Fewwill cry for Gary Barnett, founder and president of New York's ExtellDevelopment, who disclosedin an Israeli regulatory filing in March that his firm had sought mezzaninefinancing to help it complete three Manhattan projects, amid growing buzz thatthe city's high-end condominium market had peaked.

Tearsare probably not in order anyway: The priciest condos in the city are stillvery pricey — albeit less so than they were a year ago — and supply tightness,for condos and rental apartments, persists in New York outside the market'supper tiers. Yet the prospect of tighter financing for Barnett, who famouslyhad the resources to keep building through the last decade's financial crisiseven as many competitors' projects ground to a halt, came as a warning oftougher times for the city's ultra-high-end residential market.

Observerssay the problems at the high end of the market have not trickled down to affectmore affordable properties, and they may not ever. Rather, a supply glut amongthe city's most expensive properties is evidence of New York City's housingpredicament: Land is so expensive that developers could only get the returnsthey sought in recent years by building luxury units. So build them they did,leaving most of the city's residents underserved and as desperate as ever foraffordable places to live while flooding the top of the market.

"Theproblem with that is that they're introducing all of this new inventory atbasically the same time," Alan Lightfeldt, a data scientist at StreetEasy,said in an interview. "These developers, I think, have a much higherexpectation of what they can get for these properties than what buyers canactually pay for it."

Too much of a good thing

Theexact peak of the luxury segment, which StreetEasy defines as the top 20% ofthe city's residential market, came in March 2015, Lightfeldt said. InFebruary, the median resale price of Manhattan luxury homes fell 0.1%year over year to $3.2 million, according to StreetEasy data. Luxury was theonly market segment to post a year-over-year decline, and midpriced Manhattanhomes, which the firm defines as those that sold for between $595,000 and $1.5million, posted the borough's greatest annual price growth. The median resaleprice for middle-tier Manhattan homes grew by 7.0%.

Theland under the three properties for which Extell sought financing help wasacquired cheaply enough that the company can sell units at relatively lowprices — in the $1 million to $3 million range — and target a segment of themarket where supply is still tight, Bloomberg reported. Yet many developers'plans and balance sheets are not so flexible, even as a confluence of factorschallenges the high-end market, Jonathan Miller, CEO of the appraisal firmMiller Samuel Inc., said in an interview.

Evenas the strong U.S. dollar has hurt foreign investors' buying power, land pricesin the city have stayed high while other costs have escalated, Miller said.

"Wejust came off the biggest housing boom in the modern era, and the low-hangingfruit has been picked over, so development sites are expensive," he added."This global luxury housing boom basically has mandated view as a keyamenity, so we're building buildings that are twice as tall as the last cycleon a much smaller footprint, so the materials and engineering costs are muchhigher. Everybody's building at the same time, so labor costs are at a high, sothe only thing you can sell is super luxury condos, and the only rentals youcan build are luxury rentals."

Moreover,the new landscape is unfamiliar for many players. Partly as a result of newregulations, the commercial banks that financed previous real estate booms havebeen relatively absent from the city's latest construction binge, while hedgefunds, sovereign wealth funds and private capital have backed a greater shareof the city's developments in recent years, Miller said.

"They'veall been smarter than everybody else until now," he said. "It was'game on' in 2011. Everybody at the same time, and everybody's in a silo. Andthen apparently at some point, in the last month or two, people are openingtheir windows and looking outside their silo, and all of a sudden they see allthese towers around them, and they're panicking. It's a strange but logicalconclusion."

Once bitten

Inresponse to price weakness in the New York luxury market, builders haveappeared to back off. Manhattan development site sale volume fell sharply inthe fourth quarter of 2015 and continued to slip in January and February, accordingto Real Capital Analytics data.

JimCostello, a Real Capital Analytics spokesman, said in an email that developmentdeal activity is noisy, adding that the average recent trend is upward. Still,he said, continued weakness in development site sale volume could signal a realchange in the market.

StreetEasy'sLightfeldt, for his part, said persistently high land costs, coupled with theexpiration and nonrenewal of the city's 421-a tax abatement program for newresidential buildings, will lead to a sharp decrease in construction in 2016.At the same time, he predicted, condominium price growth could begin to flatten— and not just in the luxury segment.

"Timeon the market is increasing significantly across Manhattan and Brooklyn, so Ithink buyers are kind of taking a step back, evaluating the situation, perhapswaiting for prices to moderate even more, and we're forecasting that they'regoing to do just that over the next 12 months," Lightfeldt added.

Forapartment landlords in the city, including REITs, the condo market's bumpy ride— aside from offering a "circus sideshow" spectacle, in Miller'swords — brings good news and bad news. On one hand, as in the sales market,fundamentals in most of the rental market remain landlord-friendly, with newsupply lagging population and employment growth. Yet, similar to sales, thehigh end of the rental market is where new construction has been concentrated.

Besidesthat, Lightfeldt said, many buyers of luxury condominiums in recent yearstreated their properties as investments and rented them out. That strategy,employed en masse, has pushed luxury apartment supply even higher and sappedlandlords' pricing power. In both Manhattan and Brooklyn luxury rentals,Lightfeldt said, asking rents have been flat over the last year.

Thatflatness, coupled with continued escalation in rents and sales prices for NewYorkers seeking anything other than luxury apartments, points to an unhealthyresidential market in the city, Miller said.

"Inorder for a city to remain vibrant, the demographic profile has to be broad, itcan't be skewed only to the high end," he said. "I'm much moreconcerned about affordability for the 82% of the market with slow inventorygrowth than I am about the super-luxury oversupply."