Long Island City developers may be dealing with the consequences of unleashing a wave of new condos into an untested market, but the damage there is not as bad as it is in its Brooklyn counterpart neighborhood of Williamsburg.
In this month’s Q & A, brokers working in Long Island City told The Real Deal that the Queens neighborhood has hundreds of new, unsold units compared to the thousands that exist in Williamsburg.
But, unlike Williamsburg, Long Island City has yet to really come into its own in terms of amenities — beyond the basics.
Brokers also said lowball offers are standard at many of the new projects in Long Island City. They offered different estimates on actual drops in prices, ranging from 10 to 30 percent. One agent said price drops are deepest in buildings that are trying to hit the 15 percent threshold to make their offering plan effective.
“Everything is 40 percent sold,” one source said. “If you drive through Long Island City after 9 o’clock and look for lights in the apartments … you get an idea of how much is sold.”
Some developers in the area are using rent-to-own and price protection programs to lure buyers, but according to some brokers, it’s not quite doing the trick. The reasons are manifold. It’s partly because those buildings may have been overpriced to begin with and partly because buyers are often reluctant to plunk down money to buy in a building they think is at risk of going rental.
Despite all that, brokers say they are seeing more action in Long Island City than they are in other parts of the five boroughs because the strength of the first-time-buyer market there. And they noted that contract signings in recent weeks have increased. For more we turn to our panel of experts.
David Maundrell president, Aptsandlofts.com
How are prices holding up in Long Island City? What are they like compared to three months ago, six months ago and a year ago?
The market has brought prices down if you really want to move units. A minimum of 15 to 20 percent [price drop is standard].
What kinds of offers are buyers who are looking in Long Island City making? How bold are they in terms of offering lowball prices for apartments?
Buyers have no shame right now making low offers. Twenty percent off asking is not uncommon and is reasonable if it’s a 2007 asking price.
How is the Long Island City market faring compared to other comparable areas like Williamsburg?
They are completely different markets. The buyers in our two Long Island City projects, Crescent Club and Queens Plaza, are a mix of local Queens residents wanting to be close to Manhattan, yet not too far from their families … and renters in Manhattan who love the short commute and the views. The Williamsburg market revolves around the creative industries, something we haven’t seen at our jobs in Long Island City.
There are obviously a lot of under $1 million apartments in Long Island City attracting first-time buyers. How are they doing in terms of securing mortgages?
Financing is the major issue across the board. That is why we are getting all of our developments FHA approved to help alleviate a bit of this issue. FHA is the key.
What’s the competition among brokers like in Long Island City these days and how does it compare to last year at this time?
Elliman has made a very impressive and strong move over there that I give them credit for. I think buildings compete with each other, but since we are all members of REBNY, we share the listings and get along. It’s ‘may the best building win’ basically, since the buyers drive the market, not the brokers.
John Reinertsen senior vice president, CB Richard Ellis
There have obviously been a lot of new condos developed in Long Island City in the last few years. Is there too much unsold inventory there now?
Yes, there probably would have been a lot even if the market had continued. People built one project and thought if one is good, three is better. It got way out of hand. There is a lot of unsold stuff out there, and there are condo buyers that can’t get financing. A lot of those people that built these buildings had loans that have come due so they are trying to refinance. Banks don’t want to take the property back, but they don’t want to keep giving them money.
Other people say that things are going well. What do you think?
Everything is 40 percent sold. If you drive through Long Island City after 9 o’clock and look for lights in the apartments, and see how much is dark, you get a good idea of how much is sold. They flooded the market and when the banks go out of the picture, you’re out of luck.
Some Long Island City buildings have announced rent-to-own and price protection programs. Have you seen a lot of that? Also, what are some of the newest incentives you’ve seen?
A lot of people who were doing condos are bailing and doing rentals, giving people options on the purchase, so they have some money coming in. The problem is, when you have granite counters and stainless steel appliances, those are not typically put into a rental. If those people don’t buy it, you are going to have a hard time getting someone else to buy it after tenants have used and abused it for two or three years or however long it takes. It’s a short-term fix, but it may come back to bite them later when they have to sell. New is new and used is used.
How is the Long Island City market faring in relation to other comparable areas like Williamsburg?
Williamsburg was overpriced to begin with, but that’s where it was trendier. But Long Island City has 10 subway lines. You get on the train and go one stop; you are on the East Side of Manhattan or the Upper East Side, or Grand Central. In the long-term Long Island City has a better prognosis. Development in LIC was far cheaper than in Williamsburg. Williamsburg got up to $200 a buildable [square foot] when they were doing development and Long Island City was maybe $125 to $130 a buildable square foot.
