The Ritz Herald
© Harry Gillen

NRIA Suggests That the Pandemic-Driven Exodus Out of New York Presents Opportunity for Contrarian Investing. Are They Right?

Published on October 04, 2021

According to data provided by NRIA, the perceived migration south is overreported and likely to be short lived. But is it?

After decades of building a life in the city, once die-hard New Yorkers, Alex and Diana Klurfeld found themselves spending more and more time in Miami and “when the Pandemic hit we really had to stop and think about where we wanted to live.” Says Alex Klurfeld. They took the better part of the year to think it through, mostly from their Miami enclave far from the COVID-fueled turmoil of Manhattan’s often empty, sometimes suddenly packed, city streets. With the new Delta variant seeming to plateau they find themselves returning to their NYC home. Diana Klurfeld has been devoting herself to a new volunteer project that brings awareness to underserved patient populations. “No matter what you are trying to accomplish, there still is no place like New York to get it done.”

After several years of searching, Natalie Saltzman and her family had finally found the perfect apartment and were signing the last of the papers just as 2020 began. Situated on the Upper East Side, in the same building her husband had grown up in, the apartment had everything they were looking for—it was spacious, right next to the park, within walking distance to their two sons’ preschool, and was priced at what seemed like a steal—but it would require no shortage of work to modernize the space and ensure it met all of their logistical needs.

Prepared for a year-long gut renovation, the Saltzmans submitted their plans for approval and extended their current apartment lease until the spring of 2021. “We were honestly kind of excited about it,” Natalie remembers. But just as they were getting ready to start the construction on their new home, news of a vicious and fatal coronavirus began circulating, and within a week, all of New York City had shut down in an effort to curb the spread. Suddenly, the Saltzmans were on total lockdown, forced to work from home and take care of their toddler-aged kids around the clock with no access to the outside world, and their renovation was put on hold.

In the weeks and months that followed, as COVID-19 shook the city to its very core, the family felt their anxiety mounting. “We heard sirens non-stop, and there was just nothing to do with the kids because even playgrounds were closed,” Natalie says. “So, we decided to go stay with my in-laws in Palm Beach, where the pandemic hadn’t really picked up yet and the kids could at least be outside and do all the things that keep them busy and distracted and help them get their energy out.” But in their decision to leave the city for a little while, the Saltzmans knew that it meant they wouldn’t be around to oversee the renovation on their new apartment, if and when it could resume.

“We just sort of sat on the apartment and were obviously still paying maintenance,” Natalie explains. “But as time went on, we realized we were just pouring money into it and nothing was moving forward, and we wouldn’t be able to move in when we planned.” When the co-op building finally gave the greenlight for construction to resume in August, the Saltzmans had already been sitting on the place for six months, and even if they chose to start the renovation at that point, they’d have only until November, when the building’s no-work hours once again went into effect until March.

When the Saltzmans returned to New York in September, after spending the summer in Palm Beach and with Natalie’s family in Europe, they were surprised to see how uncertain the city’s future still was. “We just felt very anxious,” Natalie says. It was unclear what would happen to schools and whether private schools would go the same way as public schools, which were closed for significant period of time, and a lot of the activities the Saltzmans would do on a day-to-day basis were rendered impossible by the pandemic and by the economic consequences it had on the city. “There was noticeably more homelessness than before, and I witnessed an assault, which wouldn’t have been such a big deal, but it was with my son in his stroller walking home from school,” Natalie recalls. “And a lot of our friends were leaving or even just going to their families’ homes over the weekends. But we don’t have a home outside of the city, and neither of us had family nearby, so we didn’t have anywhere to go. We were stuck in our apartment, and the city just felt different.”

The Saltzmans’ kids were able to do outdoor classes and enjoy the parks while the weather was still warm, but as soon as temperatures started dipping and everything moved indoors, their days were spent entirely at home once more. The family wondered how much longer they could go on in these circumstances but were reluctant to leave the city and the new home they still saw their futures in. “I think the last straw was in late September when we were at this playground in Central Park called Billy Johnson,” Natalie says. “It’s a really nice playground, and it’s the playground that we always went to, but one day, we were there, and this woman just started screaming, saying there was a rat in my stroller.” She turned around, and sure enough, there was a rat on the canopy of the stroller eating a snack she’d put there for her kids. “September 2020 was my 10-year anniversary in New York, and I’m really not grossed out by rats after so many years there,” Natalie explains. “But to see one in my son’s stroller in the park we’d always gone to, I just realized how bad things had really gotten.”

