Stephen G. Kliegerman
President of Development Marketing
Luxury condos sit unsold as developers add yet more space
One Northside Piers seemed destined to be a winner when the project broke ground two years ago. The luxury condominium, on the waterfront in Williamsburg, Brooklyn, had sweeping views of the Manhattan skyline, a rooftop terrace and a screening room.
Indeed, the first units sold briskly after hitting the market in January 2007. Twenty-three months later, the views and all the bells and whistles are still there, but the buyers are missing.
Developer Toll Bros. has had to scramble to fill units that can range up to Manhattanesque levels of $900 a square foot. In August, the building began offering 10 two- and three-bedroom apartments in the 29-story tower on a rent-to-own basis.
"It's another incentive in our bag of tricks," said David Von Spreckelsen, senior vice president at Toll Bros., which is building a second tower next door and has a third waiting on the drawing boards.
Going, going—still here
So far, though, only one buyer has taken the offer.
Like over a score of other builders that flocked to Williamsburg, Toll Bros. faces plummeting demand just as the number of units is soaring.
The supply surge is the result of a major rezoning three years ago that allowed residential development in once-industrial areas and that triggered an explosion of construction and conversions.
Plans for 7,000 condos were announced as developers bet that people would pay top dollar to live in one of the city's hottest up-and-coming neighborhoods. In doing so, they were also wagering that buyers would overlook such things as long hikes to the subway along streets that were still lined with factories and warehouses.
Builders have been especially active on the north Williamsburg waterfront along Kent Avenue, three blocks from Bedford Avenue's hip bars, shops and restaurants. Farther south along the waterfront, a project at the old Domino Sugar Factory is envisioned that would add 2,200 apartments, including 660 affordable housing units.
As the neighborhood's reputation as a hipster haven grew, so did its appeal to young professionals looking for cheaper alternatives to SoHo, TriBeCa and other trendy Manhattan areas.
Sales at many of the early, less expensive conversions went well. Then the financial crisis hit. Owners who once saw the Williamsburg waterfront as a sure thing are being forced to offer a host of goodies to entice people to pricey new residences, even as competitors move ahead with their own projects.
In addition to the rent-to-own program, Pennsylvania-based Toll Bros. offers buyers points off their mortgage loans through various financing plans.
Stephen Kliegerman, executive director of development marketing at Halstead, says builders throughout Williamsburg are offering to pay buyers' closing costs, typically 4% to 6% of the purchase price, or transfer tax, which totals 1.825% for a unit selling for $500,000 to $1 million.
At The Edge, which features 575 luxury condos in two towers and 350 affordable rentals in lower-rise buildings, sales began strong in April but have tapered off drastically. The initial pace of five purchase contracts a week has slowed to one or two, according to Queens-based Douglaston Development. As of late October, Douglaston had sold only 110 apartments; it shelved plans for another 40-story tower.
"We're continuing to have interested people come and kick the tires, but they're hesitant to pull the trigger," says Douglaston Chairman Jeffrey Levine.
So far, Mr. Levine is resisting the temptation to cut asking prices, which run to more than $900 a square foot.
Meanwhile, at least one Williamsburg landlord is offering prospective buyers who are worried that they will miss out on tomorrow's price drop some peace of mind. Fifth Square Partners, developer of the 88-unit Steelworks Lofts near the waterfront, is pledging that all sales will be at the lowest price available at the time of the closing. Studios in the former steel warehouse are on the market for $495,000.
WHERE'S THE SHOPPING?
A glaring problem is emerging as people move into the new apartments along Kent Avenue—the profound lack of essential services, including dry cleaners, drugstores and grocers. Developers expect a boom in waterfront retail, but no leases have been signed so far along Kent Avenue, where asking rents hover at about $60 a square foot.
Douglaston Development Chairman Jeffrey Levine says he is in preliminary discussions with an upscale supermarket. A dry cleaner and restaurant have also told him they're interested in taking space.
David Rosenberg, an executive vice president at Robert K. Futterman, says retail businesses are taking a wait-and-see attitude toward the Williamsburg waterfront.
"You need the population, then retail follows," Mr. Rosenberg says.
Saturday, November 29, 2008