We all know the selling points about Long Island City, but what are the biggest challenges of selling there today?
Perception. There [is very little in the way of] amenities in Long Island City. Residential drives amenities. Over the years, it was described as dirty and gritty. If you are in the Meatpacking District that doesn’t matter; that makes it way cool, and when you get outside of the Meatpacking District and walk 10 blocks you are in Manhattan proper. Out here, you don’t have that. It hampers a lot of the office tenants coming out — they are really looking for Manhattan East. It has an industrial cast that doesn’t have that trendy stuff that residential and commercial tenants of Manhattan are looking for. That’s our biggest obstacle. Queens Plaza is really the gateway from Manhattan. It is a congested, noisy place; an overhead subway that makes squealing turns. It’s a challenge to get to the other side of Queens Boulevard. However, that’s at one end of Long Island City. When you get down to the water at Queens West, frankly, we have much better views than Manhattan has looking toward us and there are waterfront condos that are really stunning. We’ll get through this, some will take a haircut [and] some will make a lot of money.
Which projects in Long Island City that you are not affiliated with do you think are the best bang for the buck?
For the best value deal I still like Rockrose. I think the best value is down by the waterfront. I think Queens West is going to be a really great community long-term.
Which projects are the most overpriced and likely to struggle?
Projects priced based on the land value at which they were bought. Most that are coming on the market now were bought two to three years ago. They range anywhere from $90 to $130 a buildable [square foot]. With the cost of construction, most developers have a small range in which they can actually make money. The market fell away from them and they paid too much for the land. They will take a haircut or their banks will take a haircut — whatever it takes to get the deal done.
How are prices holding up in Long Island City? What are they like compared to three months ago, six months ago, and a year ago?
What I hear is a 30 percent discount, but what you hear and what actually happens are two different things.
How has the development pipeline in Long Island City changed over the last six months or year?
Totally silent. Last year at this time there was still a development market. We still had people who were bringing their sites to market and hiring brokers to market their properties for sale to developers. That is shut down.
What’s the competition among brokers like in Long Island City these days and how does it compare to last year at this time?
They are friendlier; everybody is sharing. In this market, instead of keeping it to yourself for a week or two, it goes right out to the market because you are looking for as much help, as fast as you can. It’s a lot more cooperative.
Andrew Gerringer managing director, Prudential Douglas Elliman Development Marketing Group
Is there too much inventory in Long Island City right now?
It’s interesting: Of all the places, we seem to have the most interest right now in the Long Island City market. A lot of that has to do with the first-time buyers, the proximity to Manhattan and the position that some of our projects are in vis-à-vis financing that was grandfathered in.
What are the biggest challenges of selling there in today’s market?
The biggest of the challenges is that it is becoming a 24-hour community, but it is not there yet. The shopping and retail is not there yet, but there have been big strides made and it’s all coming. It’s changing, and when you come into a new market there are always compromises. The compromise is, when you don’t have everything you want, it’s priced to help you want to be there.
How are prices holding up in Long Island City? What are they like compared to three months ago, six months ago and a year ago?
We don’t do overall price discounting, but prices could be down 10 to 20 percent from where they were a year ago, depending on the project and the particular unit.
How bold are buyers in terms of offering lowball prices?
People today have no shame to speak of. They will come in with lowball offers, depending on the property. But they are fishing to get a low bottom deal. They aren’t your real buyers; they are just trying out the market. They hear or read that prices are down 30 to 40 percent and they are everywhere — Long Island City, Brooklyn, Manhattan. The only people getting discounts like that right now are in Florida.
Can you give us an example of a deal you’ve either had or heard about that illustrates what’s going on in the Long Island City market today?
We have done close to 25 to 30 deals in the last two months. Developers are negotiating prices.
How has the market in Long Island City changed the most in the last couple of years?
There are residential buildings there now. We did our first, the Gantry, seven years ago when there were no other condo buildings there. Since then, there have been 15 buildings.
Patrick Smith senior vice president, Brown Harris Stevens
Some Long Island City buildings have announced rent-to-own programs. Have you seen a lot of that?
The buildings that are offering those incentives are overpriced and are trying to develop a rental exit strategy because they can’t sell at their overpriced levels. Some of the other gimmicks that we’ve seen are price protection, buy-downs and buy-backs. I think what purchasers need to remember is that these incentives or gimmicks are all factored into their price anyway.
How is the Long Island City market faring in relation to other comparable areas like Williamsburg?