By the beginning of October, as the weather started changing and more and more people fled the city once again, the Saltzmans felt a growing need to reevaluate their plan, and they ultimately decided that it would be best to head back to Florida for the remainder of the school year. “We were a little bit late in the game though because most people had left the city in the summer,” Natalie says. “So, when we called the broker in Palm Beach, she basically said there was one house to rent in the area of the size we needed and in our price range and we had 24 hours to decide.”

Faced with growing pressure, they pulled the trigger and signed a one-year lease on the Florida rental, but the family was cognizant of the many expenses they still had in New York, between their current lease and the maintenance on their still untouched new apartment. The Saltzmans were convinced this would be a short-term move and were so concerned they would hate Florida that they didn’t even attempt to get out of their New York lease. “I genuinely had physical trouble leaving the city and coming here,” Natalie remembers. “The first few months were really hard, and it was really different from New York, but it’s definitely easier with the kids, and even though I disagree with all the local government’s policies regarding Covid, we at least know what to expect.”

And just six months after relocating to Florida, the Saltzmans once again found themselves shifting their plans. “I thought we would be coming back to New York before the summer and that we’d re-enroll the kids in their schools there by March,” Natalie says. “But they’re really happy here, and our landlord in New York wouldn’t even extend our lease because he wants to sell the building and move to Florida!” The family also decided to sell the apartment they’d purchased only a year earlier, recognizing that it would be a long time before they could even renovate, let alone move in, and unable to justify the money wasted in the interim.

Perhaps lending credence to NRIA’s position, Natalie still very much sees her life in New York and can’t imagine raising her children anywhere else, but she and her husband have come to the conclusion that Palm Beach makes the most sense for their family at the moment, and they now plan to stay there at least until spring 2022. “I miss New York, but I know that the city right now is not the one I know and love,” she says. The Saltzmans have talked about buying or renting in Manhattan down the line and have even felt compelled to do so now, even while they remain in Florida, in order to capitalize on the drop in pricing among New York real estate. “I think we’ll revisit this in the fall, but we’ll probably rent because the one thing we’ve learned from this is that when the city is great, it’s the greatest place ever, but when it’s not, it’s really bad,” Natalie adds.

The Saltzmans’ story is one that sounds familiar to many New Yorkers more than a year into the Covid-19 pandemic, when an estimated 3.57 million people have left the city for greener, often more suburban pastures. Other realty professionals seem to echo NRIA. “The exodus was natural,” says Craig Berger, the founder and CEO of Avid Realty Partners, a real estate investment firm in New York City. “A lot of high-earning, high-tax-paying professionals have left the city for Miami or Palm Beach, and a lot of them aren’t coming back.”

While the pandemic has certainly been a catalyst for many who’ve fled New York, Berger, like NRIA and other real estate industry moguls, believes it’s far from the only factor. “There a lot of reasons people have left,” he says. “Yes, Covid and people wanting more space is a factor, but it’s really not the main factor.” Instead, he points to policy decisions in recent years, such as the cash bail reform and no-chase laws, which he argues have led to increased crime rates. Also at play are New York’s comparatively high taxes. “It’s one thing to pay 55 percent taxes and live in a place that’s clean and beautiful and safe and full of activities, but it’s another thing to pay 55 percent taxes and get harassed by homeless junkies every time you step out the door,” Berger notes. “Taxes are very, very high, and a lot of the people who pay those taxes are leaving to Florida or Texas or Tennessee, all no-income tax states.”

