During the unprecedented condo construction boom of the past decade, New Yorkers grew accustomed to new condos selling out in a flash at record-high prices, such as hedge fund manager Dan Loeb’s purchase of a 15 Central Park West penthouse for $45 million.
But as the nationwide housing slump has begun to make its presence felt in New York, new development sales have begun to slip, and resales are being looked on more favorably by both buyers and lenders.
New developments’ market share of sales activity in Manhattan dropped to 30.1 percent, with roughly 798 units sold in the third quarter of 2008, compared to 1,856 resale units sold, according to a third quarter market report by Prudential Douglas Elliman.
That’s down from 32.5 percent in the same period last year.
All of this is against the backdrop of falling overall Manhattan sales. Total sales plummeted 24 percent to 2,654 in the third quarter, down from 3,499 in the third quarter of 2007.
The percentage of sales made up of new construction condos is lower now than at any time in the past five quarters, according to Jonathan Miller, president of appraisal firm Miller Samuel.
“The market share is shrinking slowly,” said Miller, who prepared the Elliman report.
That percentage will likely fall further as 2008 comes to a close, he said, since it’s increasingly difficult for buyers to purchase units in new developments because banks are increasingly unwilling to lend in projects with only a few sales.
“Lenders are much more concerned about buildings where only a few units have been sold,” said Miller.
Still, new construction has done well until now, considering that it has historically made up only about 10 percent of Manhattan sales. “We’re at double that pace,” he said. “New development has been absorbed surprisingly well.”
Prices of new construction condos are typically higher than resales, but while the average price per square foot for new developments slipped to $1,320 in the third quarter, down 1.5 percent from the prior year quarter, the average price per square foot for resales jumped 4.3 percent, to $1,142 per square foot.
Miller attributed that to the dual fact there have been fewer sales at high-end new developments, like 15 Central Park West, while high-end resales have continued to close.
The condo construction boom, which began in 2003–2004, pushed condo inventory to the same level as co-ops by mid-2006, and it has remained at slightly higher levels since then, he said.
A third-quarter market report by the Corcoran Group, which used a slightly different data set, found that the average sales price of a new development condo dropped 7 percent in the third quarter to $1.536 million, from $1.653 million in the prior-year quarter.
The Corcoran report, produced in collaboration with PropertyShark, also said that very high-end developments had skewed prices upward in prior quarters, while a large number of closings of smaller apartment in developments such as be@william and 212 East 47th Street are now driving them downward.
But real estate observers noted that there’s more to the story. As prices fall and sales slow, buyers are less inclined to purchase new-construction units because they’re worried the buildings won’t be completed or won’t sell out.
“Buildings that are close to completed have a huge advantage over buildings selling in preconstruction,” said Derrick Gross, a business analyst at StreetEasy.
According to Corcoran’s report, Downtown Manhattan, which accounted for over half of new development sales in the third quarter, saw median prices of new developments fall 7 percent to $1.275 million from $1.365 million in the prior-year quarter.
Condo resales in the area did even worse than new construction, with prices decreasing by 10 percent, from $1.395 million in the prior-year quarter to $1.25 million. The median price of co-op resales in the neighborhood increased 2 percent, to $740,000 from $725,000.
As sales slow, rumors have circulated that some condo projects will be forced to convert to rentals or default on their loans, because they aren’t meeting lenders’ expectations.
“One universal in the market is that things are selling more slowly,” said Marc Shapiro, a partner in the real estate group of Orrick, Herrington & Sutcliffe. “This slowdown creates a challenge for refinancing.”
A building’s success or failure depends in part on the flexibility of its lenders, said Harry Jeremias, a principal at the Harch Group, the developer of the Renwick and other properties. “There are some developers whose loans are maturing in the next six to nine months,” he said. “There’s definitely going to be panic.”
On the bright side, as the credit crunch continues, banks seem willing to cooperate with their borrowers rather than foreclose immediately.
“The key element is, I don’t think the lenders want to take back properties,” said Stuart Saft, a partner at Dewey & LeBoeuf. “We’re seeing that in deals we’re doing. The lenders have become far more difficult to deal with in making new loans, but they are working with their borrowers on existing loans.”
Neighborhood data on new developments varies wildly, depending on the specific projects in the area. For example, the median price of new developments on the Upper East Side shot up 107 percent to $1.795 million from $865,000 in the prior-year quarter, the Corcoran report found, due to closings at expensive properties such as 995 Fifth Avenue and 823 Park Avenue.
In Midtown East, however, the median price of new developments sank 56 percent to $915,000, down from $2.078 million in the prior-year quarter.
The change is due largely to the fact that many of last year’s sales were in pricey new condos such as Three Ten at 310 East 53rd Street. This year, many closings were on smaller residences, such as those at 212 East 47th Street.