New York State’s “mansion tax” was meant to target buyers of luxury product. Now, some developers are coughing up the cash instead.
At 100 Barclay Street in Tribeca, Ben Shaoul’s Magnum Real Estate is covering the increased mansion and transfer taxes for buyers who close before Thanksgiving. Ekstein Development Group had offered to pay those taxes on all condos purchased at its 30E31 NoMad before Sept. 30. Another advertisement last month promised prospective buyers at Charlie West in Hell’s Kitchen their transfer taxes would be covered by the building’s sponsor, Elad Group.
“The mansion tax increase was discouraging to high-end buyers and this was a way to address that condition directly,” said Bruce Ehrmann of the Anderson-Ehrmann team at Douglas Elliman, which is marketing 30E31. Ehrmann said both foot traffic and sales had increased since the concessions were advertised, though he declined to discuss sales figures.
Concessions have long been part of residential property trades, but the generosity and creativity of some new offers show how difficult it has become for developers to move inventory. One in four new condos in New York are currently sitting unsold, according to a recent analysis by StreetEasy, while a pipeline of new projects is poised to put further pressure on the market amid fears of a looming recession.
Before the new mansion tax came into effect on July 1, there was a flurry of buyers closing sales, buoying the market and energizing brokers who had for many months been contending with a sleepy sales market and a decline in foreign investment.
But the injection offered only a momentary high. In the months that followed, condo sales in Manhattan dropped more than 18 percent year over year, according to a market report from Douglas Elliman — the lowest number of third-quarter condo sales in 13 years.
“In this market you’re seeing sponsors picking up a lot of expenses they wouldn’t have in the old days,” said Bruce Cohen, an attorney with Cohen & Frankel, who said he had seen sponsors both paying the full amount of the taxes, and paying the difference between the old and new amounts.
Jordan Brill of Magnum Real Estate Group said his team had anticipated the downturn after the mansion tax and quickly offered to cover the difference — a “must,” he said, to soften buyer trepidation. “The market was tricky before the law changed; the last thing I wanted to do was add more complications to it.”
According to Jonathan Miller, president and CEO of appraisal firm Miller Samuel, it’s almost impossible to quantify what kind of impact such concessions are having on the market because it’s too early to identify any kind of pattern. There’s also a slew of other forces, including the new SALT tax and recent drop in mortgage rates, affecting sales.
In Brill’s view, concessions undoubtedly help close sales by giving cautious buyers a sense of comfort.
“Product’s not moving because people are scared,” he said. “If you alleviate that fear, you see traction.”
But Jason Thomas, a broker on the Montalbano-Reidy-Thomas Team at Sotheby’s International, argued concessions strictly related to the mansion and transfer taxes might not be muscular enough on their own to win buyers. He said most new development buyers today walked into price negotiations expecting a discount of at least 10 percent.
“The 2 to 4 percent mansion and transfer tax discount — I’m rounding generously here — is simply not enough,” he said. But, he added, “if other concessions, such as multiple years of paid common charges, are offered in tandem, buyers may become interested if the total discount reaches that 10 percent threshold.”
Miller said it was this combination of both concessions and discounts that was causing pain to developers. “It’s not just this one discount [to buyers],” he said. “It’s one of a culmination of adjustments that were not foreseen when the project was laid out four, five, six years ago.”
In addition to tax sweeteners, some developers have recently opted to waive common charges to incentivize buyers. In August, the sponsor at the downtown Beekman Residences, GFI, offered to waive common charges for up to three years. Earlier this year, Extell Development went even further — offering to wave common charges for up to 10 years at its One Manhattan Square development. (Extell and GFI could not be reached for comment.)
Extell’s unprecedented initiative was followed by the announcement of a “rent-to-own” program, launched this September, at the 815-unit building.
Magnum Real Estate has also launched rent-to-own programs at both its 100 Barclay Street and 196 Orchard Street condos.
“We’re in a market that’s fragile and everyone is doing what they can to put deals together,” said Donna Olshan, president of Olshan Realty. Many new developments, she said, had also been “wildly overpriced.”
Indeed, Elliman’s latest market report showed that listing discounts on condos in the third quarter were down on the previous year. Miller said the change reflected the fact that prices were now being appropriately adjusted by sellers, while last year properties were still listed at “aspirational” prices, resulting in bigger cuts.
Price adjustment is important in the current climate, Cohen said, and it doesn’t matter whether those deductions come from the sales price or through concessions.
“Sponsors that have been competitive are selling their units,” he said. “Whereas some of the other ones — those units aren’t selling.”
Write to Sylvia Varnham O’Regan at [email protected]