Stephen G. Kliegerman
President of Development Marketing
If there's one thing that residential real estate experts agree on, it's that there's demand for new development condos in New York City. But that demand doesn't mean that everything is hunky-dory in the new condo market again.
In this month's Q & A, The Real Deal talked to new development brokers, heads of new development marketing companies and industry analysts about the strength of the new development market and the challenges that still exist.
They all said there are encouraging signs in the sector and exciting new projects -- like the Stahl Organization's Laureate on the Upper West Side and the Related Companies' MiMa on 42nd Street -- that could be bellwethers for the market.
But buying a new condo remains complicated for buyers.
For starters, even if a buyer is interested in a new condo, banks are still not jumping to issue them a mortgage. In fact, one source said that the disparity between getting a mortgage in a new condo and in a resale is still the biggest he's seen in his 25-year career.
And while confidence is up, buyers are demanding more information, including details on the financial solvency of the project.
Meanwhile, though some condo projects, including several that stalled during the downturn, are logging strong sales, developers are still negotiating, albeit far less often than they were during the worst of the downturn (think more on the order of 6 percent than 25 percent).
For more on which buyers are in the market for new condos, how the strong luxury rental market is ironically helping convince banks to lend developers money to build more condos, and how FHA financing is helping move units, we turn to our panel of experts.
New York City's new development condo sales were obviously hit hard during the downturn. What's going on with sales in that sector of the market today, now that the market has recovered somewhat, and how does it compare to three months ago, six months ago, a year ago and during the boom?
New development sales are doing very well and have been since the beginning of 2010. With limited new inventory and all of these properties still offering 10- to 25-year 421a tax abatements, the pace of sales and prices has been very encouraging. Markets like Williamsburg, which many reported as being "overbuilt," have come back. [For example], 80 Metropolitan has gone from 50 to 93 percent sold in nine months, and 58 Met is already over 30 percent sold in six months.
What are price discounts like at new development condos these days, and how does that compare to six months ago?
Prices are beginning to edge up. At 88 Morningside and 80 Met we recently raised prices. Overall prices are very stable and slightly higher than three to six months ago. If demand keeps the pace … I believe we are going to see further price appreciation until more inventory comes to the market, which won't happen in any significant volume until 2013 or so.
What are the biggest challenges to selling in new development condo buildings in New York City today, and how is that different than it was last year at this time?
The biggest challenge is timing, because buyers now want to touch and feel the product before committing, except on rare occasions. The other biggest challenge is the requirement that a building be 51 percent in contract -- or 30 percent for FHA -- prior to closing. Buyers want to know when you will reach that threshold, and it's impossible to put a date on something like that when you first open sales.
We've written a lot about how once-stalled new development projects have restarted construction and launched sales or leasing. But what's going on with brand-new construction for residential buildings in New York?
I don't think it will be like the early 2000s for a while, but some very savvy developers and financiers are going to be announcing some new developments in the next 12 months. That said, unless the city and state come up with a new real estate tax-incentive program, the only housing that will be built will be condos, because the development for rental housing does not pencil out well.
Sunday, May 01, 2011
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