The Real Deal New York

Feeling the fallout in Chelsea

Will bumper crop of new condos cause area to suffer more than the rest of Manhattan?

April 01, 2009
By Alex Ulam

Perhaps no neighborhood in Manhattan epitomizes the recent bull run in real estate more than Chelsea.

The neighborhood has seen more than 30 new development condos
debut since 2006, with more in the works, including a 369-unit luxury
rental on 11th Avenue being developed by Douglaston Development, and
the art-themed +Art on 28th Street, which will have its own gallery
space and reflecting pool.

But some are wondering whether the West Side neighborhood will
suffer more than other areas of Manhattan because of all of the
building that took place during the boom.

Market analysts told The Real Deal that a year ago,
new residential developments on the western edge of the neighborhood
were priced 10 to 15 percent higher than comparable apartments in other
parts of the city. In addition, they said condos designed by
starchitects such as Jean Nouvel and Shigeru Ban were commanding 30 to
40 percent premiums.

Today, however, most buyers and sellers are not asking, “How high will prices go?” but rather, “How far will they fall?”

Chelsea — which in addition to its new glass towers is home to the High
Line, a defunct elevated rail track that is being turned into a park
and has become a pet project of celebrities including actor Kevin Bacon
and fashion designer Diane von Furstenberg — has already seen a wide
range of discounting. Price cuts have ranged from roughly 37 percent
off a loft resale on West 19th Street, originally priced at $1.975
million, to between 8 and 9 percent off three remaining apartments last
month at the new West 21st Street Indigo condo, which has a
zinc-and-aluminum façade with a distinct indigo-colored stripe.

Brokers who specialize in the area say many of the discounts are not even officially listed, especially for new construction.

“Developers have tried to keep the published prices the same to
keep face with the people who already have a contract,” said Gil Neary,
president of the Chelsea-based DG Neary Realty, “but they will quietly
negotiate with you if you have a sincere buyer who is ready to rock ‘n’
roll.”

Still, despite the discounts, the median list price of new
condos is up by about 0.5 percent compared to last year at this time,
according to StreetEasy.

Data from the firm also show that of the 334 active new development
condo listings on the market in the first quarter of 2009, only 77 are
being discounted.

“It is harder to find a bargain in new development,” said Sofia Kim,
vice president of research at StreetEasy. “Developers would rather pay
for closing costs or the mortgage tax.”

Jonathan Miller, president of appraisal firm Miller Samuel,
noted that discounts cannot be given as easily at new developments as
they can at resales because of all the restrictions the bank places on
the builder.

“As long as they have equity in their apartment, individual
sellers are more adaptable to market conditions,” he said. “But there
is a lender behind the developer, and if you have to cut prices to meet
the market, that has implications for the lender’s balance sheets.”

Indeed, price cuts in Chelsea are far more common on the stock
of resale apartments. According to StreetEasy, the median listing price
on resale condos in Chelsea fell by about 19 percent between the first
quarters of 2008 and 2009. That compares to about 5 percent for the
rest of Manhattan.

Price cuts seem to be a mixed bag in terms of spurring activity. Some
brokers say they have not generated much movement; Neary said the one
exception is on the low end. He recently sold a few studios for less
than $400,000 that would have cost closer to $500,000 just a year ago.
“The people who are shopping now are the people who were locked out
before because they didn’t have $500,000,” he said.

Meanwhile, some projects in the neighborhood, like the planned
700-unit rental known as Avalon West Chelsea, have been pushed back.
The Avalon, which was to be built on 11th Avenue between 28th and 29th
streets, was recently listed as one of the few projects near the High
Line expected to break ground soon. The developer told The Real Deal’s
Web site last month that the project will likely break ground in the
third quarter of this year, and that the delay was a standard
construction issue that was unconnected to the faltering economy.

Other developers are testing new tactics to sell after
traditional approaches have failed to work. At Modern 23, for example,
developer Erez Itzhaki replaced his exclusive broker with agents from a
number of firms (see story on page 38).

Others say they are seeing sales momentum pick up when they do cut
prices. The developer of the 47-unit Chelsea Modern, Robert Gladstone,
said that between September and January he sold only two apartments and
lost six buyers under contract who were unable to close. Indeed, last
month, the New York Times reported that at least one couple is suing
the developer after having to forfeit a $173,000 deposit because the
financing they were banking on didn’t come through. Gladstone told the
paper that he offered to return 20 percent of deposits to buyers who
didn’t get financing and that the couple was the only one who opted to
sue.

Gladstone told The Real Deal that he began offering
discounts of up to 15 percent through April 19 on condos at the
building, which has an undulating glass façade. Since then, he said he
has signed contracts on two apartments and has another six in the
works.

At +Art on 28th Street pre-construction sales stopped in
December. Steve Kliegerman, executive director of development marketing
for Halstead Property, which is selling the building, said
“pre-construction sales are not something that people are really
interested in now.” He said that the sales office will likely reopen in
the fall of 2009 and that the construction will be completed by 2010.

Meanwhile, many brokers at starchitect-designed buildings remain
confident that they can find customers without dropping prices.

“We are not [discounting] because we are very confident in the
integrity of our building,” says Holly Parker, vice president at
Prudential Douglas Elliman and director of sales for the Jean
Nouvel-designed 100 11th Avenue, which will sport a curved curtain wall
of different-sized panes of glass, each set at its own unique angle.

However, others doubt that these buildings will continue to command
high premiums in this depreciating market. “We have gone very quickly
from the Dolce & Gabbana mindset to the Gap mindset,” Neary said.
“People now want value for their money instead of status symbols.”

Jonathan Miller concurred. “It used to be that in order to be in that
segment of the market, you had to have a stararchitect brand associated
with the development,” he said. “But that means very little now in
terms of adding to value.”

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