Flight to Quality

At a dinner party the other night with a Manhattan real estate agent and a couple from New Jersey the conversation shifted suddenly from spouses dying of aneurysms to the local residential property markets. In the city, top-end brokers find themselves in a back-to-the-future circa 2006 frenzy—it’s a seller’s market and bidding wars ramp up prices with all or mostly cash buyers having a major edge. Developers of skyscraper condos nearing completion have timed the market extremely well, attracting nervous offshore money looking for a safe haven. Chinese and Russian mogul types, who aren’t really supposed to bank cash outside their borders, park major sums in sumptuous view space, while lesser but still well-heeled BRIC capitalists follow into the market acquiring lower but still high-price point digs.

Does it matter that nobody intends to live in these pied de terres or at least that their buyers will not be spending much time in them? Let’s face it in some cases it might not be good for their health back home, if the powers that be find out about these purchases. But let’s not kid ourselves—it makes a heck of a lot more sense to acquire Manhattan real estate than it does to do your banking in Cyprus. And would you rather own a pad on Central Park West or in one of those empty Chinese cities? New York’s best and mostly occupied coop and condo neighborhoods, meanwhile, saw their properties barely dip in value during the stock market crash and now they increase back into new record territory.

And that’s where the New Jersey couple comes in. They are moving back into the city—hit by a touch of the empty nester syndrome and now feel comfortable to put their house, in a cushy suburb, on the market and score a decent price. They got multiple bids and a contract was signed in two days—it’s the Manhattan spillover effect. At the high end, a rising tide lifts all boats. Suburban sellers itchy for the 24-hour lifestyle figure they better make their move before prices in the city move much higher. And while the offshore oligarch won’t be transacting in Morristown, the Wall Streeter with a young family, who wants the suburban lifestyle realizes this is the time to buy that split level with the big yard before mortgage rates increase. So all the smart money gets in gear.

As European leaders talk up recovery that doesn’t look likely anytime soon and China dances around talk of bubbles and too much debt, the U.S. stock market keeps hitting records and the country’s best real estate markets continue to attract investors. “Where else does it make sense to put your money these days?” asked one of my dinner companions. “Where better than New York?” Where better indeed.