And hip-hop entrepreneur Russell Simmons’ 35,000-square-foot mansion in Saddle River, N.J.,—offered for $23.9 million in 2007—is now listed for $13.9 million, not much more than the $13.5 million Simmons paid in 2001.
Although it once seemed that markets catering to the richest Americans would be immune to an economic downturn, there’s a different story in the luxury home market of northern New Jersey, with its proximity to New York City. As stock portfolios swooned last year and Wall Street cut thousands of jobs, wealthy people held off on buying multimillion-dollar homes. As a result of the slower demand, prices have plummeted, often by millions of dollars.
“I didn’t feel that at this level of income, people would be affected,” said Stephanie Rosken of Prominent Properties Sotheby’s International Realty in Tenafly, N.J. “But the market that I felt was not going to be affected was very much affected by this volatile economy. Very, very little is selling.”
According to figures from the New Jersey Multiple Listing Service, sales of multimillion dollar homes fell sharply from 2007 highs in wealthy Bergen County, N.J. Jeffrey Otteau, an East Brunswick appraiser who tracks the real estate market statewide, recently estimated that there is a seven-year supply of properties priced above $2.5 million in Bergen County.
Developer Stephen Sweeney has been trying to sell a new 13,000-square-foot chateau in Saddle River for more than two years. Despite high-end finishes and a price cut from $8.5 million to just under $7 million, the house is still for sale. “It’s a prom queen with no date,” said Sweeney. “At the end of the day, the most beautiful home is the home that’s sold.”
The sales slump was caused in large part by upheaval in the financial markets, starting with the collapse of Lehman Brothers in September 2008. Real estate agents say that even wealthy people were shaken, and pulled back on spending.
“Wall Street definitely affected us,” said Peggy Mann of Prominent Properties Sotheby’s International Realty, who has an $11.7 million home listed in Alpine, N.J. Even people with good jobs “didn’t know what the future was holding,” she said.
“Those people went into hiding,” said Frances Aaron, also of Prominent Properties Sotheby’s, a nine-office agency that has the largest share of the most expensive listings in Bergen County. “People were just shocked and just held on to everything they had. They lost lots of confidence.”
They also lost access to financing. While many well-off people buy homes with cash, those who needed mortgages found them hard to get after the credit crisis of autumn 2008. Many so-called jumbo mortgages were financed by mortgage-backed bonds.
“The people who have wealth and liquidity are holding onto their money, and the banks are doing the same thing. They’re not lending money,” Sweeney said. “You could lower your prices as much as you want. It’s not a function of price; it’s that there is no market. “If you’re selling an $8 million home, even if the buyer has a 50% down payment, they still have to get a $4 million loan, and there are not a lot of lenders willing to consider that kind of concentrated risk.”
“A lot of that mortgage money was coming through Wall Street, and that came to a grinding halt late in 2008,” said Keith Gumbinger, vice president for HSH Associates, a company in the Pompton Plains section of Pequannock that follows the mortgage market. To fill that gap in the market, banks have started making large loans to affluent home buyers, Gumbinger said. But they’re acting slowly and conservatively, requiring pristine credit records and high down payments, he said.
As a result of the slower demand, prices on luxe homes have come down. Consider an eight-bedroom Englewood chateau, complete with tennis court, basketball court and indoor and outdoor pools. Its original price of $19.5 million was recently cut to $15.9 million.
Then there’s a newly constructed six-bedroom home in Saddle River that includes two staircases, three fireplaces and a heated driveway. The property is listed for just under $4.7 million. “In the heyday, we would have easily said $7 million,” said Nelson Chen of the Chen Agency in Fort Lee, the listing agent on the home.
Dennis McCormack, a broker with Prominent Properties Sotheby’s, said that well-located homes have held their value best. “Proximity to New York—that’s it,” he said, adding that when wealthy buyers come to see a property, their first question is: “How long does it take to get to Manhattan?”
McCormack said sales remain slow in the $2-$6 million range, but he has been surprised by activity in more expensive markets this year. He is currently involved in a pair of vacant land sales in Alpine—both 2-acre lots, one selling for just under $4 million, the other for just under $5 million. In both cases, the buyers plan to spend millions more to build gigantic custom houses.
McCormack is the listing agent on the county’s most expensive property, the Frick estate, a 27-acre Alpine property with an asking price of $57 million. The property was owned by Henry Clay Frick II, a doctor who was a grandson of the coal and steel magnate Henry Clay Frick.
High-priced homes tend to attract entrepreneurs, professional athletes, entertainers, CEOs and hedge fund and Wall Street managers. These buyers expect elevators, home theaters, indoor and outdoor pools, tennis courts and often indoor squash or racquetball courts. (Murphy’s house includes a bowling alley and a music recording studio).
Luxury-market agents hope declining home prices and the recovering economy will begin to lure wealthy buyers back.
“All last year, buyers were under a rock,” said Michele Kolsky of Coldwell Banker in Fort Lee, who has four listings for over $5 million. “They weren’t going to be caught buying a property that they could buy a year later for less money, and in fact they are getting it for less money now.”
“It takes time to find the right person to buy a very high-end home, but there’s definitely money out there,” Aaron said. “I think there’s an energy again; people are looking again,” said Mann, who recently sold a $4.6 million house in Tenafly.
McCormack is also the listing agent on Eddie Murphy’s house, which he said has languished because it was “priced incorrectly” when it was first marketed at $30 million. (According to tax records, Murphy paid $3.5 million in 1985). At the current price of $12.75 million, McCormack said, the house is attracting offers.
Charles Gildea of Marron Gildea & Donohue Realtors in Saddle River said not all sellers have gotten the message about the new price climate. “Some people are continuing to ask for those home-run prices,” he said. But buyers aren’t willing to pay top dollar.
“Buyers are very savvy,” Gildea said. “They’re shopping around and they know the market well. We find them to be very aggressive about putting lower offers in. They’re not as worried about hurting the sellers’ feelings.”
(c) 2010, North Jersey Media Group Inc.
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