purchasing in a condo with less then 50% in contract

When the building is less than 50% or 70%, there are few scenarios:

1 - No one will be able to close
2 - There will be some sales, but there is a good probability of having high % of rentals
3 - If it is not finished yet, some short cuts will be taken, some amenities will not be done or at least to the standard presented.
4 - The maintenance can skyrocket after a year or so.

There is no easy answer about 50% mark or the 70% mark. I would expect that it all depends on the timing. How close the building is to getting the CofO and how many units are sold and at what price. I would expect that most developers would be looking to unload until they reach the 70% mark. If they make enough money to break even on the 70%, they can dump the last 30% just to get out. The ones that do not make enough, may become stubborn as now the banks will lend on their properties and the building will not be a ghost town.

AB_-ok, the building is a condo conversion- i'm not too concerned about the maintenance skyrocketing (since usually maintenance going up after a year is when the warranties expire and shoestring budget expires). The building is close to 50% and supposdly is scheduling a closing for end of month? (either an all cash deal or lender is a portfolio lender and doesn't mind the 50% or 70% rule)

When do you think will be the biggest discounts? I was thinking it was the unit that breaks the 50% mark & the unit that breaks the 70% mark? Or am i wrong and the developer is more confident and is willing to wait (since its only one more unit to get over the 50% mark)? and the developer was giving the biggest discounts for the very first couple of units?

I know that the lowest priced units went into contract first- obviously I don't know what type of discounts were given for the prior units that went into contracts. Just trying to figure out if the larger discounts were given or still to come?

I did check and no condo declaration yet so i don't see the how the condo can be schduled for a close at end of month (maybe they get it sometime this week).

Out of curiosity , what draws people to become new investors in these under 50-70% sold developments. Greed or the moths to a flame principle? Caution would suggest otherwise, but the large number of posts inquiring about this really has me scratching....

greed...think they're gonna beat the system.

its not to beat the system, its that developers have the biggest % of units on the market, today- they need to sell and time is against them. (because of their views of the market and economic conditions).

As they are facing the largest number of payments. In NYC many home owners own prior to 2000 and/or are not experiencing pain, can wait and don't mind waiting. Also, this should have been first probably, But, developers best understand the market and pricing (many homeowners are not in reality or think that pricing may get better and are willing to wait). So, no its not greed......

Its not to beat the system, its that developers have the biggest % of units on the market, today- they need to sell and time is against them. (because of their views of the market and economic conditions).

All depends on the financial resources of the Sponsor, their experience navigating past markets and how leveraged they are.

My biggest queston is where is the developer most vulnerable? and what risks are there in going into a contract where less then 50% are in contract?

since this is a condo conversion, and i would expect a non-eviction, there are just too many variables out there. you need to know how many units are not going to be converted and based on that you have to look. best discounts go to insiders, the renters becoming owners. next are the first few that come in to buy. the 50% mark can be looked at only if the building is FHA approved, otherwise it's only 70% mark.

My biggest question is where is the developer most vulnerable? and what risks are there in going into a contract where less then 50% are in contract?

This has already been answered:
1) Difficulty in reselling
2) Building is controlled by Sponsor for longer duration than originally planned
3) Possibility the majority of your neighbors are renters.

In most new buildings the unit owners can't wait for the Sponsor to relinquish control
to the board so they can start making their own decisions. In a building such as this,
that day will come later, not sooner.

Even if the reach the 50% threshold due to the influx of FHA buyers once the building reaches 1/3 FHA will no longer lend to that building due to exposure. So the Seller would be very desperate for all cash or portfolio approved buyers in the 51% - 70% range which means sub $500 psf. I wish I had cash.

If it was obvious: after 70% is achieved they can increase prices again for the Fannie Mae buyers, in theory.

wasn't*

HH-so for example, does that mean if the building has 100 units- only 33 units will qualify for FHA loans? so if 51 units are in contract the other buyers have to be portfolio lenders or all cash?

you really think sub $500 psf? i think thats a little aggressive.......

also most loans will be above the $729k loan amounts since the asking prices are above the $1.5M. maybe they negotiate and go to contract at or around the low $1M so that the $729k loan amounts come into play.

Yes from what I was told by 2 loan officers about FHA.

1 brooklyn bridge in Brooklyn Height is down to high $400psf which in 5 years I think will be a steal but lack of subway access doesn't suit me.

The mansion priced units are getting the most extreme price cuts; so low ball, low ball, low ball... They can't afford to pay the 1500+cc every month

Now low $400psf I took a random unit: http://www.streeteasy.com/nyc/sale/416708-condo-360-furman-street-brooklyn-heights-brooklyn

i know, but don't compare brooklyn with manhattan......i would love to see an example of something below 110th street. i would love to see an example of sub $500 in the city.

Some people think that Brooklyn Heights is more desirable then most parts of Manhattan. Your best bet for sub 500 in Manhattan is FIDI. I think 20 Pine is in distress but I've only been browsing there.

$577 psf Battery Park City* http://www.streeteasy.com/nyc/sale/441681-condo-2-south-end-avenue-battery-park-city-new-york

HH- the BPC is a poor example because of the HIGH CC and R/E taxes. YES FIDI does have some deals, i just don't think even FIDI is sub $500.....

What do you expect your buying in Manhattan; your gonna pay high CC and RE even if you get sub 500psf because of the high square footage and of the Manhattan luxurious amenities; so I don't think it is a bad example. Your only chance is a new development that came online within the last couple of months that has a tax abatement.

Not sure why so many believe they are in a better bargaining position against a developer vs a single owner looking to sell. The allure of never been lived in must be strong.

Supply and Demand

River- its not the allure of never lived in....HH, hit it right on the dot, supply versus demand, the single owner may be hard pressed, but not in the same position, developer has to make the Note payment, the R/E taxes, CC fees, that could be bleeding him dry in a market like this when there are so few buyers out there and supply (not just his, but other units coming on the market, not to mention the shadow supply that is out there), they also see the market,differnt, they have insight....and understand the current market conditons....

Yea, this is the perception of those making the offers. But I think this is the wrong way of looking at it. Instead of making one offer to a sponsor sitting on 10 units, I think it makes sense to make 10 offers to 10 parties. I see sponsors making some concessions, but the biggest concesssions seem to be on previously owned units. Maybe its not the allure of never been lived in, but a David vs Golliath mentality.

Regardless, I hear people low-balling developers and surprised that the builder isn't going lower than the last concession he made two days ago to another buyer. In the case of sponsors, they need bank permission to lower prices....You are just dealing with too many parties to be able to expect a true negotiation. It is not all on the table.

Don't get me wrong you could find steals with single pre-owned unit where the seller is in a desperate situation ie. divorce,marriage,relocation,job loss, loan sharks etc... but its a needle in a haystack situation you would need to get lucky you have the right Agent. Assuming the agent doesn't purchase the steal for him/herself. With new Developments you can do your own research to see where the deals might be.

HH , I agree a lot of work, and needle in haystack not a bad comparison, but necessary if you are going to make out. Otherwise why bother? That sponsor unit is probably over priced by 25% to begin with..at least that's how I view Extell/Rushmore.

That unit at 1BBP is literally ON the BQE and has 1,400/mo common charges. It's not typical. They want to dump it

Villager - How do you know which units face where at 1BBP? I'm curious because some of the price cuts there are pretty attractive.

That's what I figured, but people have been asking for $500psf that wasn't located in a "war zone"; beggars can't be chooser. I'm probably gonna buy something within the next month before the fire sales begin and then there is nothing left but the scraps that I'll regret a few years down the line telling myself, I shouldn't have waited.