Stephen G. Kliegerman
President of Development Marketing
By CANDACE TAYLOR
Development projects beginning to hit the market and in the pipeline show a paradigm shift to scaled-back amenities, with builders scrapping costly features to appease value-hungry buyers who are balking at shelling out higher prices in exchange for elaborate items they don't consider necessities.
While high construction costs, an economic slowdown, and the scarcity of lucrative tax abatements for new condominiums have been hurting developers for some time, builders are now changing tack in earnest as lower rents are taking hold, and first-quarter numbers clearly show a marked drop in real estate sales volumes.
According to Citi Habitats, Manhattan rents increased just a hair in April compared with the same period last year, but certain pockets have shown a steep drop-off. In SoHo, for example, rents for studio apartments fell 24% in April compared with last year, to an average of $1,855, while on the Lower East Side, the average rent for a two-bedroom plummeted nearly 18%, to $3,403.
Meanwhile, the number of sales in Manhattan declined 34.3% in the first quarter compared with the previous year's first quarter, to 2,282, according to appraisal firm Miller Samuel.
The Georgica, a 58-unit condo on the Upper East Side that went on the market two weeks ago, will have only a gym, a children's playroom, and a roof garden.
"Instead of having bloated common charges and having to charge more for the units, we wanted to come up with something that was a really good value," the managing director of the Prudential Douglas Elliman Development Marketing Group, Andrew Gerringer, said. Two- to four-bedroom residences in the Cetra/Ruddy-designed glass tower, with white oak herringbone floors and floor-to-ceiling windows, average $1,500 a square foot, according to the Web site StreetEasy.com.
The Georgica is in stark contrast to many projects of the past few years, where features such as a robotic car-retrieval system at 123 Baxter St. and a pet salon at the Ariel East were the norm. At Philippe Starck's 15 Broad St., residents were treated to a ballet studio, reflecting pool, and bowling alley, while 75 Wall St. boasts a sandy rooftop beach with cabanas.
"In the last seven years, buildings have gone amenity-crazy," the executive director of development marketing at Halstead Property, Stephen Kliegerman, said. Now, certain items such as gyms, washer-dryers, and roof decks are standard in new buildings, but anything more dramatic is falling out of vogue.
In a recent discussion regarding a high-end condominium coming to market in SoHo next year, the project's developer asked a group of marketers whether to expand the building's gym or put in a wine cellar. "Everyone in the room said, 'Give them a bigger gym,'" Mr. Kliegerman said. "You can definitely over-amenitize a building."
Unlike a gym, which is widely considered a necessity, creating common spaces such as movie screening rooms, playrooms, or spas is harder to justify. "With construction costs climbing, they're looking to maximize sellable square footage," Mr. Kliegerman said. "You don't hear as much about frivolous amenities."
Moreover, some features, such as pools and spas, add to common charges because they require staff — an increasingly unpopular feature in a softening housing market.
Another factor limiting amenities is the sunsetting this spring of the 421-a tax abatements, which had allowed developers in areas of downtown Manhattan and Brooklyn to offer tax abatements for buyers at new condominiums. This had enabled those projects to have much lower monthly common charges. Now, buildings that will be constructed without this abatement will have to compete with competitors that are as much as 40% cheaper, Mr. Gerringer said.
Some larger buildings and those in boroughs other than Manhattan, where there's more space, likely will continue to offer a wide range of amenities, Mr. Kliegerman said. For example, a building he's marketing in Flushing will have a golf simulator, "but it's 1,200 units," he said. "You can do that in a building of 1,200 units."
At focus groups for 133 W. 22nd St., a new project by the Ascend Group, which developed the Georgica, potential buyers said they didn't want a virtual game room, movie screening room, or dog-walking facilities. "Most people didn't care about those oddball amenities," the president of the Ascend Group, Robert Kaliner, said. "They thought it was a waste."
The focus groups did want an outdoor pool, as many of the new Chelsea buildings don't have one. The 99-unit building, slated for completion in 2009, has been on the market about seven months, Mr. Kaliner said, and five or so units are left.
Another developer, the Athena Group, is also focusing on pared-down buildings. Construction will soon finish the developer's 250-unit A Condominiums in Jersey City, and 111 Central Park North, a 19-story Central Harlem tower on the edge of the park. Both buildings have fitness centers and party rooms, but few other amenities.
"My amenities are my value, my location, and my proximity to transit," the director of sales and marketing at Athena, Harry Dubin, said. "Everything has to do with giving someone the most for their money."
Developers tailor their projects to the market, and unlike a year ago, buyers today are "looking for value," Mr. Dubin said. "With the fundamentals out there today, there's no urgency. No one's right behind you to write that check if you don't."
Friday, June 06, 2008