Those who come in last have the most to lose.
By Harry Dent, Senior Editor, Economy & Markets:
I’ve been doing a lot of traveling lately. Our lease ran up at our home in Tampa many weeks ago, and my wife and I have been staying at several of our favorite spots up and down the east coast. We’re in San Juan now, but last month I got a look at this new “billionaire’s row” that’s popped up on the south side of Central Park in New York.
Billionaire’s row is as ritzy and swanky as you can get. It’s right near the best shopping and restaurants, and you have a view of the entire park to the north from inside these buildings.
The skinny towers that line West 57th Street are altering Manhattan’s skyline. They’re far higher than any of the surrounding buildings, as new technology has allowed for these slender structures with small footprints to reach farther and farther into the sky.
Half a dozen are planned through the end of the decade, with the tallest at Central Park Tower set for 1,550 feet. That’ll make it the tallest residential building in the western hemisphere. I was just flying a small plane over the Caribbean at that altitude, and that’s high.
And forget about Manhattan for a second – this bubble is reaching all over the globe, as Saudi Arabia and China are competing to see whose cloud-piercing tower can earn the title of “world’s tallest.”
A few years ago, the story was about an 8,000 square-foot condo in New York that sold for $88 million – twice what the owner had paid for it two years earlier. Then in 2014, Manhattan first broke the $100 million mark when a condo sold just over that at the new 90-story One57 building, also on billionaire’s row.
But as they say, you ain’t seen nothing yet…
I just saw an article on CBS saying the penthouse at 220 Central Park South – a short walk away from the site for Central Park Tower – is under application to go for $250 million… the highest listing ever. The condo fees will come in at about $520,000 a year, with $675,000 in taxes.
And this isn’t just any old penthouse. Over the past few years an 8,000-10,000 square-foot penthouse might get listed for $100 million.
The one at 220 Central Park South pulled out all the stops. At 23,000 square feet, it’s a virtual castle in the sky. It spans four floors with 16 bedrooms, 17 bathrooms and five balconies. With a $250 million price tag, that’s almost $11,000 a square foot!
In the first bubble that peaked in 2007, a very high-end apartment ran $2,000-plus per square foot. In this second bubble, these new, super upscale condos broke $5,000-plus, easy. Now, they’re heading toward $10,000-plus! A clear and obvious sign that this is a bubble! It’s going to burst. It’s just a question of when and to what extent.
People can say: “So what, let the billionaires play.” But the high-end brings the broader market up with it. It’s gotten so out of hand that a typical, 1,350 square-foot condo in Manhattan now costs $2 million!
Your average one-bedroom there rents for $3,000 a month and has 750 square feet. The typical studio at 550 square feet costs $2,300. That’s insanity!
My wife has a friend that rents an 800 square-foot apartment for $5,000 a month! How many can afford to rent at that level!?
I saw a 1,600 square-foot apartment several blocks to the east side of Central Park that would rent for $12,000 a month if it weren’t for rent controls. That’s $7.5 per square foot per month. And it’s not even a scenic area.
In contrast, I’m leasing an ocean-front condo in San Juan in the hip Condado area for just $1.8 per square foot. It has a glorious view with quick access to all the great restaurants, stores and everything – and is very modern to boot. The same condo in South Beach would cost me four times what I’m paying!
The question is – how much longer can this last?
Not long, as I see it.
I’d say this $250 million listing signals a top much sooner than later. Pretty much the only people buying these super expensive listings are foreigners trying to park large sums of cash outside their home countries.
But many of them are running into problems. Many currencies are falling versus the dollar due to falling oil prices, GDP growth and rising inflation. The Russian ruble has fallen to record lows against the dollar earlier this year. An overpriced New York condo now costs twice as much to them. Ditto for Brazil and most Middle Eastern countries! Brazil’s inflation rate is some 9.3%!
And at some point, the Chinese government is going to clamp down on the most affluent laundering their money out of the country to avert the cash limits of $50,000 a year.
So yes, developers always overbuild.
But just like any Ponzi scheme or bubble, those who come in last have the most to lose. And this high-end, global bubble tops anything we have seen in modern history. Remember: the bigger the bubble, the bigger the burst.
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