Issue 104 – 2024: A Year of Reflection and Laying the Groundwork for the Unleashing of 2025

To describe 2024 as a challenging year would be an understatement. It posed significant trials, not only in the real estate market but also in the realms of leadership, geopolitics, social justice, and governmental shifts. When you condense all these factors and throw them into a fast-paced environment, it feels akin to being shot out of a cannon and landing in unfamiliar territory. This whirlwind experience has compelled everyone to innovate, seize new opportunities, and embrace change, ultimately creating value in various dimensions — not just real estate.

After nearly two decades of impressive leadership at my firm, the time has come for a new generation to emerge, rejuvenating and recalibrating our approach. This transition is not about retreating to the sidelines; it’s about returning stronger and more proactive, making tough decisions, and communicating transparently. This is the essence of leadership — effecting successful change and solidifying our position as the leading brokerage in the country.

Being progressive does not equate to being “woke.” It signifies a strategic approach rooted in analytics, technology, and engineering, a more efficient business model that yields returns for brokers and investors alike. To achieve this, it is vital to understand people’s needs, fostering an environment that retains top talent while navigating a Federal Reserve that acknowledges the necessity for affordable housing solutions.

Policies that incentivize maximum returns on illiquid assets are essential, especially when economic conditions seem tight due to inflation and job market fluctuations. Although firms like Goldman Sachs and Citigroup have reported better-than-expected earnings, this does not automatically translate into benefits for the real estate sector. We inhabit a world that craves instant gratification and demands the utmost value for earned dollars — a world that calls for change on local, global, and environmental fronts.

Reflecting on the events of 2024, I am more convinced than ever of our responsibility to ensure that our legacy enables future generations to dream bigger and recognize that their voices can and do effect change. As I stand on this platform, discussing real estate, I see it as an opportunity to advocate for a more holistic transformation. The real estate sector continues to astonish me with its ongoing performance.

As we approach the end of the year, the past few weeks have been among the most fruitful in terms of transactions I have witnessed all year. Why is this the case? I suspect that people are beginning to realize that market dynamics will shift in the new year, with interest rates likely to decrease along with fluctuating sale prices and inventory. It seems prudent to capitalize on opportunities now, even if it means accepting slightly higher rates with plans for refinancing as rates adjust downward, in line with Powell’s predictions for 2025.

The 50-basis-point adjustment in early October reignited our sales market, leading to reductions in asking prices. This makes participation almost irresistible, particularly when it includes refinancing intentions. The Federal Reserve anticipates four additional rate cuts over the next year, each by 25 basis points. If this occurs, I believe people will feel comfortable acquiring property and financing it at higher rates with plans to refinance later.

I find myself invigorated by change these days. While I have not always welcomed it, I am immensely proud of the changemakers who have dared to step forward when many prefer to stay in their comfort zones. Real estate is a unique mechanism where fear and hope coexist within the same bricks and mortar.

Throughout this past year, we have witnessed significant changes in the real estate landscape, from National Association of Realtors (NAR) adjustments in commissions to shifts in rental laws. Yet, the ultimate response to these developments has been that sellers and brokers maintain the status quo, which has played out consistently. We recognize that imposing restrictions only reinforces the truth that people do not have to comply. We have seen interest rates soar to 8%, but they are now returning from those peaks, and we anticipate further reductions. While fluctuations may occur, the overall sales market has undergone considerable capitulation, presenting fantastic opportunities for prospective buyers.

I want to express my gratitude to all those who have courageously stepped forward and allowed me to partner with them in the buying or selling process, even when the climate was less than favorable. Together, we will witness the results and returns that follow.

This past year has been a year of profound learning — a time for all of us to reflect on who we are and how we choose to navigate this new world. I wish you a meaningful, joyful, and loving end to the year, and may 2025 bring forth all that was previously lacking.

Issue 127 – The Price Isn’t the Price

A new calculation is changing what a New York apartment is actually worth. For decades, NYC real estate has been obsessed with price per square foot. However, now we may be entering the era of cost per year.

Consider two apartments of the same size, price, amenities, light, view, and location. If one has $6,000 in carrying costs and the other $11,000, are they really worth the same amount?

Increasingly, I would argue they are not because buyers aren’t simply purchasing apartments anymore. They are purchasing the economics of the buildings they’re in, which are starting to matter enormously. Think: insurance, labor, utilities, repairs, taxes, assessments, energy compliance, staffing, capital improvements, and reserves. While monumentally important, none of these photograph well, but all determine whether an apartment is easy to own — and eventually sell.

We have always understood that certain characteristics affect value: a lower floor trades differently from a higher one, an awkward layout matters, a protected view commands a premium, and poor light equals a discount. However, I contend another discount is related to the aforementioned carrying costs.

The sexiest amenity in New York real estate may soon be a healthy balance sheet. That sounds less exciting than a lap pool, unless you are the one writing the checks. Operating costs in New York have been rising, putting pressure on building budgets and making previously deferred capital projects harder to ignore.

