Only a few short months ago, new developments were the most coveted and spectacularly expensive sector of the residential real estate market. Five-thousand-square-foot penthouses at Robert A.M. Stern’s limestone 15 Central Park West, period mantelpieces and walnut-herringbone floors at the Plaza, Amy Sacco’s gig as a lifestyle consultant at District in Lower Manhattan — those were some of the delectable tidbits that fed New Yorkers’ seemingly insatiable appetite for the newest and most luxurious condos.
But as the credit crisis gets more severe, new construction projects are facing massive obstacles.
“I would say that any condo tower that’s not currently underway is not going to get built,” said Douglas Durst, CEO of the Durst Organization.
This month, in a series of stories, The Real Deal looks at the biggest roadblocks facing new residential developments in the city.
At the moment, even projects that have already been started are staring down a sudden lack of capital from their lenders. As a result, many developers are being forced to dip into their own pockets to keep their construction projects going. Those that can’t are being forced to “mothball” them halfway through, in hopes that the market will recover, or shelve them altogether. With financing for development projects on the fritz, construction sites are closing and some contractors are finding that they are not being paid on time.
Meanwhile, buyers have grown wary of purchasing new condos, fearing that prices will fall before closing, or that new developments won’t get finished. To that end, resales or projects that are almost entirely sold out have suddenly become the more desirable options, and new development projects have began to lose market share. Market watchers say the percentage of sales made up of new-construction condos is lower now than at any time in the past five quarters.
In the face of these concerns, the freebies developers have been offering to lure buyers — free parking spaces, reduced closing costs or transfer taxes, discounted furniture — aren’t working in many new-construction buildings. Developers are finding that they must be more innovative than ever to sell out their units, even if it means taking risks and cutting into profits. Gifting down payments and price protections are just a few of the tricks being used to move units in new developments.
To compound matters, the exact amount of inventory on the market is a real estate mystery. Because the vast majority of developers put only a small percentage of their units on the market at a time, market reports are not capturing the true number of available units. As a result, while Manhattan’s official available inventory is pegged at around 8,000 units, experts say the real figure may be much larger.
Click below for this month’s stories on the city’s new residential developments and the obstacles they face:
Developers on the hook for more cash by Candace Taylor
Staking out new selling strategies by Candace Taylor
Unraveling New York City’s inventory mystery by Candace Taylor
New developments versus existing inventory by Candace Taylor
Offering seller financing to boost sales by David Jones
Coupon clipping for condos by Jovana Rizzo
Playing the waiting game for developers by Alison Gregor
More subcontractor woes expected by Alison Gregor