Luxury market defies slump

Kathleen Lynn, The Record, Hackensack, N.J.

Apr. 27--Though construction is down dramatically in New Jersey and nationwide, builders are still knocking down older homes in Saddle River and Upper Saddle River and replacing them with luxury houses.

The builders of these homes believe that the wealthy are largely insulated from economic worries, and ready to buy million-dollar-plus mansions inspired by Newport shingle homes, Tuscan villas or French chateaux.

"You have to think positively. There are buyers at that level," said Scott Forbes of Forbes Enterprises in Saddle River, who is looking for a buyer who'll pay $8.475 million for a 10,500-square-foot mansion featuring, among many other things, a two-story walk-in closet in the master bedroom.

"There's a lot of new construction in Saddle River, some speculative and quite a bit custom," said Vicki Gaily of Special Properties in Saddle River. "There are buyers who can write the check, and they do it if the home suits them."

Saddle River and Upper Saddle River are a microcosm of the luxury market in North Jersey -- a world where a real estate agent who talks about a "$1 million cottage" is not trying to be funny.

Not every builder is confident about the high-end market. Chatham-based Pinnacle Cos., for example, stopped building single-family luxury homes on spec last year, though it will still build custom homes.

"Saddle River is still a healthy market, but it's not a market for speculators," said Naomi Friedman of Classic Realty Friedman Associates in Saddle River.

Sales volume dropped in Saddle River and Upper Saddle River in 2006 and 2007, compared with the first half of the decade. But prices have stayed high, at a median $2 million for Saddle River last year, and $968,500 for Upper Saddle River. And real estate agents say this spring market feels relatively lively, with a recent flurry of deals.

In Saddle River, streams and ravines crisscross the hilly landscape, and trees surround giant houses on winding streets. This is a different kind of real estate market, where CEOs, sports and entertainment celebrities and Wall Street wizards buy privacy and luxury. Only a handful of houses are on the market for under $1 million.

Just to the north, in Upper Saddle River, the lots are smaller (generally 1 acre to Saddle River's 2) and the prices are more reasonable -- though not exactly affordable housing.

These towns are not completely immune from the housing downturn and the economic woes that have followed. During the housing boom, many investors and speculators with little building experience got into the market; many have apparently pulled out now, observers say.

One threat to this market: layoffs on Wall Street, where many of these buyers historically have worked.

On the other hand, Stephanie Rosken of Prominent Properties Sotheby's in Tenafly said wealthy foreigners, who have a lot more buying power because of the cheap dollar, have been looking for homes in places like Saddle River.

Rosken is the listing agent on the Russell Simmons house, the most expensive property on the market in Saddle River. Listed at $23.9 million, it has been on the market for more than a year. A European was interested in that house but was put off by the $100,000 annual property tax bill, Rosken said.

No matter what the overall real estate market is like, it always takes longer to sell a multimillion-dollar house than a $350,000 starter house, because there are just fewer buyers who can even think about paying millions. The New Jersey Multiple Listing Service shows 209 houses on the market for $2.5 million and up in Bergen County. According to Jeffrey Otteau, an East Brunswick real estate appraiser who analyzes the housing market statewide, that's a four-year supply -- meaning that at the current pace of sales, it would take four years to sell all those houses. That compares with an 11-month supply of houses overall.

"We still have more inventory than we have purchasers," said Terrie O'Connor of Terrie O'Connor Realtors, which has offices in Saddle River, Allendale and Ridgewood. "Houses are selling at a slower pace, but the luxury market still has people purchasing."

In the current market, even affluent buyers want to get a good deal, said Patrick O'Keefe, a director with the J.H. Cohn accounting firm in Roseland, and former executive director of the New Jersey Builders Association.

"While they're not bound by financial constraints, they, like everyone else, are aware that real estate prices across the spectrum are under pressure," O'Keefe said. "They're going to be less inclined to overpay."

"A lot of people who have a lot of money, I think they're waiting it out," said Barbara Colella of Prominent Properties Sotheby's International Realty in Saddle River. "They think it's going to get worse and they're going to get the steal of a lifetime."

For example, she had one prospective buyer offer $2.6 million on a house listed at $3.5 million in Saddle River. The seller didn't even bother to counter-offer.

Ann Matri of Coldwell Banker in Saddle River said some builders have responded to the current market by cutting prices.

"We had an overabundance of new construction in Upper Saddle River," she said. "They've lowered the prices and people are seeing the value."

For example, she has listed a 6,700-square-foot brick house on Rolling Ridge Road in Upper Saddle River for $2.3 million. The builder originally expected to price the home at $2.7 million.

"But while they were building, the market was dipping," Matri said.

Colella said one builder she is working with decided to add more features -- including a finished basement -- to a new home because "in this market, you need to give people more product."

Leonard Divak of Leonard Homes in Franklin Lakes, who is building several large homes in Saddle River and Upper Saddle River, said buyers are negotiating harder on price and taking longer to make up their minds. He said builders are accepting lower profit margins -- 10 percent to 15 percent, compared with the 20 percent or more they enjoyed in the housing boom.

"There are buyers out there; they just don't move as fast," Divak said. He has almost completed a 9,000-square-foot stone and stucco mansion in Saddle River, which is on the market for $6.5 million. He also has just completed a similar but smaller home in Upper Saddle River, which is on the market for just under $4 million.

Because there is little available open land in northwest Bergen County, builders who want to put up a speculative luxury house in Saddle River or Upper Saddle River typically start by buying an older home. They often pay $800,000 or more per acre. They tear down the old house, get approvals from the town and work with an architect to include all the extras that luxury buyers expect.

That generally means a house of at least 6,000 square feet. The houses usually have two-story foyers, often with marble floors; two-story great rooms; and granite counters, tray ceilings and lots of molding. Every bedroom has its own bath, and the houses often have two staircases.

In the most expensive homes, the main floor often includes a wood-paneled library in addition to the living room, the great room and sometimes a media room.

You might think that people paying millions for a house would want to customize the place to their own taste. But both Divak and Forbes said many wealthy buyers don't have the time to pick out tile, countertops and light fixtures.

"They just want to walk in and write a check," Forbes said.

Looking ahead, there's some evidence that builders are buying fewer tear-downs, Colella said. That suggests there will be fewer high-priced houses in the pipeline in the next couple of years.

But sooner or later, Colella said, the cycle will turn again. "I've seen these markets before, and I've seen them come back," she said.

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