstate New York, and down through New Jersey to Philadelphia and even points south. Such resettlement farther from work in the city means more strains on an already groaning transportation grid. And those strains translate into more hassles for commuters.

For instance, throughout the 1990’s, the number of commuters in the New York metropolitan area who commuted at least 45 minutes each way every weekday increased by more than 300,000; at the same time, the number who commuted 25 minutes or less declined by over 400,000, according to a November report by the Regional Plan Association on the Northeast’s transportation (the report’s underlying theme: things are bad and getting worse).

Queens, Brooklyn, Staten Island and the Bronx had the longest commutes in the nation, according to a 2005 census survey of bigger U.S. counties. Over 5 percent of New York City commuters have what the census ominously labels extreme commutes—ones of at least an hour and a half each way daily.

If such commutes are by car or bus, that’s bad enough. If they’re by train, that’s really bad.

The RPA report concluded that Amtrak’s Northeast corridor—the train system’s main revenue source, with almost 40 percent of its nationwide ridership in 2006—would need over $5 billion in repairs just to bring it to a “state of good repair.” New Jersey Transit railroad would need $6 billion, according to an earlier RPA report.

Meanwhile, the region’s only answer to the European and Japanese high-speed trains, Amtrak’s Acela, remains expensive and dodgy service-wise—even, according to The Wall Street Journal in August, as ridership increases because of increasingly inconvenient air travel.

The last time this reporter took the Acela, a mild rain and ice patches dragged the trip from its touted three hours-plus (from Boston to New York) to more than five hours. If the Acela—which is supposed to reach a maximum speed of 150 mph, but usually averages half that—does ever consistently break the three-hour mark, it could make a significant difference to air travelers in the Northeast. Three hours, according to the RPA, is the threshold at which a lot of travelers choose rail over air.

Until then (and until the repairs and the sleeker travel times and the other improvements necessary for moving millions back and forth more smoothly each day), the longer commutes to the city from farther-flung cheaper locales will continue to become so tedious and frustrating that …

… that maybe the city’s young and brightest will simply split. In this decade of mild population growth, many younger people with college degrees have been leaving New York—and, more often than not, the Northeast altogether.

About two-thirds of the 190,150 people ages 25 to 64 who left New York in 2005 moved beyond the city’s metropolitan area, according to a September analysis of census data by City Comptroller Bill Thompson. And of this two-thirds, over 47,100 moved to North Carolina, Florida and Georgia (and 8,400 to California). The rest stayed in or near the Northeast, including Philadelphia, Boston and Washington, D.C.

“[T]hose who leave appear to be younger, better educated and slightly more affluent,” Mr. Thompson’s report read.

Do they leave because of the longer commutes, because signal trouble on a New Jersey railroad track might turn a half-hour commute into an hour-and-a-half one, because Amtrak raised its monthly fare passes 59 percent in 2005? No one knows for sure. But the longer commutes can’t possibly help the city.

Nevertheless, there’s cause for hope. The RPA report notes that people still, somewhat inexplicably, “want to live in” New York. And Comptroller Thompson notes that many of those sticking it out here are solidly middle class (for Gotham anyway), living in households earning between $60,000 and $140,000 annually.

When that Dec. 13 Amtrak regional pulled into Washington’s Union Station shortly after 1:30 on Dec. 14, the D.C. subway was literally closed—a forbidding iron gate clamped to the concrete and only darkness behind it. Weary commuters had to line up in the cold for the chance to be exploited at the end of a 45-minute cab wait.

In New York, a late train arrival wouldn’t have been a problem: The city’s always open. If you can get there. Next Page >

The Manhattan housing market in 2007, from tiny studio rentals to ornate Upper East Side townhouses, remained excruciatingly active and ever more expensive, despite a near-constant chorus of pessimism dragged in from 2006 like so much chain link around Jacob Marley’s ankle.

The luxury end exemplified Manhattan’s buoyancy, especially the co-op and condo records set within six months of each other.

In early July, one buyer closed on six apartments in the Plaza Hotel for $51,539,180, according to city records. Elizabeth Stribling, whose eponymous firm markets the Plaza’s condos, declined to reveal recently the identity of the buyer. It is the single biggest closed condo purchase in New York City history.

In December, as first reported by The Observer, writer Georgia Shreve agreed to sell two apartments at 1060 Fifth Avenue to hedge-fund impresario Scott Bommer and wife Donya for $46 million. It is the biggest co-op deal in New York City history.

Halfway in between these records, there were the Bronfman brothers.

Over the summer, banker Charles Murphy bought liquor heir Matthew Bronfman’s 25-room townhouse at 7 East 67th Street for $33 million. It was a record for a townhouse narrower than 26 feet wide. The same season, Edgar Bronfman Jr. sold his townhouse on East 64th Street to oil tycoon Len Blavatnik for around $51 million; Mr. Bronfman had tried to sell it nearly five years ago for $40 million, but …

… In 2002, $40 million was a lot in the highest end of Manhattan real estate; now, it’s a relative pittance. Ms. Stribling told The Observer last month that at least five condos in the Plaza had sold for above that.

The average sales price of Manhattan luxury condos and co-ops was up 9.5 percent from the first quarter to $5.085 million by the end of the third, on Sept. 30, according to research firm Radar Logic. The average price per foot was up over 15 percent over the same time to $2,009, a r