New condos? No can do. As the condo market turns in favor of buyers, nearly every new building is offering some form of incentive, but the pressures are strongest on buildings just coming to market.
Many builders, especially those who bought their sites at recent values, are selling their properties outright as sky-high land prices and construction costs are driving the break-even point of new construction to a precarious level. Others are reshaping them into a different product, say a hotel or rental, for a smoother ride.
Here’s a roundup of some star buildings, and their developers’ decisions.
485 Fifth: condo project goes hotel
The most prominent recent reshuffling involved the sale of 485 Fifth Avenue, the Peter Som-designed condominium conversion-to-be on Bryant Park. With pre-sales stalled at the halfway point, Carlyle Group and Belfonti Capital Partners sold their property to an affiliate of Global Hyatt for $136 million.
According to Mark Gordon, managing director and head of the International Lodging and Leisure Group at Sonnenblick-Goldman, which arranged the transaction, “Developers and investors are always looking for the highest and best use of a building. While 485 Fifth would have made a great residential building, it will make an even better hotel, because of the hotel shortage right now — particularly in Midtown.”
Several thousand hotel rooms have been lost to condo conversions in the last couple of years; says Gordon, “a lot of residential developers are coming to see us now to help them figure out how to incorporate a hotel component in their residential buildings.”
The owners — who purchased the property for $86 million — did well in the deal, though they might have saved some trouble had they seen the writing on the wall earlier in the planning stages.
“They came to us,” recalls Andy Gerringer, managing director of the development marketing group at Prudential Douglas Elliman, “and we gave them numbers that were achievable for the building, $1,200 to $1,300 a square foot, and told them they should be doing small units. That’s not an area where you make big, family-sized units.”
The builders ultimately priced at $1,400 to $1,500 a foot with a preponderance of large units, says Gerringer, “and got themselves in a situation where they couldn’t sell those kind of units. They weren’t at a far enough point in sales where they had to pull the trigger one way or the other, and they decided this was a good out for them. At least they could walk away with money.”
Copper sees gold in hotels
Another developer switching gears to capitalize on the soaring hotel market is the Copper Group, which is scrubbing plans for a 30-story residential tower at 133 Greenwich Street in the Financial District.
“We were intending to do a condo in 2005, when we closed on the property,” says Jeremy Beyda, project director for the company, “but environmental issues related to the World Trade Center delayed construction.”
For the better, no doubt, considering the market the building would have opened to. As it is, “we’re talking to a number of luxury operators in the hotel industry to do a five-star boutique hotel, which may or may not have a condo element,” Beyda said. “We know there aren’t many five-star hotels in the Financial District.”
Stanhope and Sutton change course
Meanwhile, the condo conversion of the historic Stanhope Hotel “has been on the market for some time,” notes Gerringer, “and there are no sales in. Once you have 15 percent sold you have a certain amount of time to declare the plan effective or you run the risk of losing out on your condominium plan. I’ve heard from various sources that they may be too far along to have it go back to a hotel.”
The Corcoran Group, which is marketing the Stanhope, did not return calls as of press time.
The Sutton Hotel at 330 East 56th Street has also seen a few changes of tide in recent times. It was well on its way to reincarnation as Sutton East Condominium, with eight of its 78 apartments already under contract, when Alchemy Properties sold it to a hotel operator.
“It was flip-flopped,” Alchemy president Ken Horn told the New York Times.
159 Bleecker switches to rental
Hotels aren’t the only plausible alternative for today’s stalled new condos; the sizzling rental market is becoming a tempting alternative for developers who don’t have to depend on a huge apartment sell-out to finance their construction.
According to Cliff Finn, director of new development marketing for Citi Habitats, “You’ll find that somebody who’s on the ground with one of their sites for a long time might be able to afford a rental model, but someone who’s coming in at today’s numbers is going to find it a lot harder.”
John Young, principal of Emmut Properties, developer of 159 Bleecker Street, is “one of those who have had the ability to change direction in midstream,” he says. “We went all the way: the book was approved by the attorney general’s office, the building was built, but at this point we’re going to cancel the book and revert to a rental.”
159 Bleecker Street had already begun taking deposits. According to Dawn Tsien, president of development marketing at Coldwell Banker Hunt Kennedy, which brokered the Greenwich Village condo, when Young saw the for-sale market softening and began considering converting to rental, “rather than hang people up and keep their money while he was deciding, he returned their money.”
Renters should be able to move into the building in early 2007. “They’ll be getting condo-quality amenities,” says Young.
Rumors tend to swirl around other buildings where sales have stalled. New York magazine reported that 55 Berry Street, a conversion of a manufacturing building in Williamsburg into 42 luxury lofts, was turning rental. But despite disappointing sales — only 14 units have sold over 17 months — the developer is sticking to the original condo plan, says marketer Douglas Elliman. The company is trying some novel marketing schemes to stimulate interest in the building.
“We’re going to have a 48-hour Midnight Madness sale!” exclaims Elliman executive vice president Helene Luchnick. The building will have extended hours on Nov. 12 and 13, and 20 percent markdowns on 20 of its units, offering prices starting at $383 a square foot for large ground-floor duplexes, $585 a square foot for the one-bedroom lofts and under $900,000 for penthouses with private decks.
A prominent condo in the planning stages at Madison Square Park, Sundari Lofts & Tower at 158 Madison Avenue, has also been said to have been cancelled by its developer, Buttonwood Real Estate. Buttonwood’s Brad Meadow insists that’s not the case. “Just because the land was listed for sale does not mean that the project was canceled. In fact, at this point, the Sundari is likely to be developed.”
It doesn’t make sense for every building where sales are slowing to become a rental, says Adrienne Albert, president of the Marketing Directors. “The small developers that are underfinanced will feel the pinch because their sales rate will be slower than what they budgeted for,” she says.
“It’s attractive for a developer when they see rental rates at $65 to $70 a foot to say, ‘maybe I’ll switch over.’ But we haven’t [reached that rent level yet].
“For those of us who have been here before,” adds Albert, the current slowdown in condominium sales isn’t like the extended late 1980s slump, but “more like the blip we saw in 2001.”