The Lab

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 record. (Radar Logic defines luxury as the top 10 percent of all sales prices in a given quarter.)

Luxury rents, too, jumped. The average monthly rent for one-bedroom apartments in doorman buildings below 100th Street increased 5.4 percent from January to November, to $3,807, according to brokerage the Real Estate Group New York. The average for two-bedroom apartments was up 3.9 percent during the year, to $5,553.

The luxury end’s dribble-down to the market’s lower reaches could be felt in the rise in the median and average prices for Manhattan apartments overall—and in the rise in rent at even non-doorman buildings throughout the borough.

For condos and co-ops together, the average price per square foot was 6.9 percent higher in the third quarter ending Sept. 30 than it was in the first quarter, reaching a record $1,144. And the average sales price, skewed as it was by the bigger buys at the higher end, was up 6.1 percent from the first quarter, to $1,369,486 by the third.

Rents, as the Real Estate Group report noted, increased for even the smallest places. The average monthly rent for a studio in a nonluxury building below 100th Street increased 7.4 percent from January to November, to a rollicking $2,114.

So prices were up in 2007, a lot in some cases. But so what? So this: Despite the price increases (of this year, and just about any since 2001), Manhattan is likely to have its highest sales total since the Koch administration, according to Radar Logic. That’s 10,000 apartments traded, at least.

And the rental vacancy rate should finish 2007 at well under 3 percent, according to investment sales brokerage Marcus & Millichap, making Manhattan the nation’s tightest rental apartment market. One would think with records like the Bronfman townhouses and the Plaza condos and the co-ops at 1060 Fifth—and the jumps in rents ($2,100 for studios!) and sales prices overall—that Manhattan would now have become so prohibitively pricey as to have seen the vacancy rate rise and the sales pace slow as the year fades to black. One would be wrong.

This year proved the oft-cited economic maxim that Manhattan remains an island in more than the literal sense—and perhaps put to rest for good the notion of any sort of housing crash here comparable to the rest of the country. Next Page >

Young families are leaving New York more and more, threatening to turn the city in the next few decades into one largely of older, childless and single people. It’s these young families that lay down the sorts of roots that animate a city’s culture and economy, and that ensure its long-term vitality. Lose young families and, eventually, lose a city’s soul and brainpower. (Exhibits A and B: Philadelphia and Detroit.)

“You have what’s been going on in other cities—the people staying are childless, and the people leaving have families,” said Joel Kotkin, author of The City: A Global History and a noted expert on the economic trends of cities.

He is co-authoring a report due out tentatively in March on the middle class in New York City, including population migration. Mr. Kotkin shared with The Observer last week preliminary results of the study. These show that more young families are leaving the boroughs, mainly because of higher costs of living—especially housing. As time goes by, they will make up less of the population.

New York City experienced a net loss of 8,163 young people with families in 2006, according to the preliminary results; in 2005, the city experienced a net loss of 8,034. These young people with families were defined as those between the ages of 25 and 45, with children and with at least a bachelor’s degree. Manhattan accounted in 2006 for the bulk of fleeing families, with a net loss of 3,477 or roughly 42 percent of the city total. Only Staten Island, among the five boroughs in either 2005 or 2006, experienced a net gain, adding 221 young people with families last year—but losing 725 in 2005.

The city’s own estimates show the school-age population as a percentage of the overall population dropping in every borough through 2030. Over the same time, the city anticipates that the number of 55-and-older residents as a percentage of the population will increase in every borough.

“It’s not even a question of, they can’t afford what they want,” Mr. Kotkin, a Brooklyn native who lives in Los Angeles, said of younger New Yorkers today. “When it becomes a situation of, instead of an apartment in Manhattan, you’re paying a lot for an apartment a 40-minute subway ride to Manhattan, you start to think, ‘Is this worth it?’”

More young New Yorkers are shouting, “No!”

Take Staten Island as an example. It is the smallest and most suburban of the city’s five boroughs, a last stop in affordability for anyone who wants to remain in New York City. Traditionally, home prices in Staten Island have been a fraction of what they were in Manhattan or Brooklyn, and even in large swathes of Queens and the Bronx.

Still, the percentage of 18-to-34-year-olds as part of Staten Island’s overall population has shrunk since 1980, from 28.3 percent then to barely 20 percent in 2000, according to a report released in April by the Center for an Urban Future. And, they’re not fleeing simply because it’s, well, Staten Island. The report points out that the median sales price of a single-family home in the borough increased 101 percent from 2000 to 2006, the sort of titanic home-price increase that’s happened citywide this decade and that few New Yorkers alive have ever witnessed.

“Families are leaving the boroughs; it’s not just Staten Island,” said Jonathan Bowles, director of the Center for an Urban Future. “And it’s not just stockbrokers and lawyers. … These are predominantly middle-class families.”

That New York City is expensive, and that that expensiveness may make living within the city limits impossible, is not news. But it’s no longer a question of affordability—it’s a larger, almost ethereal question of livability as created by this lack of affordability.

Do New Yorkers want their city in 25 years animated purely by commuting suburbanites, and full of gray-hairs and singletons who treat it merely as a Disneyesque playground, all safe and homogenous? Worse, do New Yorkers want their city to commence another long period of decline and decay as those who might have a vested interest in its upkeep and allure—say, the parent raising a child to pass a private home onto—disappear further into Hoboken, Stamford, Port Washington, et al.?

