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Feeling the fallout in Chelsea

Holly Parker of Prudential Douglas Elliman in front of 100 11th Avenue, where she is the director of sales. There will be no discounts at the Jean Nouvel-designed building, she said.

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."