Go to chart: A look at vacant or largely unsold NYC residential projects
In many of America’s most popular destinations, from the beaches of South Florida to the Las Vegas strip, “ghost towers” — empty or near empty buildings — mark the skyline, mere shells of their developers’ failed ambitions.
The perfect storm of plunging property values, frozen credit markets and excess supply in certain real estate submarkets is stalling many newly built projects. That raises the question: Is New York City, late to the real estate downturn that has plagued the rest of the country, due to be haunted, too?
To determine which buildings in New York City are the most likely future ghost towers, The Real Deal turned to sources in the real estate, finance and legal industries who identified 23 residential condo and rental projects as among the most at risk of remaining empty for years to come.
These towers, along with brief synopses of their circumstances, are listed in the accompanying chart.
Most of the projects are stalled and completely uninhabited. Another five are among a group of 180 condominiums citywide that StreetEasy lists as less than 70 percent sold. The 70 percent threshold is a requirement Fannie Mae put into effect March 1 that subsequently has been adopted by most lenders as a criterion before they will approve mortgage loans in a particular building. The high benchmark, up from the previous standard of 51 percent, has made financing many new condo purchases nearly impossible and created a nearly insurmountable obstacle that brokers complain locks a building into a state of being “undersold.”
Buyers disappear
In all, of the more than 18,115 new apartments that have come to market in recent years, roughly 55 percent have been sold, according to StreetEasy. That figure doesn’t include the thousands of units that will be released in the next few years or buildings that have been turned into rentals.
For those apartments to be filled with buyers, the credit market needs to open up. Until then, many developers could turn to rentals, which are not dependent on the availability of mortgages.
The city’s mounting job losses also need to be reversed, said Jim Brown, a state Department of Labor analyst.
Between March 2008 and March 2009, Brown said, the five boroughs lost 86,400 jobs at a rate that has been “widening pretty steadily.”
“Finance and insurance [job loss] counts for about a quarter of that. They’re off 21,600, which is probably going to have an impact on your above-rent-control condos and co-ops,” he said.
From 2003 until well into last summer, when all these new apartments were envisioned, the city was seeing gains in jobs, said Brown.
Now, he said, a turnaround in job losses isn’t expected until at least 2010, assuming there’s a national economic recovery later this year.
Prices plummet
Some buildings, meanwhile, are not fully
finished. “If the project needs another 10 percent of funds to be completed, a lot of these projects that have come to a halt are going to be sitting there, some for several years, before they’re actually completed,” said J.D. Parker, a regional manager for Marcus & Millichap.
Parker briefly marketed Greenpoint’s 130-unit Viridian at the discounted price of $65 million — or $500,000 per unit — until the project was pulled after the owners filed for bankruptcy. That also left at least seven renters who had signed leases there, expecting the building to be finished in one month, suddenly looking for a new home.
“Right now I’m working on 10 to 15 projects of a similar nature, predominantly in Brooklyn and Queens,” said Parker, who declined to name the projects. “All of them are empty because most of them are only half-built, three-quarters built, and they’re stalled.”
In addition, the price point at which banks and developers need to sell or rent to break even on their buildings is above current market rates, causing a standoff between them and investors looking to take over these projects.
“There remains a significant disconnect between the bid and the ask, particularly with regards to development sites with land values off 50 to 75 percent from their peak, in many locations,” said David Schechtman, a senior director for Eastern Consolidated.
“That is a tremendous pill for a lender to swallow,” he added.
Until the pricing standoff is resolved, towers here will remain empty, as in other parts of the country, predicted Peter Zalewski, founder of CondoVultures.com, a market intelligence service that connects investors with distressed projects in Miami, San Diego and Las Vegas.
For example, based on a review of public records, Swig Equities’ the Exchange at 25 Broad, a condominium conversion that was swept up in the Lehman Brothers bankruptcy, would need to sell at near $1,000 per square foot simply to break even.
“[Investors] would expect to buy residential conversion buildings a heck of a lot closer to $300 or $400 a foot, and that’s for buildings that are fairly far along like 25 Broad,” said Schechtman.
Rather than sell the debt, Lehman is proceeding in its effort to foreclose on the property. Swig declined to comment on the matter. Meanwhile, the last remaining 10 contract holders are living in the 346-unit building on interim leases. Patricia Bransford, who moved there in November 2007 expecting to eventually close on the apartment, said she doesn’t mind living in an empty building because there’s never a wait for a treadmill in the gym.
Still, she doesn’t enjoy being searched by a K-9 unit every time she’s dropped off at the door, since 25 Broad is on a post-Sept. 11 heightened-security block. “I’m not sure I would close on a unit in New York City now because prices are going down,” she said.
Incomplete buildings
New investors are unwilling to give more money to buildings that are already over-leveraged before they’ve even been completed.
“I get calls literally every day, sometimes
multiple times a day, from guys who may not have been true developers … looking for more financing,” said Dan Hartman, senior director for investments at Wrightwood Capital.
Hartman said he turns them down. “Why would I put my good money after somebody else’s bad?”
Stalled sales are, perhaps, only the beginning of a building’s problem. There are the issues of safety and decay: Crumbling façades, darkened pedestrian sidewalk sheds, and gaping holes in fences are all commonplace at abandoned construction sites.
Since a crane collapse killed seven people at 303 East 51st Street in March 2008, five complaints have been lodged with the city’s Department of Buildings about falling debris and the building’s concrete slab balconies, which dangle menacingly overhead.
The department finally announced in April that it would begin dismantling the balconies. For the rest of the planned 42-story building, work is stopped at the 17th floor.
In Williamsburg, Jack Guttman’s white, three-story warehouse is one of countless construction sites lining Kent Avenue. Several years ago, there were plans for a 10-story condominium with 100 apartments. Guttman got only as far as installing floor-to-ceiling windows before construction was stalled.
Now those windows are coated with graffiti, and one is smashed. The building is now planned as offices, probably a smart move considering that there are several unfinished or vacant projects within walking distance.
David Maundrell of brokerage firm aptsandlofts.com said there are 5,432 apartments available or under construction on nearby blocks.
Chinatrust Bank is foreclosing on two nearby projects, Jonathan Green’s the Factory Lofts and Avi Galapo’s the Metropolitan.
“Both of those Chinatrust deals are examples of the music stopping, so to speak,” said Schechtman.
“Had the market sustained or continued to go up, contracts would have been signed and the banks would have been happy to remain in the deal and units would have been sold.
“But because the market began trending downward, no contracts were signed and the buildings remained unfinished,” he said. “I think until the bank decides on a course of action, the buildings will remain vacant.”