Long Island City is faring much better than Williamsburg because the number of developments in Williamsburg is just shocking. I think there is a tremendous amount of inventory coming on the market in Williamsburg — something like 2,500 units in 2010 and another 2,500 units planned this year.
Which projects are the most overpriced and likely to struggle?
A sign is those developments that were originally condominiums now offering rent to own, which again is a rental exit strategy. Those buildings probably won’t succeed because buyers don’t want to live in a building offering a rent-to-own program.
What are the biggest price drops you’ve seen in Long Island City in the last two months?
One of our buyers shared with us that a building that was trying to surpass the 15 percent presale requirement for making their offering plan effective was offering a two-bedroom unit at a very low price, with several incentives. The buyer ended up purchasing with us for more money because the buyer wanted a stable building where he could easily obtain a mortgage and didn’t want to worry about the building going rental. I thought that was pretty striking. Those buildings with a low amount of presales are offering very aggressive pricing, but they are still not attracting buyers because of the uncertainty.
How bold have buyers been in terms of offering lowball prices?
People who are not highly motivated to buy generally make lowball offers. They rarely purchase or can’t purchase. Anecdotal evidence suggests that real buyers usually make offers that are 10 percent below the asking price.
Can you give us an example of a deal you’ve either had or heard about that illustrates what’s going on in the Long Island City market today?
Since late March, we have had about 30 signed contracts, which shows that Long Island City is probably the most robust market in the city today. A lot has to do with the fact that most of the mortgages are conforming or high-balance-conforming mortgages — a simpler way to say it is they are not jumbo mortgages. Last weekend at Hunter’s View Condominium, we sold two apartments to a brother and sister and, at One Hunter’s Point, we sold two apartments to another brother and sister.
Melina Starr director, Prudential Douglas Elliman
Some Long Island City buildings have announced rent-to-own and price protection programs. Have you seen a lot of that? Also, what are some of the newest incentives you’ve seen?
Yes, most buildings are offering some form of rent-to-own or price protection. There has also been a rate buy-down incentive over the duration of their mortgage or for the first few years to keep costs lower. The only other incentive we’ve seen we have at L Haus, where we are offering 90 percent financing. I don’t see many taking advantage of the rent to own; it’s few and far between, but it’s definitely being promoted more.
How is the Long Island City market faring compared to other comparable areas like Williamsburg?
There are a lot more projects in Williams-burg — thousands of units versus hundreds. We have the traffic and our price points are much better. It’s not the community that Williamsburg is, but it’s getting there.
How bold are buyers in terms of offering lowball prices?
Not as drastic as some of the worst-case scenarios. We’re probably 10 percent apart usually and then we negotiate from there. If it is a really lowball offer, it will not get a response because it will devalue the building and that’s not what the sponsors are there to do.
How has the market in Long Island City changed in the last year, six months and three months?
More condos have come on to the market and it’s becoming much more amenitized. [There’s a] supermarket, a Duane Reade, there’s a Gymboree-type daycare called LIC Kids that just opened. The Gantry State Park system has become more developed and there has been an addition of more retail. And now, certainly in the last six months, the buildings that opened up a year to year-and-a-half ago are now being occupied. You see a lot more residents walking around, baby strollers, people commuting to and from work everyday.
Adrian Lupu vice president, Nest Seekers
Which projects in Long Island City that you are not affiliated with do you think are the best bang for the buck?
The PowerHouse is the best of both worlds. It is a conversion and new construction with very good pricing.
How are prices holding up in Long Island City? What are they like compared to three months ago, six months ago and a year ago?
Developers aren’t willing to let hardly any buyer walk away. One year ago, nobody was willing to negotiate. Today, if there is a buyer, there is a deal for him. There might be fewer buyers, but because they are not let go no matter what, we experience a higher closing ratio.
What are the biggest price drops you’ve seen in Long Island City in the last two months?
At Arris Lofts, the developers are probably liquidating the final inventory, so I was able to get a few deals through at the most attractive prices. That relates only to the absolute final inventory. They sold 90 percent in ’07 and ’08. They had 20 units or so left and they are getting rid of everything. Two and a half months ago, the prices advertised were reduced by 20 to 25 percent and there is still a little room for negotiation.
Can you give us an example of a deal that illustrates what’s going on in the Long Island City market today?
Yes, in fact I had a deal over the weekend at the Vere [which we are selling]. A two-bedroom, two-bath with exceptional finishes in the very low $600,000s. The same apartment in Manhattan would sell for $1.3 or $1.4 million. It was negotiated in three hours and we sent out the contract the same day. We do not allow any buyers to walk away.