Although some of these factors may have been brewing long before the pandemic, the sudden ability to work remotely, as well as the overnight closure of the myriad cultural offerings that once made New York seem worth the drawbacks, served as the impetus—and in some cases, the final straw—for many city-dwellers to finally leave. As this widespread flight began to unfold, the New York real estate market quickly became a casualty, with residential and commercial prices dropping immediately. “When we shut down in March, it was the bottom because we couldn’t do any transactions, and there was no understanding of fair value,” says Gea Elika, the principal broker of the New York-based ELIKA Real Estate. “No one knew where the reset would be, but as that reset came to market, it was cordial. Through the deal flows that I’ve seen, everything outside of Manhattan—Brooklyn, Queens, Long Island—has outperformed, but as the months have gone by, we’ve seen relative value come back to the city.”

Elika’s firm has seen a blended average of 20 percent market corrections, a number that many in the industry expected to be much higher. “New York is not a speculative market; it’s a mature market,” he explains. “So, if someone is expecting 40 percent swings overnight, that’s just ridiculous.” But even without the significant price drops that were anticipated, the pandemic’s effects on New York real estate have been impactful, and as well-heeled Manhattanites continue to flee the city in droves, selling their homes and terminating their leases to instead invest elsewhere, some wonder if now is the time for a contrarian strategy.

“There are people disposing of their assets and reinvesting in Florida or Texas, and there are other people who are finally capitulating and realizing that New York won’t be getting better any time soon, and they’re selling. There’s also just a ton of new condo development inventory, so there are bulk condo sales happening from developers to people who are willing to buy them wholesale and rent them out then resell down the line,” says Berger. “So, there are those opportunities out there, but whether or not they’re moneymakers is hard to say.” And while prices may be lower, it’s important to consider the various, still unanswerable questions surrounding the future of New York.

According to NRIA, “with remote work proving successful over the last year, many people who once had to be in New York simply because it’s where their offices were can now effectively work from anywhere.” Additionally, many of the industries and companies that have historically had large offices or headquarters in the city have moved to cities like Austin and Nashville in recent months. “I don’t think flex work is going away, and it’s definitely another major impact on the city,” Berger notes. “I don’t think any company is going to require employees to be in the office more than two and a half days a week anymore, and a lot of companies will allow people to work remote from other states.”

A spokesman for NRIA notes that “there’s also the question of culture. For many decades—and even centuries—New York has been widely accepted as a one-of-a-kind center for all things cultural, but the last year has seen nearly every aspect of that reputation tarnished, as museums, theaters, music venues, restaurants, and bars have closed in some capacity or entirely.”

“All of the things that make New York great are closed, and a lot of it has been closed for a long time,” says Berger. “Contrast that with Florida, where you can do anything you want, you can go out to restaurants, you can party all night, and actually, Florida has more nightlife than New York right now.”

Alex Kurfeld finds himself back in the city more than ever as his physical therapy practice doesn’t lend itself to remote work, for obvious reasons.

But, despite these huge unknowns, Elika, like the Klurfelds, remains optimistic about the future of New York and its real estate. “Those who have left New York might be gone forever and may never come back, but Manhattan is bigger than them, and it’s just a life cycle,” he explains. “You’ve got the people who need to be here and the people who want to be here, and that audience is still there, but it’s shifted a bit.” Over the last two months, he’s seen a new trend underway: that of the second home in Manhattan. “You used to have the people who lived in the city and would leave on the weekend, but I have a feeling that’s now going to be the reverse,” Elika says. “So, they may stay outside of the city but come back to Manhattan on the weekends, as the entertainment and lifestyle come back. It’s been happening, especially downtown, which is younger and has more restaurants that have survived and just more resilience, I’d say.” Alex Klurfeld notes that patients who once stayed home opting to forgo treatment for fear of getting Covid, are coming in for their doctor and pt appointments once again.

Like NRIA, the broker also believes that the pandemic’s most long-lasting impact will be that developers will stop building and banks will stop funding such developments for several years, but that may ultimately be a good thing. “It’s an island, so it will always be constrained by land,” Elika notes. “It can only grow vertically, and if it’s not going vertical for the next three to five years, or however long the banks and the developers will cool, pricing will tighten as the market tightens.” If for no other reason, investing in real estate, be it in New York or elsewhere, is typically a safe bet. “You can’t keep all of your money in the bank, and the stock market can be very volatile,” he says. “Property, while it can have corrections, is never going to lose half of its value overnight, and it will almost always bounce back—just like New York.”

Business Editor