"Fright capital" is a catchy new phrase to describe a supposed trend in which European buyers, worried about the shaky state of the European economy, are investing in high-end NYC condos to keep their money safe.
Uber broker Dolly Lenz recently spoke about this phenomenon on CBS. She credited it with making the luxury condo market (not co-ops, which traditionally turn a cold shoulder to foreign buyers) even more competitive, especially since many of these “fright capital” buyers pay cash.
We checked in with several NYC real estate folks to find out whether they thought the fright capital concept was myth or reality, and how New Yokers can compete.
1. Alejandro Beitler, broker with MNS
Myth or reality? Reality
“What I am seeing is a market where foreign nationals are still wanting to purchase in Manhattan as a ‘flight to safety.’ New York real estate is a safe investment as opposed to many emerging markets where bubbles may be forming. The smart money is betting the recession in Europe will be prolonged and deep and the slow down in Asia will be protracted. Therefore, the safe investment is Manhattan real estate where prices are at 2006 levels and the upside is considerable.”
Tips for competing against fright capitalists:
- "Include an offer letter that clearly states that the buyer has hired a NYC attorney specializing in real estate. No time will be wasted sending out contracts and the comment process will be very efficient."
- "The offer should clearly state that a national bank with a branch in NYC has pre-approved the U.S. buyer's mortgage, giving the seller confidence the deal will be executed with local representative."
- "Lastly, good old fashion communication with the seller's broker assures the seller that a pre-qualified local buyer may be able to closer in a timelier fashion.”
Myth or reality? Reality
“I’m not familiar with the term, but the concept does exist. People are coming in droves from Europe and South America, Russia and China too. And they’ve sparked the condo market for the last year. Some of these buyers make deals with financing involved, but most are cash only.”
Tips for competing against fright capitalists: “Consider a co-op, where there’s not as much competition.”
3. Noah Rosenblatt, founder, UrbanDigs
Myth or reality? Myth.
“I don’t know how we can quantify that rising volatility and rising uncertainty in the euro zone is actually adding confidence and enlarging the depth of the buyside pool that’s interested in Manhattan real estate. To me, confidence trumps all. In 2006/ 2007 Ireland was on fire, and a bunch of Irish people were buying Manhattan properties, then Ireland imploded, and all of those went away. If there’s flight capital, what happened to them?
Rising volatility has a negative effect on buy-side confidence. In my opinion, it would shrink interest in Manhattan property. It puts everyone in a wait-and-see position.”
4. Jacky Teplitzky, broker with Prudential Douglas Elliman
Myth or reality? Reality -- but not from Europeans.
“I actually see it from South America. Number one is Argentina. There’s huge turmoil there because people cannot buy dollars and there are restrictions on getting dollars out of the country. Argentinians are looking in Miami and New York.
Then, the number two that I’m seeing is Brazil, which is experiencing a real estate bubble. Within one year, the value of their properties have gone up by about 80 percent, but they don’t believe it’s sustainable. People with a lot of properties down there are selling and buying in NYC. Buyers from South America are looking for all types of properties --- sometimes it’s five people looking to put $10 million into the market, looking in retail, mixed-use, any possibility. South Americans have more faith in New York real estate that Americans -- we’re incredibly stable for them.”
Tips for competing: "Don't overdo your analytical pricing and wait too long as the foreigners will pay ask or close-to-ask because of scarcity of product, and then eventually prices will go up and you -- the American buyer -- will end up paying even more."