What's brewing in the Real Estate Market

THE PROPERTY REPORT
April, 2006

By Christine Haughney, Ryan Chittum and Michael Corkery

Russian Roots

Unlike many wealthy international buyers who opt for centrally located Manhattan homes, a growing number of upwardly mobile Russian and Ukrainian entrepreneurs are returning to their roots near Coney Island.

In the Brooklyn neighborhood of Brighton beach, more than 90% of the buyers in Muss Development LLC's 15th Oceana tower are Russian and Ukrainian immigrants who have lived in the neighborhood for years and are trading up, or are moving from Manhattan or the suburbs. They are paying $600,000 to more than $2 million for two- or three-bedroom and penthouse apartments.

Among the buyers: a family active in Moscow's fine arts scene, the owner of a Moscow construction company, and a Russian family that owns a foreign-exchange company.

"We're getting a lot of children who lived there for a few years," says Jason Muss, a principal in Muss Development, which built the Brighton Beach complex. "They'll buy smaller apartments on lower floors."

New York City has long been known for neighborhoods where new immigrants settle before moving to the suburbs or other parts of the city. For generations, German immigrants flooded to the Lower East Side and then moved to what is today's Upper East Side neighborhood of Yorkville. In the last several years, Korean immigrants who had settled in Flushing, Queens, in the 1970s have left for the Long Island and New Jersey suburbs and been replaced by Chinese immigrants.

Muss Development executives say some buyers are immigrants who have lived in U.S. suburbs and now want to return to Russian-speaking communities. Vadim and Yelena Chernobilsky, who arrived in the U.S. from Ukraine in 1988, spent nearly 15 years in Orange County, Calif. In 2002, they bought a three-bedroom apartment in the Oceana complex because it was close to relatives and friends. Now they are downsizing into a two-bedroom apartment in the newest tower. "At first you want to be like everybody else in the country you came to," says Mr. Chernobilsky, an industrial-engineering consultant. "But then we decided to be closer to our friends and parents."

But, so far, their 23-year-old daughter, Yana, who is in law school in Chicago, has her sights set elsewhere: She plans to live in Manhattan when she finishes school.

Mall Retreat?

In the search for signs of a spending slowdown by American consumers, this just in: The U.S. retail real-estate market showed weakness in the first quarter as strip-mall tenants filled up new space at a slower pace, sending vacancies up a bit.

Strip-mall tenants absorbed 2.9 million square feet in the first quarter, down from 8.6 million in the fourth quarter and 4.9 million in the year-ago period, according to a study by Reis Inc., a New York real-estate research firm that studied the top 67 retail markets in the U.S. It was the lowest rate of absorption in four years.

Still, strip malls are coming off their best year in five years, and asking rents went up 0.8% to $18.55 a square foot in the first quarter from the end of 2005. Vacancies crept up to 6.9% in the first quarter from 6.8% on a drop in absorption, or the net change in occupied space.

At regional shopping malls, asking rents rose 0.7% in the first quarter to $38.52 a square foot from the fourth quarter. Vacancies held firm at 5.5%.

Cultivating Culture

Developers constantly use perks to lure home buyers, but Martin Ginsburg, a Valhalla, N.Y., developer, is offering something a bit different.

Mr. Ginsburg, principal of Ginsburg Development Cos., is giving his buyers membership to local art museums and performing-arts centers near his developments, along the Hudson River and in Hartford Conn. In Haverstraw, N.Y., Mr. Ginsburg is also giving his home buyers $100 of what he calls "Haverstraw money," which can be redeemed only at certain local businesses.

The value of these incentives-memberships range in price $25 to $60-pales compared with the price of homes for sale in these developments, ranging from $232,000 to $1.1 million.

But Mr. Ginsburg says they support local cultural institutions and businesses and benefit homeowners. "We want to enhance these communities as much as we can," he says.