High-end sales bright spot in home market.

"Firming up" and "bottoming, out" are key phrases residential experts are using to describe the marketplace.

While they admit some sellers who purchased in the late and booming 80's are losing both their shirts and buildings to the high prices and high interest rates, new buyers are plentiful for correctly priced multi-family apartment houses as well as large luxury apartments in solid neighborhoods.

Confidence has not returned, however, to the smaller and less pricey side of the co-op market with one broker citing the need for a middle-class advocate and incentives to give families a reason to remain in the city.

Appraiser Alan J. Greenstein, R.M., S.R. A., vice president of the New York State Association of Realtors and director of the National Association of Realtors, aid people are very concerned about jobs even though they can afford to buy and finance homes.

"They are concerned not that they can afford it today but that they will be able to afford it tomorrow," he said.

Greenstein said he believes values have bottomed out but prices are still either coming down or holding.

"It's a question of the seller's recognition that the value is below what the seller is willing to take," he explained.

"Hopefully, the new Congress and the new administration will be able to effect tax legislation that will act to stimulate the market," he said.

Greenstein cited changes in the passive loss tax allowance, a continued mortgage deduction, a first-time home buyer credit, and the ability to use IRA or 401(K) money without penalty as measures to stimulate home buying and the economy.

"Real estate is still the basis of our economy," he added.

Residential as Investment

Robert A. Knakal, managing director of Massey Knakal Realty, which handles small to mid-sized property sales on Manhattan's East Side, said this a great time for buyers because prices have dropped. But for people who bought the buildings in the mid- to late 80's, he observed, the market is horrible because prices for that product have fallen more than for any other property type in the city -- between 40 percent and 60 percent, depending on the neighborhood.

The main reason for this drop, he explained, is that, at that time, prices were more inflated and properties were selling for 10 to 12 times the gross rents.

Currently, in good neighborhoods, Knakal said, investors are paying 4 to 5 times the gross rent while in the secondary and tertiary market, investors are paying 1.5 and 2 times gross rent.

He cautioned that gross rent multiples are not as in vogue as they used to be.

"Today they are looking at the Net Operating Income (NOI) and putting on a cap rate appropriate for the neighborhood and then seeing how many times the gross rent is," he explained. "It's used as a barometer rather than the determining factor in the value. "

Now, price levels have dropped to the point where sellers are willing to finance these properties and prices are low enough that investors, both American and foreign, are interested in them again, he said.

"There is a security value that the rents won't go down," Knakal said, "and that it's a relatively safe investment because there is a perception that there will always be demand for housing in New York. " Martin J. Heistein, Belkin Burden Wenig & Goldman, said the firm represents many owners who are buyine, properties as prices have dropped. "It's good for New York, " he said.

Heistein, former RSA counsel for RSA, believes the rest of the 90's, however, are going to be tough years for these owners of multi-family housing. He cited a whole slew of issues for these asphalt jungle-worn owners: Lead paint; water upper case meters; an increasing involvement and interference by governmental agencies; tenants not paying rents; courts siding with tenants; and owners unable to afford property taxes.

John J. Gilbert III, president of the Rent Stabilization Association agreed, adding that the lead issue has more potential impact on housing than any other he has ever seen.

"We need leadership on the lead paint issue," he said.

Insurance companies are jumping out of the market and so far 11 companies have been granted exclusions, noting the companies now inspect for lead before writing policies.

"If an owner can't get insurance, then the bank can't underwrite the loan for purchase or reinvestment and we will cease to have investment in real estate," he said. "If you need to have a lead-free building, how do you get the money for the rehabilitation? The circle stops and you never ever can complete the circle."

Legal Issues

The firm is representing several institutional lenders who have foreclosed on properties and are having problems running the buildings.

"These lenders may have been savvy in terms of financing but have very little knowledge as to how to run a building, Heistein said.

In many cases, records are sketchy and the lenders do not know who is legally entitled to the apartment, who is living there or what the legal rent is because registrations and annual notifications were either not made or cannot be proven.

"It's producing much litigation and confusion," he said, adding that pending overcharge complaints can result in triple damages.

"When purchased at judicial sale there shouldn't be any triple damage," he noted, warning that the potential purchaser must be very careful. "We recommend a thorough search of DHCR (Department of Housing & Community Renewal) records and try to turn over every stone to protect a potential purchaser.

