Developers hold back prime properties to pique buyer interest

In a slowing market, some developers believe they can quicken the bidding for some apartments by playing hard to get.

Warehousing, a term used to describe the practice of developers and marketers making only a few units available for sale in a new building project to create a sense of urgency among buyers — can mean the difference between a project that sells out for sky-high prices and one that fails to meet already high expectations.

Developers say warehousing has become more prevalent, and that the stakes are higher. Buyers are better educated about market dynamics and are angling for every advantage, making them less likely to pull the trigger. So warehousing — or, as some pros call it, inventory control strategy or yield management — supplies the sense of urgency, based on the perception of a product with limited availability.

There’s no set formula for how to release apartments in dribs and drabs, but one broker said it can vary between blocks of 10 and 20 percent.

Essence Crockett, director of sales for the Kalahari, a 129-unit condominium in Harlem, where prices for two-bedrooms start in the low $600,000s, said inventory release schedules are employed regardless of market conditions.

“If you have a 12-month selling period and you sell your premium homes in the first month, what will you sell later?” Crockett asked.

The practice affords early buyers a chance to buy at discount prices, Crockett added.

Crockett said the projects she has worked on typically have offered low, middle and high pricing at all times of the selling cycle. But for super-luxury properties, where prices top $3,000 a square foot, she said it’s common to release the entire building, because luxury buyers are considered sophisticated enough to discern what’s happening.

On the other hand, warehousing is generally used on large residential projects where releasing all the units at once would create a mini-glut, said Tricia Hayes Cole, chief operating officer of Corcoran Sunshine Marketing Group. She added that the goal was to offer a mix of product from beginning to end, from low floors to high floors.

Cole said the practice of intentionally constraining supply is neither untoward nor suspect. The offering plan for new developments generally specifies that a developer can reserve the right not to put all units on the market at the same time, she said.

Release strategies also differ according to whether the building is a new construction or a renovation.

For new construction, “you don’t want to sell a penthouse or ocean view in the first week because reality is stronger when you walk on that floor and see the view,” said Ed Baquero, a managing partner at Coalco, one of three development companies involved in the Element Condominiums at 555 West 59th Street.

With renovated properties, buyers often want to walk the property right away and close the deal earlier.

A declining market may require slower releases. Developers don’t want to flood the market, but instead create a sense of scarcity and increase the perceived value of each batch of units sold, Baquero said.

He likened the practice to the way airlines assign high prices to late ticket purchasers.

Depending on the pace of sales of the first apartments in a development, the builders can raise or lower prices on units they bring to market later, Baquero said.

“Ultimately, it should follow a natural yield curve where you start out first with inexpensive units and then you go to the top of the curve where you get the highest sales,” he said. But typically the sales figures end up in a bell curve, which involves selling the remaining units quickly, Baquero added.

Still, warehousing is not often talked about, because of its dubious reputation among buyers and its correlation with pricing strategies, a closely guarded secret in the business.

“We are masters at this business and I don’t want to tell them [the competition] how to do it unless they come work for me,” said Adrienne Albert, president of the Marketing Directors.