NEW YORK CITY—While real estate, at leastbefore the 2008 recession, had been generally considered a prudentinvestment, this maxim seems to still hold true in some core marketcities – particularly in New York where real estate values wererelatively less affected by the downturn and have been generallyquicker to rebound. Word of the resiliency of New York City realestate has spread across the globe like wildfire, leading to asubstantial influx of foreign investors driving the market andchanging the landscape of the city.

In Manhattan, for the second quarter of 2014, the median pricefor co-ops and condos rose more than five percent to $910,000, withthe average sales price jumping 17.9% to $1,680,185 when comparedwith prices from one year ago. These values mean thatresidential real estate prices have spiked above the previousrecord highs set in the pre-recession first quarter of 2008. Demand remains high and despite the multitude of new residentialbuildings currently under development, inventory remains relativelylow. A driving force behind these trends are foreign buyers whotend to view such properties as a safe investment and a stableasset amidst uncertain economic conditions elsewhere in the world.In New York City alone, approximately 30 to 35 percent ofresidential real estate sales since 2013 have been to internationalbuyers, often through investment vehicles such as limited liabilitycompanies.

Many of the new housing projects in the city, in particular inmidtown and lower Manhattan, are high-rise luxury apartmentbuildings geared towards buyers in the higher end of the marketthat includes foreign investors. These buildings are sleek, slenderand tall; upon completion, the building at 432 Park Avenue will be150 feet taller than the Empire State Building with other buildingsin development to be even taller. Foreign capital underwritesthese acquisitions as investment opportunities rather than primaryresidences. The net result is that the real estate is either (i)immediately rented out post-closing (which often has a directimpact on increasing rents within the city) or (ii) simply remainsvacant with the owners looking for nothing more than temporaryusage and equity appreciation in the asset. In support ofthis last point, the Census Bureau estimates that 30 percent of allapartments between 49th and 70th Streets and Fifth and Park Avenuesremain vacant at least ten months out of the year.