"The number one item on my wish list would be for DHCR to reinstate the provision that would have allowed owners to file harassment complaints against tenants," he said.

Co-op Scene

Co-ops are continuing to workout a new tier of sponsor failures while lenders, the RTC and FDIC are becoming skilled at these. And everyone is keeping an eye on lead paint. Co-ops are relaxing subleasing, keeping up on maintenance and shareholder arrears and requiring a year's maintenance in advance from foreign buyers.

Irwin Gumley, president of Gumley-Haft Inc., managers, owners and brokers, said from a management standpoint, people are watching the dollars more carefully while the boards of better buildings are maintaining their buildings and trying to keep the maintenance low.

The firm has also experienced a firming of prices and movement at the high end of the market.

"People are settling down and they are realistic," Gumley said.

He complained, however, that the real estate business is getting more difficult,

"We are no sooner dealing with asbestos than we're dealing with lead paint," he said.

Positive Signs

Richard S. LeFrak, president of the Lefrak Organization, said, since their properties are affordable rentals within stable urban environments, their overall vacancy factor is less than one half of 1 percent.

At Newport, the organization's newest community situated on the New Jersey Hudson River waterfront, LeFrak noted, 98 percent of the 1,504 rental units are occupied.

He anticipates continued stability in the market well into the 1990's. "In the near future we plan to announce several new rental buildings and residential communities to be built within the Metropolitan area," he hinted.

Alvin I. Apfelberg, a Manhattan attorney who represents many co-ops, said there are sales occurring where inside rental tenants purchased from the investor who bought the apartments from a sponsor.

"In one case," he said, "the tenant purchased to have a permanent residence and so he could bring his children in. There was a negative cash flow."

In another sale, an inside owner sold to a neighboring owner who wanted to potentially combine the apartments. The passage through the board of directors is far easier than that to an outsider coming in, Apfelberg said, because the board has a fiduciary responsibility to process applications in a timely fashion and treat them fairly.

"Some of the real old ones permit passage between shareholders in the same building without approval of the board or approval not to be unreasonably withheld," he said.

Sub-lease restriction removal is more frequent but so are shareholder arrears. "It's becoming a situation where the boards must monitor defaults with individual shareholders to make sure the maintenance arrears don't mount," Apfelberg said.

Workouts are also continuing on the co-op side. "We're getting into the tier of the sponsors who were less over-leveraged," he observed. "It depends on how many buildings they converted below 50 percent of sales. If they did 50 percent of sales, they are on pretty fair ground."

Due to the volume, he said, the banks and the RTC and FDIC are becoming a bit more knowledgeable in assisting in the workouts and to avoid a foreclosure.

Kathryn A. Korte, vice president and manager of Manhattan brokerage for Sotheby's International, said they are continuing to generate a lot of business in the third and fourth quarter. Buyers are split into two groups, she said, with some very much in the market and looking to make a deal before the end of the year.

There is a smaller group, however, with cold feet. "They are worried even when faced with the ideal property and are holding off and not going in with the offer," she said.

Elizabeth Stribling, president of Wells & Gay/Stribling Associates, said the apartments that are the most scarce are the three-to four-bedroom Carnegie Hill-type family apartments with a library. "If they come on, they move very quickly," she said. Stribling added that she didn't think the Greenwich Village property owners have been as realistic in their 1992 prices as their Uptown brethren, noting that these units are scarcer.

She does, however, see people refinancing now because they think interest rates may go up. Since they are so low now, though. Stribling does not foresee a problem if they rise slightly in the future.

People are continuing to buy, she said, with Wall Street partners back in droves. "The brokers are all busy," she said, "and we are up and the unit volume has continued to be up over each month of last year."

Frances Hadine, a townhouse specialist from the Uptown Stribling office, said the good properties are selling well.

"It's active and the top-of-the-line sells at record prices but it's harder to sell the more ordinary and middle range houses," she added.

Vicki Briamonte, senior vice president of William B. May, said they are selling more apartments this year than last.

"People have to live and they see it as the bottom of the interest rates," she said. "You can buy something for $300,000 and remember when it sold for 500,000 just a hair's breath ago - so you know it's an incredible opportunity. If you live in the city and believe in the city, you know it's your time."

Briamonte added that if people rent a large two-bedroom for $2,000 a month, they will never be able to save for a down payment.

But she complained that, while there are give-away programs and subsidies for very low-income families, there are no advocates for the middle class.