For the world's wealthiest, paying cash for a lavish Manhattan apartment was the ultimate status symbol. These days, even those buyers would rather get a mortgage.
Of all $5 million-plus home purchases in the borough, the share made with cash tumbled to 44% in the third quarter, according to appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. That's down from 80% a year earlier and the lowest rate since the firms began tracking the data in 2015.
Low borrowing costs have something to do with it, along with record highs in the stock market, where money might be put to better use. Mostly, it's a reflection of sagging luxury demand in Manhattan, where inventory is piling up and globetrotting foreigners seeking a haven have all but disappeared. For buyers who remain, financing is the best way to maximize returns when prices aren't expected to shoot up anytime soon. And eager sellers don't mind waiting for them to secure a loan.
"Five years ago, you could wait for a better option to come along, and it might be a better buyer as well," said Brian Meier, a Christie's International Real Estate broker who's pitching a $14.5 million townhouse to a customer relying on a mortgage. Now, "a better offer might not come along, so it's advantageous to take that financed deal."
Things were different just a few years ago, when the ultra-wealthy were clamoring to own lavish, sky-high spreads in glitzy, new towers. Paying cash was a hassle-free way to close a deal quickly, without the intrusiveness and delays of appraisals, which likely would raise questions when a buyer agreed to pay a record-shattering price.
An investment group that included hedge fund manager Bill Ackman paid cash for a $91.5 million penthouse at One57 in 2015, according to public records. So did the buyer of a $100.5 million apartment at the same building that year, a record in Manhattan at the time.
Fast-forward to last month, when a $14.8 million condo at One57 was purchased from the developer with a $10.08 million mortgage. The unit was originally listed in 2015 for $19 million.
"In a rising market, cash has more power, but in a stable or falling market, it's not as important," said Stephen Kliegerman, president of Halstead Property Development Marketing, which oversees sales at newly built condo projects.
Even high-end buyers are seeking to maximize tax deductions after a federal law limited write-offs for local levies to $10,000. While the mortgage-interest deduction is capped at loans of $750,000, getting financing at least gives you
"These are generally people who are buying the properties to occupy — we've lost most of our foreign buyers who generally pay cash," said Melissa Cohn, executive vice president at Family First Funding, who runs the jumbo-lending division specializing in high-end real estate.
New York's new, increased closing costs for luxury properties also are discouraging cash deals, she said. For units that sell at $5 million, "you're paying 7% of your purchase price in closing costs — that's a lot of money."
Almost any pricey new development
"Absolutely, I think it helps with sales," said Scott J. Avram, senior vice president at developer Lightstone. His firm has 10 lenders on call for deals at 130 William St., a 244-unit project in the Financial District, where a penthouse is seeking $20 million.
It's more common now for larger purchases to have some financing, even for just a fraction of the cost, he said. For instance, a $15 million buyer may seek out a loan for $4 million.
"It's a slow curve of acceptance," Avram said. "If they can take a portion of their purchase and take a mortgage, they can use that money in a more productive way."
