Host: While high borrowing costs have frozen much of the US housing market, the ultra luxury tier continues to play by its own rules. Now global wealth migration and an influx of all cash buyers are driving unprecedented demand for some trophy properties across Manhattan as well as South Florida. But even for developers that are shaping iconic skylines, Federal Reserve policy, as well as tight construction financing and uncertainties over the midterms, are reshaping how mega projects are getting built. Joining us to break down the ultra luxury pipeline as well as the financing environment is Michael Stern, founder and CEO of JDS Development Group. Michael, great to have you here. Thank you so much for joining me.
Michael Stern: Thank you for having me.
Host: Well, good morning. Today is Fed Day, and of course all eyes are on the nation's capital, but when it comes to the resilience that we're seeing in the ultra luxury space, tell us what's actually happening below the surface.
Michael Stern: Yes, so it's actually kind of a bifurcated space. You have the upper tier, which is an all cash buyer. They're not particularly rate sensitive, kind of the $20 million and up buyer, and the $5 million and under buyer, the investor buyer, is also very often a cash buyer, particularly in South Florida. But that middle tier, kind of 5 to 20, the dentist, the doctor, that's very rate sensitive. That market is actually struggling the most, which is maybe a little counterintuitive.
Host: Yes, and Michael, on the show we talk about the bifurcation that we're seeing in not just the housing market but also the economy, the K-shaped economy. But when it comes to actually construction finance as well as building some of the mega towers, walk us through the numbers.
Michael Stern: Sure, so construction financing is available again in a way it wasn't maybe a year or two ago. There's liquidity in the market, but you're seeing a lot of nonbank lenders starting to play in the market, which brings the blended rates up. You're seeing mezzanine layers and you're also seeing some new products, particularly in South Florida, like CPACE financing, which is green energy financing. So the financing is there, but it's more expensive and the developers have to factor that in.
Host: And you mentioned a key market. So I'm a New Yorker and I pay attention to what's happening here in the New York City metropolitan area. But what's happening when it comes to New Yorkers heading down to Florida, in particular South Florida?
Michael Stern: Yes, so I think that mass migration of New Yorkers heading down South post-COVID has slowed down for sure. It's still happening, but I think you're seeing a lot of New Yorkers migrate more to the suburbs for various tax reasons, less so than South Florida. And I think that South Florida is still remaining very strong, but New York is doing great.
Host: Yes, and I understand there's something that is being called the branded tower boom, and this includes Dolce and Gabbana as well as Mercedes-Benz. So where is the value, and does it really make a difference when we're talking about stats?
Michael Stern: Yes, so I think it depends on the market. I think in South Florida branded residences have become very popular, and the reason for that is I think it's a great way to give your brand ethos in a very efficient way to maybe a foreign buyer like a Latin American investor buyer who's not as familiar with the local markets and local developers, to say, OK, I understand what a Dolce and Gabbana brand might feel like and how that might translate. In New York, interestingly, the best buildings historically have tended to be addresses: 15 Central Park West, 220, 111 West 57th. None of these are branded towers. The branded kind of phase hasn't really occurred in New York at all.
Host: So you just mentioned the foreign buyer, and when we're looking at markets around the globe, we know a lot has changed since COVID ended. But what are you seeing right now when it comes to international buyers who are entering the US market?
Michael Stern: Yes, so I think the international buyer, and you really have to bifurcate markets again. In Miami, that buyer tends to be Latin American, Mexico, Brazil, Argentina. That buyer is just looking for a place with rule of law and stability, and that cash is still flowing into the market. In New York, it's much more diverse. You have a lot of Asian buyers. You have Eastern European money. There's just a lot of Middle Eastern money. There's a lot of money in the market. But it's been very strong.
Host: And Michael, of course today is Fed Day, but we're also looking ahead to another big catalyst that could potentially affect the markets, and that is the midterm election. So it is hard to believe, but we are in the final quarter of 2026. So tell us about some of the uncertainties surrounding the midterms as well as geopolitics and how that's actually affecting the space.
Michael Stern: Yes, so I think any time we're getting close to an election, whether it's midterms or presidential elections, what you get is just paralysis of analysis. People just freeze and wait. It tends to make financial institutions wait to see what's going to come, and it tends to make buyers just feel queasy and just not willing to make a move. They're like standing on the edge of a cliff ready to jump, but they won't actually make the jump.
Host: And what about the role of tax policy here when we're talking about the ultra luxury space?
Michael Stern: I think tax policy is critically important. I think the Petit tax has certainly made some people think twice about buying ultra luxury Manhattan real estate, and I think just generally that's what's driven a lot of the migration to South Florida for people that are very tax sensitive. So tax policy is critically important.
Host: Michael, we all know that there's a lot of sensationalism when it comes to the ultra luxury housing market, and especially in this day and age of social media there's a lot of hype. So if you could dispel some of the myths out there when it comes to the ultra luxury space, what would you say?
Michael Stern: Well, I'll dispel a myth that's kind of related to tax policy. I think there's been this perception that the ultra luxury buyers who don't necessarily live in New York don't really contribute and it's not really good for the fabric of the city, and I'll make the opposite argument. If you have somebody who buys an apartment, pays very high property taxes, doesn't actually use the city's services, so it's not a drain on the city. They're not using the school system. They're not really drawing from the city, but they're contributing massive tax revenue. They come in and visit and shop and inject a lot of money into the economy. My argument is they're excellent for the city. And we should be encouraging it, not discouraging it.
Host: Yes. And finally, before I let you go here on Wall Street, we're counting down until the rate decision from the Federal Reserve, but I'm sure at JDS you are looking beyond the Fed rate decision, beyond year end, and into 2027. So what key trends are you watching for this space as you head into the new year?
Michael Stern: Well, as developers, we tend to be maybe a little delusionally optimistic, so I always try to stay optimistic. Look, I think that we're all interested to see what's going to happen with AI's effect on employment and how that impacts housing, but one of the nice things about the physical housing market is we create physical spaces for people. AI can't take it away. You still got to create the bricks and create the mortar, so we're very optimistic going into the new year.
Host: And Michael, we have about 60 seconds here. So since you mentioned artificial intelligence, how has it changed the industry?
Michael Stern: I think it's changed everything. I think you're seeing it in the legal space, like paralegal work has kind of migrated to AI. Financial modeling, we used to need very large teams to do financial modeling. Now we need really excellent people to check the financial models, not more people to create it. So I think it's evolved and it's ever changing. We're in shifting sands and we'll see where it all goes.
Host: Well, I appreciate your time, Michael. Thank you so much for joining us today and thank you so much for sharing all of your insight so much.
Michael Stern: My pleasure. Thank you.
