Some facts about modern New York apartments: They’re expensive. They’re in short supply. And if they’re newly constructed condos, they’re usually delivered late.
In the previous strong market, delayed closings didn’t usually raise eyebrows. Buyers felt lucky to lock in a unit early before its price could climb. Construction costs escalated, yes, but developers could offset those expenses with higher prices when selling remaining apartments.
But in a softening market, delays can be disastrous. Costs rise while apartment prices drop. Lenders blanch at the prospect of weak sales and pull financing. And with employers slashing jobs on Wall Street, a buyer could lose their job in those extra months, upending the sales equation.
Of course, all this means ruined deals for brokers.
Although in recent years, buyers have rarely walked away from apartments once they’ve signed contracts, that could soon change, according to brokers, attorneys and developers.
“In a jittery market like this, time is the enemy of the developer,” said Cary Tamarkin, a Manhattan-based residential developer. “These are scary times.”
Under state regulations, a buyer can break a contract with security deposit in hand if a year has passed since his contract signing and the building doesn’t yet have at least a temporary certificate of occupancy, which is required before anybody can move in.
None of Tamarkin’s buildings have ever experienced “rescission” like this. But in his offering plans, Tamarkin often adds six months’ wiggle room to expected completion dates, just to be safe, he said.
That’s the case with two new projects, 397 West 12th Street and 456 West 19th Street, where offerings promise spring 2010 completion dates, though building should actually wrap up by late 2009.
The first building will offer five condos, starting at 3,000 square feet and priced from $5 million; sales still require attorney general approval. The second building, also waiting on state approval, will feature 22 duplexes, ranging from $1.5 million one-bedrooms to $8.75 million four-bedrooms, Tamarkin said.
Wild underestimations of how long
projects will take, a favorite marketing ploy of scheming developers, can increase the likelihood that buyers will jump ship, lawyers said.
“You are shooting yourself in the foot if you go in aggressively early,” said Allan Starr, a senior partner with Starr Associates, a Manhattan-based law firm that specializes in condo offering plans. “It’s better to be conservative and realistic.”
Ultimately, buyers have other tools at their disposal, even if they are used rarely. For example, if midway through the construction process the developer submits a revised offering plan showing common charges rising by more than 25 percent, buyers can break their contracts, he said.
At the time of a contract signing, buyers can also tack on a special rider stipulating an “outside closing date,” which usually requires them to be moved in six months hence.
But developers are generally loath to
lock themselves in this rigidly, so only
about 3 percent of New York condos have been sold with those riders in recent years, Starr explained.
Those safeguards, though, aren’t extended to brokers, who typically will lose a commission if an apartment never closes; for them, the increased risk of having deals scuttled reinforces the need for developers to be straightforward.
“Developers tell blatant lies. It’s disgraceful,” said Leonard Steinberg, an executive vice president with Prudential Douglas Elliman who claimed that delays have wrecked two major deals for him.
One happened at the Tribeca Summit at 415 Greenwich Street, where in July 2006 a couple signed a contract for a three-bedroom, two-and-a-half-bath unit for $3.2 million, thinking it would be ready in a year.
But 15 months later, the apartment was still under construction, and the couple, frustrated, backed out, Steinberg said.
(A spokesperson for Ethan Eldon, a co-developer of Tribeca Summit, said he was unavailable to talk because the building’s units are now closing.)
Tribeca Summit is a conversion, which can take longer to deliver if there are unforeseen problems. Steinberg said he wishes Eldon was more candid about delays.
“Honesty is a good policy,” he said.
Paying brokers a third of their commissions earlier, at the contract signing, was a technique common with Las Vegas and Florida condos at the boom’s height.
But when buyers bailed on their units, developers were stuck with the losses and were often forced to sue brokers to recover those payments, brokers said.
In New York, the practice is less frequent, though it does pop up where international buyers are a factor, like at Trump Soho Hotel Condominium, located at 246 Spring Street, and Soho Mews, at 311 West Broadway, brokers said.
Generally, brokers should work with developers with proven track records, said Emily Fuller Kingston, an associate broker with Halstead.
Buyers who aren’t well-coached can still raise hackles: In March 2005, some of Kingston’s clients were supposed to move into a new three-bedroom Soho apartment, with three-and-a-half baths and 2,500 square feet, for $2.995 million.
Once that date passed, the buyers summoned their lawyers, threatening litigation, though by May, they had closed on the unit.
“Some sponsors are very reliable, and others are not, and we know about ones that haven’t been able to deliver their buildings,” Kingston said.
Management of clients’ expectations is key, agreed Paul Purcell, a partner with Charles Rutenberg Realty in Manhattan who informs his clients that a few months’ delay is standard. “Tell buyers that it’s not the end of the world,” he said.
While delays of a year are not unusual in New York, others have stretched to four; in fact, in better markets, unscrupulous developers have been known to extend a project’s timeline to exploit rising prices, brokers said.
Still, from a quality of life perspective, buyers may want to sit on the sidelines rather than rush in while plaster dust swirls, said Shaun Osher, the chief executive of CORE Group Marketing, which represents developers.
“This is not a science. Every project has its own set of challenges,” Osher said. “Anyone who has ever done a renovation knows this.”