In these days of awe, when the stock market, capital markets and credit markets are in total disarray, there is absolutely no chance that I can be optimistic on the state of the residential condominium market. I probably should be wearing all black and seeking part-time employment as a mortician.
In my discussions with industry leaders, the general consensus is that developers of residential condominiums are in a state of denial. Developers say that everything is beautiful and sales are just great. Unfortunately, it looks to me that the only increases are in the large number of classifieds that appear in the real estate section of the New York Times, in the tabloids and the glossy magazines advertising unsold condominiums.
The president of Citi Habitats, Gary Malin, participating in my real estate trends class at the NYU Real Estate Institute, said, “Basically there have been no condominium deals in October.” A number of developers who planned to open their sales offices in the fall are postponing opening for at least 90 days.
Ofer Yardeni, the co-founder and managing partner of Stonehenge Partners, said, “There is fear in the streets.”
The managing director responsible for condominium development sales at a major New York City brokerage firm, who preferred to remain anonymous, said, “Anyone who tells you that the market is rosy is either lying or has their head deep in the sand. Everyone is worried: Buyers, sellers, brokers, bankers, lawyers, appraisers, accountants — everyone. Is it the end of the world? No, unless the financial markets continue to trend lower and lower by the week, and then all bets are off.
“Developers who do not, or cannot, negotiate with purchasers will be sitting on their properties for a while. Some of the financially sounder developers that will be able to hold off and take their time to sell as the project becomes more complete will weather the storm, while those that can’t could find themselves in deep trouble,” the managing director said.
A senior broker at a prominent New York residential brokerage firm said, “With 30,000 to 40,000 individuals who have or are going to lose their jobs, they won’t be buying or upgrading their residences. If anything, a large number of them will probably try to sell, so there will probably be another 10,000 or so additional residences to be put up for sale, just what we need — more inventory.”
One of Manhattan’s most prominent developers, who preferred to remain anonymous, said, “The Manhattan condo market is very soft, but not totally dead. We have traffic, but the question is how many are lookers who are not seriously interested in buying? The deals we have are those born of necessity, such as forced relocations.
“Discretionary purchasers in the $1 to $3 million category are virtually non-existent. The constant drumbeat of negative news regarding the economy and the housing market together with tougher mortgage standards and higher equity requirements has put a definite chill in the market.
“If this was a movie, it would be ‘Waiting to Exhale,'” Kenneth Fisher, a partner at Wolf Block, said. “Buyers are holding their breath until they find out when Wall Street is going to settle down and hoping they don’t pass out in the meantime. It’s not just Wall Street; law firms are jittery with one blue chip law firm on the verge of dissolving and others cutting costs.”
He added, “Developers with cash reserves are moving forward on new projects in anticipation of the markets settling down by the time they need construction financing two or three years down the road. Those with revenue streams are still in the game. Those who can only roll over the profits from one job into the next are hoping that they still have a chair as the music stops.”
The founder and chief executive officer of a real estate investment fund, who are the co-developers of one of the most successful residential condominium developments in Harlem, said, “I think sales have truly come to a complete standstill and will continue to be stalled until there is a brighter economic outlook. It is going to get worse before its gets better.”
A broker at one of the nation’s largest residential brokerage firms, who preferred not to be identified, said, “Brokerages and their senior management want to continue to send the message that all is going to be fine, and as soon as someone says otherwise then they hammer that person for not toeing the company line.”
“The overall current situation has certainly created a sense of ‘wait and see/rent or buy,’ but ultimately people need a place to live, and many have been waiting for a correction to pull the trigger,” the broker said.
Further complicating the sales of residential condominiums is the reality that first-time homeowners and purchasers are no longer qualifying for residential mortgages. Additionally, costs have risen for developments, and developers are now required to speak to their banker for additional funds to complete the project.
One of New York City’s leading developers, who preferred to remain anonymous, said, “We are all in uncharted territory. Never before has anything like this existed — it’s the perfect storm squared.
“The bankers and the lenders created this with their cavalier lending practices. I think the worst is yet to come. The lenders’ greed is still evident; they are going to have to recognize the value of hands-on developers, and possibly forgo some of their interest and returns if this is going to turn around and stabilize. Shutting down and applying the old standards are not going to work in this environment.”
Chris DeWeaver of Prudential Douglas Elliman said, “What developers do not understand or won’t face up to is that a number of their signed contracts will not proceed. That client of theirs who went to contract with either 5 or 10 percent down and was pre-approved, well those loan programs that they were going to close with no longer exist, so they are toast. To make matters worse, those people will now lose their deposits.”
In conclusion, I concur with a local developer who preferred to remain anonymous when he said, “Buyer psychology is very negative. When people finally hear the talking heads saying the housing and the economic crisis is abating, then and only then will the market begin to return to some degree of normalcy.”
Michael Stoler is a columnist for The Real Deal and host of real estate programs “The Stoler Report” on CUNY TV and “Building New York” on WEGTV in East Hampton. His radio show, “The Michael Stoler Real Estate Report,” airs on 1010 WINS on Saturdays and Sundays. Stoler is also an adjunct professor at NYU Real Estate Institute and a former columnist for the New York Sun.