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2nd Ave. Subway Lures Foreign Investors — Especially Chinese — to Yorkville

By  Amy Zimmer and Shaye Weaver | July 31, 2017 11:41am 

 The 33-story tower at 389 E. 89th St. has seen significant interest from foreign buyers, according to Ben Shaoul, president of Magnum Real Estate.
The 33-story tower at 389 E. 89th St. has seen significant interest from foreign buyers, according to Ben Shaoul, president of Magnum Real Estate.
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Scott Frances

MANHATTAN —  The power of good transit is not merely one of the most important factors for New Yorkers when buying real estate — it also drives up interest of foreign buyers, as Yorkville is quickly seeing.

This quiet neighborhood on the Upper East Side, which had to endure years of construction clangs and clouds of dust during construction of the Second Avenue Subway, is undergoing rapid transformation since the new Q train stations opened this year, experts say.

Swanky residential towers rising in the area are attracting more families, as well as an influx in foreign buyers — especially from China — as brokers increasingly lure them to the neighborhood to take advantage of the lower price points relative to Downtown or even other parts of the Upper East Side.

“Yorkville really never has been on the map for them,” said broker Seth Levin, of Keller Williams TriBeCa. “It’s through educating our clients and the media reporting on the results of the Q train coming in that has brought it to their attention. If they’ve seen it in the media, it makes them comfortable. Yorkville has been reported on a bunch, so they have a comfort level that wasn’t there in the past.”

Foreign investors tend to look for something “safe” or “blue chip” when buying, he noted. They prefer brands they’ve heard of, like the Four Seasons or the Ritz, and continue buying on Billionaire’s Row because they keep hearing about pricey new developments on that strip.

But buyers are also looking for a good return on their investment, experts say. That is why their attention is now on Yorkville, where buyers can get a “two-bedroom, high floor, luxury condo” in a new development for roughly $1,500 per square foot — compared to $2,500 west of Lexington Avenue, for instance, Levin said.

“The neighborhood is going through further transition because of the Q train and more luxury developments are coming down the pipe, as well as more high-end stores and restaurants,” he added.

Ben Shaoul, president of Magnum Real Estate, has seen significant interest from foreign buyers in his firm’s new developments across the city, including Yorkville’s 158-unit, 33-story tower 389, at 389 E. 89th St., which was Manhattan’s top selling building in 2016, he said.

Units presently on the market in the building range between $825,000 for an open loft to $2.97 million for a three-bedroom — and prices will likely go up soon, Shaoul said.

“Our traffic is at a record high for summer. It was a record high in May and April,” he explained, noting that sales were up for all kinds of buyers, even if they’re taking more time to purchase. Prospective investors are visiting a building now maybe three or four times compared to the “one and done” in recent years.

Shaoul has not seen a slowdown in foreign buyers, because the city’s real estate market continues to provide a safe haven to park their money.

“If you look at the 10-year trajectory on growth, there isn’t a better investment,” he said, noting that he expects purchases in his 89th street building to see more appreciation than in a more established area like Gramercy.

“It’s an up-and-coming neighborhood,” Shaoul said. “It hasn’t had its full pop yet. I have found that foreign investors, like the Chinese, like that.”

He noted that Chinese buyers, who have been investing in the city for a decade now, tend to be savvy.

“Their business plan has always been to buy in an area where they can achieve the highest level of appreciation, not just income [from rents],” Shaoul noted, adding he believes it's good for buildings to have investors since they tend to be “shrewd,” won’t sell at a discount and pay all cash.

Investors in his buildings do not let their units sit empty, he said.

An uptick of foreign investors — or all buyers from out of town, for that matter — can affect the market for locals in real ways, especially when they don’t live in their units, according to new research from Stijn Van Nieuwerburgh, director of the NYU Stern Center for Real Estate Finance Research, and Jack Favilukis of the University of British Columbia.

They modeled what happens to Manhattan’s market with an influx of such investors, finding negative consequences for the welfare of the city when they leave their properties vacant. It forces locals farther out, resulting in longer commutes, which costs time and money, Van Nieuwerburgh said.

“When buying desirable properties in Manhattan, they’re pushing someone else out,” he added.

The dollar volume in U.S. home sales from foreign buyers reached a record high between April 2016 and March 2017, according to the National Association of Realtors. China maintained its top ranking for the fourth straight year, with $31.7 billion worth of sales.

Experts are carefully watching what happens with Chinese investors because of new restrictions on taking capital out of China.

For new investors, they can still get their money out somehow, but they are taking longer to do so, said Kobi Lahav of Mdrn. Residential.

All-cash deals that might have taken 30 days to close are now taking 60 to 90 days, he said. There has also been an uptick in new bridge loans from lenders specifically targeting these types of buyers, who might need some help before they can get all of their money out of the country for their purchases, Lahav said.

For his buyers from China, the new restrictions on trying to get people to keep their money in the country is accelerating their efforts to get their money out.

“The reality is, people find a way to do it,” Lahav said.

While building Downtown may cost 25 percent more to buy, owners can’t charge 25 percent more in rent, he said, echoing why Yorkville is now appealing.

“They are looking at places where you can guarantee good rent,” Lahav said.