The 2026 New York City Price Index of Operating Costs — which tracks expenses for the city’s rent-stabilized building stock — illustrates the broader pressure. Over the five years through 2026, insurance costs in that index increased more than 80%. Maintenance increased 29%, utilities more than 26%, administrative costs more than 21%, and labor nearly 16%.

Those figures aren’t a direct proxy for every condominium or cooperative in Manhattan. But they illustrate something anyone involved in operating New York buildings already understands: buildings are getting more expensive to run.

One mistake buyers can make is falling in love with the apartment and treating the building as secondary. In New York, you aren’t just buying four walls; you’re buying into a small economy. You’re inheriting its management decisions, staffing structure, physical plant, reserve philosophy, insurance exposure, and capital planning.

A building that deferred maintenance may appear inexpensive today because it hasn’t yet charged owners for the work it needs. That doesn’t necessarily make it inexpensive. It may mean the bill hasn’t arrived yet. Conversely, a building that recently completed an expensive façade project, replaced major mechanical systems, or invested in energy efficiency may initially appear less attractive because owners have already absorbed those costs. We need to consider which building presents the greater risk over the next decade. The answer isn’t always obvious from the monthly maintenance number.

Buyers understandably love low carrying costs, and brokers value them because they make a property easy to market. But low monthly charges deserve as much scrutiny as high ones. A good broker asks: Why are they low? Is the building extraordinarily well managed? Does it have other income? Are the reserves substantial? Or has the board resisted increasing common charges while postponing expensive work?

An important distinction exists between efficient and underfunded. A well-run building with appropriately funded reserves may ultimately be far more economical than one with artificially low monthly charges followed by recurring assessments. It’s not just the number that is meaningful, but the story behind it.

Few words cause more anxiety in a New York transaction than “assessment.” Even here, context matters because not every assessment is a red flag. An assessment financing a necessary capital improvement can actually strengthen the building. A new roof, elevators, façade work, upgraded mechanical systems, or energy improvements may protect long-term value.

The more important questions a sales pro considers are: What is the assessment for? Why didn’t reserves cover the expense? Is it part of a thoughtful capital plan or the latest in a recurring series of emergencies? And, perhaps most importantly, what comes next? A $500 monthly assessment with a clear end date concerns me considerably less than a building with no assessment, minimal reserves, and several million dollars of foreseeable work.

New York’s environmental requirements add another layer of complexity. Local Law 97 places emissions limits on many large buildings and creates increasingly stringent requirements over time. The encouraging news is that the overwhelming majority of covered privately-owned buildings are currently meeting the applicable limits.

But buyers should still understand what their particular building is facing; Has the Board commissioned the appropriate studies? What capital improvements may eventually be required? Has money been allocated? Is compliance incorporated into long-term planning? The concern isn’t whether a building faces a penalty today; it’s whether the building has a credible plan for tomorrow. That, increasingly, is part of due diligence.

New development creates its own version of this problem. Buyers are understandably attracted to pristine buildings with spectacular amenities and, sometimes, surprisingly reasonable initial common charges, but what will the building actually cost to operate when it is fully functioning?

Pools, spas, private dining rooms, screening rooms, landscaped terraces, playrooms, fitness centers, and mechanical systems all require staff, maintenance, and money long after the sales office closes.

The glossy brochure tells you what you’re getting. The budget tells you what you’re buying — both matter.

This conversation also requires nuance when comparing co-ops and condos. A co-op’s maintenance can initially look dramatically higher because it often incorporates expenses that a condo owner pays separately, including the shareholder’s proportionate share of the building’s real estate taxes. A condo may show a lower common-charge number while property taxes sit alongside it.

So, comparing maintenance to common charges without understanding what each includes is meaningless. The correct question isn’t: Which monthly number is lower? It is: What is my total cost of ownership, and what am I receiving in return? I believe strong building economics will increasingly become an amenity in their own right.

Brokers spend an immense amount of time learning how to talk about marble, appliances, ceiling heights, views, and finishes. We should be equally capable of explaining the financial health of the building we’re selling, because that is a big part of valuation.

None of this means price per square foot is irrelevant. It’s still an important metric. But like any metric, it becomes dangerous when used without context.

I’ve spent my career watching New York buyers pay premiums for things that cannot easily be replicated, including light, views, ceiling height, architecture, location, outdoor space, great proportions. But I always add another thing to the list: financial soundness. That may not command the same emotional response when someone walks through the front door. But increasingly, it may command something just as valuable – confidence, which matters in uncertain markets.

For years, we’ve asked buyers how much apartment they can afford. Now we need to start asking them how much building they can afford.  Because in New York, you don’t just buy the apartment — you inherit the economics beneath it.

Recent Reports

SUBSCRIBE TO THE KATZEN REPORT

UP-TO-THE-MINUTE PULSE ON REAL ESTATE