The thousands of condominium units being readied for sale in Manhattan will force brokers, marketers, and developers to change sales and marketing pitches, particularly in neighborhoods where sales are already typically low, industry observers say.
In the Financial District, already a fringe residential neighborhood for sales, deals closed on only 66 apartments in 2005, according to appraisal firm Miller Samuel. The upper East and West sides usually see more than 1,500 sales a year.
Also last year, 3,119 condos were either approved for construction or planned in the Financial District, according to the state Attorney General’s office. That means that for every sale of an existing apartment in the Financial District in 2005, more than 47 units were in the pipeline, a ratio higher than any other neighborhood (see map below).
This ratio — and similar ones for other Manhattan neighborhoods — raises the question: Will new units sell in areas where there aren’t a lot of existing sales already? The answer seems to be “yes, but…”
“Obviously, all those new units aren’t going to hit the market on the same day,” said Ron Tardanico, manager of Bellmarc Realty’s East Side office. He said he doesn’t think sales prices will drop. “But if too many [units] hit the market over a short period of time, there’ll be perks offered — broker perks, buyer perks. They might say, ‘No common charges for a while,’ or they might eliminate transfer taxes. That’s only if too many units hit the market at the same time.”
Developers also may halt or alter condo developments in neighborhoods where apartment sales are typically low.
“I think developers will pull back,” said Paul Purcell, a former Prudential Douglas Elliman president who co-founded the residential real estate consultancy Braddock + Purcell. “A lot of the numbers you’re talking about are on plan. It doesn’t necessarily mean they have to build it. If I were a developer, [the numbers] would give me pause, unless I had some stupendous product.”
Developers may also have difficulty financing new condos because of the amount of new units. “The lenders, at this point in time, I think, have the recollection of what happened in the late 1980s and early 1990s, and they don’t want that to happen again,” said Andrew Gerringer, managing director of the Prudential Douglas Elliman Development Marketing Group, referring to the severe housing market downturn more than 15 years ago.
Developer pullbacks and buyer perks are likelier in some Manhattan neighborhoods than in others, for a variety of reasons, according to an analysis by The Real Deal. The analysis compared the number of new condos approved for construction or pending approval in 2005, according to the state Attorney General’s office (where offering plans on condos have to be filed) with the number of apartment sales per neighborhood in 2005, according to Miller Samuel. The sales numbers included co-ops and condos.
In 2005, 7,190 sales closed in Manhattan, according to Miller Samuel; the same year, 19,796 condos were approved for construction or were pending approval. For every sale in Manhattan last year, then, 2.75 condos were pending or approved.
Neighborhoods like the Financial District, Harlem, and Midtown West had low sales numbers in 2005, but hundreds of new condos are slated for each. Neighborhoods like the Upper East Side, Greenwich Village, and Midtown East also had hundreds of condos in the pipeline, but may differ because they have historically stronger sales — over one-quarter of Manhattan’s sales closed on the Upper East Side alone last year. These latter neighborhoods will not see the developer pull-backs and buyer perks, market observers say, because they’ve traditionally been popular with buyers — and, therefore, with brokers — because of location, price, and likelihood of appreciation, among other factors.
In the other neighborhoods, the ones where brisk market-rate condo development is a relatively new reality, pricing becomes paramount in insuring that new housing sells. “In the newer developing neighborhoods,” Tardanico said, “prices still have to be perceived as giving more value for the dollar.”
Tardanico cited a recent visit to a new development on 148th Street in Harlem. Prices there were about $550 a square foot, he said, something perfectly marketable for the area. Go near or above $1,000 a square foot — the approximate average price for all of Manhattan — and such a development probably wouldn’t sell, Tardanico said.
It’s not, then, a matter of dropping prices to move new condos; it’s a matter of pricing them correctly initially. “I still think location, great pricing, and a good product — there are buyers for it,” Purcell said. “But those are three elements that are sometimes hard to get. It’s your pricing that’s probably the most delicate of the balance.”