Larry Kruysman of Corcoran Sunshine Marketing Group at 75 Wall StreetLike a stampede of bulls, developers thundered into the Financial District during the boom to snap up dusty offices and fashion them into luxury apartments. And the city cheered them on, doling out generous tax breaks to encourage conversions that directly resulted in a dozen high-profile new condos, and more than 3,000 units, in the last five years.
But now FiDi is glutted with inventory, even more so than most Manhattan neighborhoods, as hundreds of new units sit unsold. And it could be more than a year before the apartments find buyers, according to developers, city officials and brokers.
Until they do, the neighborhood will hover in a hard-to-break holding pattern, because many of the larger-scale conversions are so similar in scope, finishes and amenities. About 30 condos have been built or planned since 2004, according to the Downtown Alliance, and many have been successful. But the more ambitious projects, and the ones that have struggled, brokers say, are the area’s bellwethers.
“Developers probably got ahead of themselves down there,” said Nick Petkoff, a broker with Massey Knakal who specializes in Downtown building sales.
Sales of buildings, which developers once snapped up and converted into apartments, have dropped 95 percent, from 20 in 2007 to just one (the distress sale of the AIG building) last year, according to Massey Knakal. “The question about whether to develop again depends on how long it takes for the excess inventory to be sold,” Petkoff added.
There’s another market factor to consider: the under-construction Beekman Tower. Designed by Frank Gehry, the high-end rental building will offer 900 apartments when it opens in 2011. Brokers say those who might otherwise buy could be tempted to lease there instead. And it will certainly mean competition for other Downtown rentals.
Clearly, the market has taken a toll on some developments.
Zamir Equities, developer of the Setai at 40 Broad Street, took longer to convert the office building to condos than initially promised. That forced the firm to grant buyers the right of rescission, or the ability to get back their deposits, over the summer.
Between 2006, when the Setai’s sales began, and last summer, the 32-story building sold 115 of its 160 units, or 72 percent, according to Nathan Feldman, managing director of Zamir. Feldman declined to say exactly how many buyers actually walked away. “We went though a difficult time,” he said.
Feldman pointed out that 10 contracts were signed in November, the Setai’s strongest month of 2009. And he expects all condos to be occupied in the next 18 months. “We think it’s a strong neighborhood,” he said, “and that people want to be here.”
The popularity of FiDi among developers was directly related to the generous 421-g tax break established by the city for that neighborhood in 1995; it froze property taxes on converted condos for 14 years.
The program expired in 2006, but 75 Wall Street, another condo conversion, squeaked in before that deadline, becoming the last major FiDi project to qualify.
Those tax breaks can result in savings of, say, $1,400 a year for a one-bedroom, which is “substantial,” said Larry Kruysman, a broker with Corcoran Sunshine Marketing Group, which is handling sales at the building.
Still, 75 Wall would appear to suffer from its late arrival, with only 178 of 349 units, or about half, sold since 2007. The developer Hakimian Development isn’t willing, at least publicly, to slash prices, which start at $620,000, Kruysman said.
“We’re holding firm because we believe that the market is coming back,” he said, citing November reports from Corcoran and Prudential Douglas Elliman that show prices up and inventory down. Plus, he added that the 253-room Hyatt Andaz in the building’s midsection, which will come online this month, will provide a stable revenue stream.
Rex Hakimian, executive director of Hakimian, said not lowering prices reflects confidence in his product. “You can’t put all of the condos here in the same pot,” he said. “The inventory will be absorbed. It will just take a little longer than people thought.”
