Price increases for new developments are the one segment of the New York real estate market that is outpacing all others, even in conditions where most values are skyrocketing.
Whether it’s a classic six at 500 West End Avenue that jumped from $1.25 to $1.9 million in the last two years, or a two-bedroom at the Trump International Parkview that jumped from $1.1 million in 1997 to $3 million today, new developments offer the best examples of hefty price increases citywide.
While there is an element of risk in purchasing apartments before they are finished, brokers point out that return on investment can be significant. The trend has been fueled by the fact that buyers will now head to any part of Manhattan for new condo units.
“When people buy into these projects, they are at their least value,” said Iva Spitzer of Douglas Elliman, who is currently marketing a new development at 426 West 58th Street.
Spitzer gave the example of 500 West End Avenue, where a classic six in the new building shot up 30 percent in two years. It resold for $1.9 million.
“It’s partially a product of market conditions but it’s also a case of least value,” she said. “A similar apartment in a typical resale would not necessarily have gone up 30 percent in a two-year period.”
Mika Sakamoto, who heads her own marketing group at Sotheby’s International Realty, said a new development will always be more expensive than other properties in its neighborhood, and will in turn raise values in the neighborhood, especially if the developers build other buildings and bring in retailers.
“People are willing to pay more once the new development sells out,” she said. “When the Millennium Tower was built in the West 60s there weren’t a lot of people that wanted to live on the West Side. Millennium Partners also built a number of buildings in the neighborhood, including a Sony Imax theater and nice retail shops downstairs which made it much more convenient.”
Residents of the building now include Howard Stern and Regis Philbin. Former President Bill Clinton is reportedly looking at an apartment there.
Of course, price increases in new buildings can also happen right off the bat.
“Speculators have seen hundreds of thousands of dollars in appreciation during their contract period,” said Helene Luchnick of Douglas Ellliman, who has been heavily involved in bringing new developments online recently in Williamsburg. “It is not a new phenomenon, but the increases have escalated in value since the market has escalated so much.”
New developments must have an offering plan submitted to the attorney general’s office with a listed value for every apartment, which cannot be exceeded unless the offering plan is amended. Typically a few apartments are offered at one time, so if that batch sells quickly the developer will amend the offering plan and release more units at a new price.
The Opus, at Broadway at 107th Street, has had three price increases already, said Lynn Sullivan of Coldwell Banker Hunt Kennedy, who is involved in marketing the building. At Spitzer’s West 58th project, three price hikes happened in a two-week period.
“When a developer puts the first apartments on the market, nobody knows what pricing is accurate,” said Sakamoto. “They price according to what the buyer is willing to pay.”
“Apartments come on the market at a reasonable price per square foot, and if three or five people buy at that price in the first two or three days, that establishes a momentum for the building,” said Spitzer.
Other factors can drive up price. Celebrities are approached to buy in, and their star status adds value to the building. “Prices can go up 10 percent immediately because of the hysteria factor,” said Sullivan.
Fewer affluent buyers are willing to imagine a finished apartment and few still have the confidence to join the ranks of the first buyers. Unlike in the resale arena, it’s more difficult to know exactly what you are buying. There are many who buy based only on floor plans, models, or even sight unseen.
This can be risky, but said Spitzer, “if you know the broker or the developer or you understand the bigger picture of Manhattan real estate you can make a leap of faith in terms of investment. I’ve had people buy in developments without being in New York when they did it. I believe that 99 percent of the people who have bought in my developments are happy with the purchase. I think it’s absolute that no person has resold for less than they paid.”
Ann Guttman, who is Sullivan’s selling partner at Coldwell Banker Hunt Kennedy, agreed. “As long as it’s a reputable developer, the only risk is that the market will tank.”
Investors are more likely to buy sight unseen than people looking for a home, Sullivan said. “They are not looking for an emotional response, they are looking at the location, the square footage, and someone who wants to raise their family would be unlikely to look at it that way,” she said.
Models and virtual tours reduce the guesswork, she said.
“Many go through the sales presentation and look at the model, so it’s an educated purchase, said Luchnick. “It’s not really sight unseen.”
At Morton Square in the West Village, made up two-by-four-foot models of the most expensive individual apartments, replete with furnished and painted rooms and also a kitchen and bath.
At the sales office of Donald Trump’s new building, The Heritage on Riverside Drive and 72nd Street, a model of the building allows you to flip a switch and the lights go on in your prospective apartment, showing the location of the apartment, the exposure and the view.
The new Trump building also features a room built to scale on the first floor, which gives prospective buyers an idea of what living on the upper floors will be like – enormous backlit photos of the bird’s eye views from the top of the building have been inserted in all the windows.
“All this makes our job a lot easier,” said Sullivan.
THINGS TO REMEMBER:
*In new construction the buyer has seven days after signing the contract to think about it. In the meantime, no one else can move forward to buy the apartment.
*Brokers agree that for due diligence, buyers need an attorney who specializes in new developments and who reads offering plans for a living every day. The attorney examines all the parameters of the deal and will investigate critical circumstances, guarantees and promises the developer is making, including floor plans, the engineer s report, concerns about the physical property, the development s position financially, and the expected completion date.
*It s also advisable to look at other projects the developer has done and find out the selling price, how quickly they sold, whether they were completed on time and if they have been involved in litigation. It also helps to find someone who lives in a development to see how satisfied they are with the construction.
*An incentive for investors is that most projects get tax abatements because they are new construction, so investors pay almost nothing in real estate taxes for the first 10 years the building exists.