Time for self-preservation

<i>Bleak outlook for new development forces builders to try new tactics<br></i>

While deal volume is nowhere near where it was last year at this time, residential brokers are finally starting to report an increase in bargain-hunting buyers and a slight uptick in rental deals.

But while the prognosis for resales seems to be improving, things on the new development front are still bleak, with no signs of improvement on the horizon.

In response to the unsavory market conditions, developers are drastically changing their strategies to survive the downturn.

For some, this means taking a significant haircut on profit, or even putting personal funds on the line. Many realize that they have no other choice if they want to sell units.

Some sponsors are going back to their lenders to persuade them to sign off on lower minimum prices, known as “release prices.” While such price chops in new condos were difficult to implement at the start of the downturn, they now are becoming more common, as both developers and lenders realize that buyers now expect them.

Meanwhile, impossibly strict lending standards — which show no sign of letting up — have made mortgages very difficult to obtain for buyers in many new developments.

As a result, some savvy developers have begun identifying the one or two buyers who can make or break their projects. These “tipping-point” buyers can push a project beyond the crucial new lending threshold of 70 percent (the percentage of building units that must be sold for Fannie Mae to guarantee a mortgage on a unit). To hit that marker, developers are getting more aggressive and wooing those critical buyers with lavish discounts and incentives.

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Another strategy that is key for developers is learning to negotiate with groups of buyers. In a pre-Internet world, these buyers would never have encountered each other, but now they are banding together online to bargain collectively for concessions.

To facilitate all these survival strategies, developers must choose the right brokers — those who have figured out how to close sales even in a drastically altered marketplace.

This month, The Real Deal looks at the city’s top new development marketing firms, ranking the top 15 firms in what has become an increasingly difficult field.

And finally, if developers want to stay in the business, it’s becoming clear that they must have money to show off to lenders to prove it. In a bizarre twist, these lenders are looking for fancy cars and other assets to ensure that developers have collateral in the event their projects fall on hard times.

Ranking new development firms in a hostile market

Buyers band together to negotiate with builders

Lenders now hinge decisions on proof of wealth

Developers wine and dine to reach crucial sales threshold


Developers going back to the bank