Buyers band together to negotiate with builders

In a move that experts are calling unprecedented for the real estate market, buyers in contract to purchase new condominiums are banding together to demand concessions from developers, or to get out of their contracts entirely.

Sponsors, unaccustomed to communicating with their buyers at all, let alone multiple buyers, must now learn to negotiate with these groups in a manner akin to collective bargaining with a labor union.

For some sponsors, bargaining with a group can be a boon, helping to accelerate the closing process. But many are refusing, preferring to work solely with individuals. In some cases, such as the Brompton in Yorkville and the Toren in Downtown Brooklyn, the sponsors’ refusal to negotiate with a group has led to litigation.

“There are groups of purchasers at buildings who are meeting and trying to figure out what to do, to try and negotiate with the developer to get concessions,” said Lawrence Weiner, an attorney at New Jersey-based law firm Wilentz, Goldman and Spitzer, who is representing a group of four buyers of three units suing the developer of Toren to rescind their purchase agreements. “I think based on the technology available today, it’s just a lot easier to find people who are sharing your issues.”

Since the Wall Street meltdown this fall, buyers of new condos have demanded additional concessions at the closing table or attempted to get out of their contracts completely. Experts say the deluge of attempted renegotiation is unlike anything the real estate market in the city has experienced before, including the last major downturn in the early 1990s.

“Even after Sept. 11, when we anticipated people walking away from deals, we never saw anything quite like this,” said Neil Garfinkel, a partner at Abrams Garfinkel Margolis Bergson and residential counsel to the Real Estate Board of New York. “I don’t think there’s any precedent for what’s going on in the marketplace.”

Along with individual buyers asking for concessions, groups of purchasers have started finding each other on blogs and Internet forums, seeking strength in numbers, sharing information and plotting strategies for collective bargaining with the developers.

“In a lot of respects, they’re trying to use economic leverage to force the issue,” said Garfinkel. “If enough people say, ‘we’re not closing until you negotiate,’ that puts the sponsor in a difficult position.”

In a Yahoo! group for buyers at Upper West Side condo Linden78, purchasers traded information about the rescission letters the developer sent out after missing the project’s deadline, and kept each other updated when they received their deposits back.

On the Web site Queenswest.com, a group of buyers at One Hunters Point in Long Island City arranged a December 2008 meeting at a local coffee shop to discuss ways of bargaining with the developer for concessions.

“Now that the sponsor is throwing in incentives to new buyers, those of us who signed early feel we’re not receiving any benefit from going into contract six to 12 months ago,” wrote one poster on the forum. “We may have a better chance of renegotiating if we come together as a group.”

On StreetEasy, a discussion thread called “Brompton buyers are organizing” was formed in February to help buyers “get price concessions in light of the dramatic change in the environment,” one buyer wrote.

Such coordination between condo buyers was virtually impossible in the last major real estate downturn in the early 1990s, Stephen Kliegerman, the executive director of development marketing at Halstead Property, said.

“The Internet today has created an entirely new venue for consumers to share information and attempt to work together,” Kliegerman said. “People are posting things on Facebook pages, saying, ‘If you’re in contract in this building, call me.’ I’ve seen a few of those.”

Attempts to negotiate with developers run the gamut, from friendly requests for more information to lawsuits demanding full refunds.

At the Toren, for example, a lawsuit filed April 22 by Weiner on behalf of buyers Leslie Smith, Alessandro Papa, Margaret Sanz and Karl Junkers demanded that the buyers be given the right to rescind their contract agreements and that they get refunds for their deposit money, totaling $145,800, in addition to compensatory damages and attorney’s fees. The lawsuit hinges on the developer’s failure to adhere to the Interstate Land Sales Full Disclosure Act, which requires developers building projects with more than 99 units to file a property report with the Department of Housing and Urban Development, Weiner said.

By contrast, Kliegerman said, a group of buyers recently approached the developer of a condominium Halstead is marketing, which he declined to name.

The buyers (who “found each other on the Internet”) requested a meeting with Kliegerman and the developer of the project, who fielded questions such as when construction would be completed, if the sponsor planned to rent units, and how the buyers could get financing if fewer than 70 percent of the units are sold. Buyers with specific requests for concessions were instructed to take them up with the developer at the closing table, he said.

“It was more of a fact-finding mission,” Kliegerman said. “They weren’t coming to strong-arm the developer.”

He added that such meetings can be a good way to calm buyers’ nerves and defuse tension.

A developer “should always be willing to sit down with people who have concerns,” Kliegerman said. “You have to allow people to be heard and give them accurate information so they can make up their own mind.”

Still, he said, when it comes to specific negotiations about price and concessions, he recommends that his developers negotiate only with individual buyers, and only at the closing table to ensure they’re offering concessions to buyers who are serious about closing.

Negotiating with a group of buyers is risky for a sponsor, especially a large developer with multiple buildings, because it opens the developer up to having to do the same thing elsewhere.

“A major developer knows that if they negotiate, word will spread like wildfire to other projects,” Garfinkel said. “No one’s going to want to close.”

As a precaution, he said, more purchase contracts now make it possible for developers to sue buyers for damages if they attempt to walk away from their deposits.

But if a developer is too inflexible, he may find himself slapped with litigation. Soon after the buyers at the Brompton started their online group, attorney Adam Leitman Bailey announced the first of a series of lawsuits he planned to file on behalf of 17 buyers in contract at the building who are refusing to close without concessions from the developer, the Related Companies, citing falling real estate market values and an inability to secure mortgages.

Weiner said he has filed lawsuits on behalf of eight clients at One Hunters Point as well as about 30 other clients in several other New York City developments.

“A lot of my clients have tried to negotiate with the developers about concessions, and they stayed firm,” he said.

In some cases, negotiating with a group can even be advantageous to a developer, depending on the size of the building and the type of concessions, said Perry Cohen, a partner in the real estate group at Todtman, Nachamie, Spizz & Johns who represents several builders. For example, it may be cheaper to offer some types of concessions on a bulk basis.

“If [the sponsor] is buying 100 refrigerators and he can get a better deal on them because he can get a group rate, it’s better than negotiating on a piecemeal basis,” Cohen said.

Smaller developers whose aim is to finish closing all the units in one project also may be more likely to offer across-the-board concessions to a group.

“A smaller sponsor may be more inclined to negotiate with purchasers in order to get them closed,” Garfinkel said.