My Space: Prestige investing in Fifth Avenue

Taking advantage of the recession and snapping up a Fifth Avenue apartment is the goal of many high net worth individuals. So why is Fifth Avenue so coveted?

According to The New York Times, Fifth Avenue combines the best of city, country (Central Park) and culture. It says it feels like Paris at night because of how quiet it becomes. The most prestigious section of Fifth Avenue is the part facing Central Park in the Upper East Side.

Fifth Avenue, in Manhattan New York, stretches from Washington Square Park to 142 Street. High-end retail stores like Prada, Louis Vuitton, Cartier and Saks line the avenue between 49th Street and 60th Street. At 60th Street, there’s a flagship Apple store, the famous FAO Schwartz toy store, and across the street the former Plaza Hotel. Trump Tower, made famous by The Apprentice reality show, is on this stretch as well.  Apartments facing the Central Park reservoir are perhaps the most expensive. 

In the late 19th and early 20th century, the glitterati of the day — the Astors, Vanderbilts, Post, Hutton and Carnegie — built mansions.  Andrew Carnegie’s palatial home was at 2 East 91st Street. 

Apartment living only became acceptable for the wealthy after 1910. And that was when architects like Rosario Candela, Emery Roth and James Carpenter built grand apartments on Fifth Avenue. These apartments come with high ceilings, fireplaces, grand staircases and huge rooms. 

Most apartments on Fifth Avenue are pre-war co-ops. The most notable is perhaps 820 Fifth Avenue, probably one of the grandest addresses in the world.  The building has only 12 floors, with one apartment per floor. The most recent transaction was the 12th floor apartment, which sold for US$44 million in 2009. To be a resident of one of these ultra-prestigious buildings often requires all-cash purchase, social and business references and even liquid assets in excess of US$100 million.

Newer condominium buildings have come up since, including 425 Fifth Avenue designed by Michael Graves. It currently has a one-bedroom unit available for US$1 million and a two-bedroom for US$2.7 million, an average price of US$1,500 per sq ft.

Trump Tower ranges from US$1.7 million for a one-bedroom to US$13.5 million for a three-bedroom unit.

What’s the expected return on investment (ROI) on an apartment in Manhattan? As a luxury property agent, I never promise investor clients that prices will appreciate by X% within Y years. But what I can share is the historical trend of price appreciation on a Manhattan apartment. During this recession, Manhattan property prices declined about 20% from their peaks. Cities like Los Angeles and San Francisco declined 40% from their highs,  while the US stock market in 2008 declined 40%. 

The graph shows that from 1997 to 2009, Manhattan property prices appreciated 10% per year. Average price per sq ft was US$328 in 1997, increased to US$1,183 in 2008, and declined to US$1,051 in 2009. While Manhattan increased an average 10% per year during this period, the Dow increased 2%, going from 7,900 points in 1997 to 10,400 points in 2009. The return on the Dow does not include dividend reinvestment because the Manhattan return does not include reinvestment of rental cash flow.  

Of course, owning property ties up capital and the entry level is a lot higher. That aside, the return on owning a Manhattan property is multiple the return from the stock market from 1997 through 2009. These numbers show that as an asset class, Manhattan property is less volatile and appreciates more consistently. 

While the average apartment price declined 20% from its high, the ultra high-end ones — which I define as US$10 million and above — declined around 30%, simply because there’s a much smaller buyer pool. But I feel the market has bottomed in Manhattan in real time. The official reports we see in the news lag three months behind because it takes three months to close on a property. 

Having a Fifth Avenue apartment is definitely a badge of pride. It doesn’t have to be a Rosario Candela building facing Central Park because outside of the Manhattan high-end broker or elite circles, I doubt anyone would know. 

International clients ask for Fifth Avenue apartments because in most elite societies around the world, people will know the Fifth Avenue address. Fifth Avenue is associated with accomplishment, prestige and wealth. A sign not only that one has arrived, but also that one has arrived very well, at a place most only dream about.

Tan Wei Min is a luxury property broker and investor focusing on investment property in Manhattan, New York. Originally from Klang, he has lived in Manhattan for 10 years. He can be reached at [email protected]

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 797, Mar 15-21, 2010.

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