Every gray cloud has a silver lining, and the current downturn in the New York real estate market is no exception.
Experts predict the current conditions could ultimately lead to a new era of affordable housing, driven by the market rather than government incentives.
Developers are already slashing prices and, in the case of the Decora and Northside Piers in Williamsburg, offering rent-to-own options that, if priced right, could be attractive to first-time buyers otherwise unable to scrape together a down payment.
Countless condominium projects across the city are facing foreclosure, putting banks in the driver’s seat. Experts said lending institutions would be even more aggressive than developers in moving these units, expanding affordable housing options.
And some recent reconfigurations indicate the possibility for creative solutions besides the typical rent or rent-to-own scenario. Lotta Condominiums in Harlem has become a successful youth hostel; 10 West 65th Street on the Upper West Side was sold to Touro College for student housing; and in Bay Ridge, the developer of the controversial Green Church site may unload his land to the city to create a much-needed elementary school.
Jon Gollinger, co-founder of Accelerated Marketing Partners, which specializes in marketing campaigns for distressed properties across the country, said one of the advantages of New York City is it entered the downturn later than the rest of the country.
“New York is going to look at what’s going on throughout the country and use the best solutions, and be creative about it. That’s been my experience in New York,” he said. “Developers and banks and equity will be very quick to take their lumps and capitulate.”
Increasingly, as developers struggle to pay their debtors on projects that aren’t selling or have yet to begin construction, banks will begin forcing solutions.
“Banks are looking to get out without too much pain but are still willing to accept some pain. And by pain, I mean selling [the project in bulk] for less than a dollar on the dollar,” said Justin Stern, managing member of Manatus Development Group, an affordable housing developer.
“Unfortunately for many, these are some of the harsh realities of the development business. Poor timing equals the shirt off your back,” he said. “Hopefully we’ll be able to turn these negative situations for some into positive access to affordable housing for many working-class citizens of New York City.”
Stern said apartments in projects his firm could take over would be priced low rather than depend on government incentives for affordability. “There are currently no government programs in place to provide bailouts for those untimely developments that went into the ground a year ago, or rushed into the ground to beat the June 30 421-a deadline, in fringe neighborhoods where the backup rental scenarios are now unachievable,” he said.
Even without bank intervention, experts said prices will continue to plunge.
“You are going to see prices decline dramatically as you get further from the core,” said Gollinger. Particularly in oversaturated areas like Williamsburg and Long Island City, prices could drop in the 30 percent range, he said. “It’s gotta find a bottom somewhere where it’s pretty unacceptable to everyone … but eventually it will get to a price level where it’s just too compelling not to buy.”
That goes for rents, too.
Tatiana Harris, head of business development for Harlem Lofts, said that after her firm introduced the rent-to-own option at Harlem’s 764 Saint Nicholas Avenue, it reduced rents up to 20 percent before all the units were occupied. “Everybody who is renting right now is on a rent-to-own option,” she said. As for developers, she said, “All my clients are looking for a rent-to-own option.”
David Maundrell, president of aptsandlofts.com, said that without much push, his firm has been seeing two or three rent-to-own contracts a month.
The scenario only works with buildings that have closed sales and immediate occupancy, he said, and it is more successful when developers keep renters’ needs in mind. For example, he said some brokerage firms put a premium on monthly rents — say, a $4,000 monthly apartment priced at $5,300 — which isn’t attractive to renters.
One 14-unit building Maundrell is marketing, the Decora at 165 North 10th Street in Williamsburg, is offering a one-bedroom, $530,000 apartment for $2,850 per month, with the option to put that money toward a down payment. He said he’s signed two other rent-to-own deals in the building so far.
Given the sheer volume of condominiums that were planned or entered the market during the boom years, it’s not surprising that they are not all successful now that the market has turned.
In Harlem, Harris said she views youth hostels, like the new L-Hostel that replaced Lotta Condominiums, as “the next big thing to make money.” Profits are maximized because several beds crammed into a single room rent at $40 per night, and there’s always demand for cheap accommodations in New York.
A Manhattan broker, who asked not to be named, said he’s seeing more apartments converted into nightly and extended-stay hotel rooms, however unpleasant that may be for the few condo owners there.
He pointed to the new Web site for M127, a luxury condominium in Midtown South that sold just two units but now boasts five-star accommodations starting at $385 per night.
“It’s kind of a shady subject because sometimes in the offering plan there are rules [against] this,” he said. For the two people who own in the building, “I’m sure it’s not pleasant for somebody to be using their building as a hotel.”
Although a deal between a Brooklyn Cohousing group and the developer of Carlton Mews, a planned condo and townhouse project in Fort Greene, fell apart at the last minute, one of the group’s founders, Alex Marshall, said its only challenge now is “sorting through all the opportunities to find the ones that are right for us.”
This summer, The Real Deal featured Marshall’s group — which aspires to build a community of private homes that have shared common spaces and decision-making, similar to a condo or co-op but more intimate — when it was having greater difficulty negotiating with developers. Now, the market is on the group’s side.
“We are looking at projects that are completely finished but are sitting empty or near empty; projects that are half built; and projects that have not begun construction. There is a lot out there,” he said, adding that his group is focusing its attention on the Prospect Park area.
Not all “creative solutions” have proved successful.
Horizon Global had difficulty selling its six-unit, 12-story project on the West Side Highway, Hudson Blue, so the developer converted it into one huge, glassy mansion with a $22 million asking price. The property has not sold, and a lis pendens was filed against the developer in August.