Buyers taking advantage of New York City’s condo glut

Half of Extell’s current projects will lose money, and it’s not alone

The soft market for luxury units has some developers hard up. (Getty)
The soft market for luxury units has some developers hard up. (Getty)

One of economists’ favorite expressions is Herbert Stein’s “if something cannot go on forever, it will stop.

Just ask luxury condo developers.

Contrary to the belief of activists who believe New York City rents and home prices defy gravity, builders cannot keep apartments empty indefinitely in a Captain Ahab–like quest to land a whale of a buyer.

They must offer concessions and cut prices to move units before their lenders foreclose, even if they buy time with an inventory loan — secured by unsold units — to repay construction loans that come due.

That’s exactly what has happened in New York City, where the luxury market has seen prices erode since 2017. Prices have slid even further after pandemic turned the central business district into a ghost town last March.

In response, shoppers are beginning to snap up homes for cheap, at least compared to the prices of a few years ago. “A home buyers’ bonanza in Manhattan,” a New York Times article deemed it Friday.

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As the story noted, developers have been slashing condo prices by as much as 50 percent in Manhattan, where the market is weaker than in Brooklyn and Queens, relative to what it was. “From soaring condos in affluent enclaves like Tribeca to boutique buildings on gentrifying blocks in the East Village, Manhattan is awash in price cuts,” the article said.

Bloomberg News reported that 97 percent of the 2,457 Manhattan homes that sold in the first quarter of 2021 went for at or below the asking price, the highest share since 2009, according to a Miller Samuel analysis.

Some projects are converting to rentals or selling units in bulk to investors at a discount.

Even famously successful builders are seeing red ink in the depressed condo market. Extell Development’s Gary Barnett admitted to the Times that he would lose money on three of his six current projects.

Barnett then delivered a quote unlikely to join Stein’s in the pantheon of economic classics. “From here on in,” he declared, “it has to go up.”