“Let’s say I was living in San Francisco and I wanted to move to New York in the early 1990’s,” said Mr. Kotkin. “I could do it. New York was more net affordable.”

Not anymore. Like in Staten Island, homes have become prohibitively expensive for most New Yorkers. In Manhattan, the median price of a condo—likely the point of entry for first-time home buyers as it requires a smaller down payment than a co-op and there’s no co-op board to pass—jumped 133 percent from 2000 through September 2007, according to research firm Radar Logic. Next Page >

Higher rents and higher condo prices have made New York City apartment buildings—from snazzy elevator ones with doormen to rickety prewar walk-ups with jammed entryway mailboxes—more valuable than ever, particularly in Manhattan. It’s pretty simple, really: Building buyers see a potential for greater profits through investing in even the ugliest ducklings on the unlikeliest blocks.

The 178 Manhattan walk-up apartment buildings that sold in the first half of 2007 below 96th Street traded for a median price of $508 a square foot. The 37 elevator buildings sold during the same time in the same slice of Manhattan went for $517 a foot. Both medians were the highest since at least 2002, according to a report from investment-sales brokerage Massey Knakal.

The median price of walk-ups in Upper Manhattan peaked as well, cracking $300 a foot for the first time. The median price for all apartment buildings citywide traded in the first half of 2007, including mixed-use ones, was $231 a foot, up 2.6 percent from the last six months of 2006.

Three things largely dictate the sales prices of apartment buildings: the current rents; the likelihood for rent increases; and the potential for conversion to other uses, most likely to luxury condos. (Retail in a building also plays a sales-price role.)

So it should be little surprise that 2007 saw price spikes: Manhattan rents increased rather steadily, driven by tighter vacancy, and at the same time, condo prices increased even as more new condos spilled onto the sales market.

The average one-bedroom in a non-doorman, nonluxury Manhattan building was nearly $3,000 a month, by the start of autumn, according to brokerage the Real Estate Group New York, which analyzes rents below 100th Street. For a studio, the average rent was $2,151.

Luxury apartment buildings rented for a lot more, oftentimes for record highs in 2007. A studio in a doorman building on the Lower East Side—a neighborhood that just a few years ago was many syllables away from the word “luxury”—was going for an average of $2,390 a month by October.

These rents are likely to continue to rise or to at least stay the same into 2008. The eternal market dance assures that people keep moving into, and around within, the city. The Manhattan apartment vacancy rate is expected to finish 2007 at below 2 percent, making the borough the tightest market in the U. S., according to investment-sales brokerage Marcus & Millichap. Brooklyn, for one, has a similarly low vacancy rate—New York University’s Furman Center for Real Estate and Urban Policy last year pegged it at below 3 percent based on 2005 data.

Higher condo sale prices, along with these higher rents amid steady tenant demand, also made apartment buildings a more attractive investment in 2007. The average price per square foot for a Manhattan condo increased 9.3 percent this year through September to $1,278, according to research firm Radar Logic, and the median price increased 13.1 percent to over $1.1 million. And Manhattan condo sales were up in the third quarter of 2007 nearly 65 percent from the same time last year.

Developers know the profit potential, then, for owning a building that can be converted or demolished completely and reincarnated as luxury condos. (Conversions of buildings into co-ops is exceedingly rare in the city, following the late 1980’s surge.)

So are New York City apartment buildings the hot new real estate investment for 2008, trumping office buildings, which have sagged in desirability because of the credit crunch? Will we see moguls made of building buyers in the Bronx and Queens?

Not really and not likely.

The Massey Knakal report painted an undeniably rosy picture of the Manhattan apartment-building market by midyear—and firm principal Paul Massey told The Observer on Nov. 30 that the second half of the year has been equally healthy. But in the outer boroughs, things are not as even. In Brooklyn and Queens, the per-foot price of walk-ups actually dropped from the last half of 2006; and, in the Bronx, the price of elevator buildings has stayed flat for at least two years now.

Still, the potential for return on apartment-building investment remains tantalizingly high, and now may be the best time for landlords to cash in before the credit crisis seeps deeper into the city.

In March of this year, Richard Bassuk sold 14 apartment buildings in Brooklyn and Queens that had been in his family for decades—his grandfather amassed the portfolio and then passed it on to his five sons. Mr. Bassuk got $118 million for the buildings, which included 943 apartments.

“Until now we never considered selling the properties,” he said in a statement at the time, “but the dynamics of the current market made the deal very attractive.” Next Page >

The subprime mortgage crisis has created a real estate economy that affects superstar brokers like Michael Shvo one way, and major bank chiefs another.  read more » Next Page >

Better known for a century as 110th Street, the once-dowdy loser on the Central Park quadrangle is now selling high.  read more » Next Page >

Rent deregulation made town spiffy, homogenous, unaffordable.  read more » Next Page >

Bianca Jagger plays the villain in the latest free-market morality play.  read more » Next Page >

There’s not much in the way of naches, but never have so few earned so much for working so little.  read more » Next Page >