The Real Deal New York

Trying to make a fat profit from a luxe condo flip? Your time may be running out

Returns on quick resales have fallen to about 15 percent

February 01, 2016 08:08AM

From left: 181 West 87th Street on the Upper West Side and One Madison in the Flatiron District

From left: 101 West 87th Street on the Upper West Side and One Madison in the Flatiron District

As the supply of new luxury condos booms, returns on fast resales are falling from astronomic to merely pretty good.

Returns on new Manhattan condominium flips has steadily fallen over the past year, to an average of about 15 percent, down from as much as 30 percent in recent years, Crain’s reported.

The fall is part of the overall slowdown in sales at the top end of the luxury residential market, brought on by a glut of new supply, as well as by macroeconomic shifts both in the U.S. and in the countries from which many high-end buyers hail.

Fast resales of new developments are risky, but often highly profitable. The highest returns are usually made by buyers who purchase very early in the development process, before a project has seen 15 percent of its units go into contract, the threshold at which the Attorney General’s Office declares offering plans effective.

“Early on, the [developer] and the broker are [often] offering low-hanging fruit,” Nancy Packes, a real estate consultant, told Crain’s.

Back in July, The Real Deal chronicled the top apartment resales over the past year. The largest profit made in that period was $2.2 million, on a penthouse at Bazbaz Development’s 101 West 87th Street on the Upper West Side. That apartment sold for $10 million in November 2014, just 127 days after it sold for $7.8 million, a nearly 30 percent profit.

The four next most profitable flips were all at Related Companies and HFZ Capital Group’s One Madison at 23 East 22nd Street in the Flatiron District.

Flipper will still reap rewards. A 15 percent profit over a relatively short period isn’t bad, but the past year’s sky high returns may not be coming back for a while.

“Developers will probably still prime the pump,” said Jonathan Miller of Miller Samuel. “But the market might not be able to support two, three or four price increases—meaning the initial investor won’t get the same instant equity.” [Crain’s]Ariel Stulberg