New luxury developments, how low can it go?

Control the banks? We backstop them!

AR, could you explain further your point on Arris Lofts?

I am totally convinced that J. Miller's new venture will actually end up making money. I am saying they would fail either. I am just saying, like any business there's a chance it could fail to produce the results they are hoping for. Imagine what prices will be like when vultures are eating other vultures...

Btw, I have nothing against vultures. They don't kill their food.

mwade, it's not a perfect analogy, but it's a decent one. here goes. arris started closings in 06/07. 232 recorded sales, averaging $627psf. so what's the problem? well, the sponsor has some units it wants to unload. and it's seriously going to depress the comps. will get to the details later.

in terms of the new williamsburg developments, arris isn't a perfect match. the views, the location, the amenities. but arris had a major advantage. its sales started, it appears, during 06, early peak of the market, and they had a couple of peak years to work with, beginning closings 06/07. it also appears to be a smaller development. the following is an attempt at a resale. supposedly it entered contract listed at $999k, which would be a significant loss not counting transaction costs, but who knows where it closed. (should find out shortly)

#400
07/10/2007Previous Sale recorded for $1,315,000.
06/27/2008Previously Listed by Prudential Elliman at $1,325,000.
12/18/2008Prudential Elliman Listing is no longer available. Last priced at $1,250,000.
03/28/2009Listed by Corcoran at $1,125,000.
08/03/2009Price decreased by 11% to $999,990.
11/18/2009Listing entered contract.
01/01/2010Listing is no longer available.

why might 400 have had trouble selling at $527 psf? when it closed in 07/07 for very close to $700 psf? the market you say? yes and no. if 400 got $527 psf the sellers were very lucky. check out sponsor listings 211, 310, and 314. 211 is on the market at $468 psf, listed at $750k, down from original list of $1.135. 310 entered contract at $1.195, 2778 sf for $430 psf. 314 sold 9/17 for $799k, 1762 sf, $453 psf.

this doesn't surprise me. i'm surprised we don't see this more frequently, but i suspect the developers in manhattan who only have a few units left can still play the waiting game. the ones with larger issues have to wait for the banks. by the time the issue confronts the developers in bburg, though, i suspect we'll be further along in the game and the effects will be felt more quickly.

i could be wrong, obviously, but a similar 30% contraction there from today's (or, rather, yesterday's, but not early 2008) prices in such new construction wouldn't be a reach.

what happened to the two 'not' in my last post? ...not totally convinced; not saying...

that's funny!

Rather than going on and on endlessly about whether or not we have hit bottom yet or have more room to go down, or about the financial condition ofthe banks.....how about speaking with any specificity about the topic of this thread......New Developments. Any specific insights or experiences we can recount would be helpful. I'm taking at Superior Ink, Tribeca Fairchild Chelsea Enclave, Soho Mews, Georgica, Lucida,The Harrison and the 3200 other listings in Manhattan that come up when one clicks on "New Developments"

Lets also not forget the giveaways that are masking some of the decline... covering closing costs, throwing in extras, bla bla.

A year's free maintenance....

AR if aris lofts are selling units for $453 psf how can the developer of Vere on Jackson ave just around the corner from Aris close in the low $600;s psf? Granted they are different buildings but same location

Nina , vere has closed very few. And a different product. Very small units. Those seem to remain the most overpriced. But I'll take a look around tomorrow and see if anything else catches my eye.

don't go out of your way for us

Thanks AR I enjoy reading your posts just curious what your thoughts are on Riverwalk court on Roosevelt Island $600 psf Related is the developer and very nice building seems to have closed on a good amount of units but it is sitting on a land lease I wonder if these are still overpriced

MMC; Okay re OP and state of new developments, here is a preview of coming attractions. Take a look at The Harrison. 601 is a resale asking $1,995,000. Except the sponsor just sold the same apt, 301,2 weeks ago for $1,594,000. That is the new reality as sponsors need to cut bait.

apt23, we focus so much on the big developments, but the first real signs are always seen in the more marginal ones. just slog through the chelsea new developments. or, oddly, the UES (despite relatively little product, some smallish developments are having a hell of a time, 300 East 79th, the hugely expensive The Mark, etc.).

but pull up 650 Sixth Avenue, futilely renamed 50 west 20th. it looks ghastly to me, and the market seems to concur. i think 19 units closed out of over 60, only 2 closed in all of 2009. more than 40 units just rotting on the market.

nina, i don't know much about ri, but i'll pull up the development and see if i can see any trends. do you like ri enough to take on the land lease risk?

although, i amend. it's also interesting to look at the larger developments and see what the sponsor is willing to let the last few go for. 212 east 47, another extell large development, "affordable luxury."

extell just sold 19C, 11/24, for $482,296. they sold 21C earlier for $679,800.

the developers are negotiating on price, just not in bulk yet.

i think a reasonable story can always be spun around the last few units going for a big discount....presumably the least attractive units, developer wants to unfold the entire overhead associated with that building, hey---its a year end close out kind of like the auto biz.

its the ones that are complete and stalled at 15-20% sold that impossible to explain away.

Related Cos. is no Johnie come lately they come bring a great deal of experience. If you are attracted to new construction you definitely want that.

how does that experience help you or them when it comes to being overpriced?

cc, with a few notable exceptions (5th on the Park the largest and most glaring), there aren't that many buildings that have commenced closings that only have 15-20% sold (although i should delve further, i saw some things in chelsea that look rather frightful). The Mark has only sold two units, Laurel was at less than 30%, but some buildings being constructed aren't listing the units in contract. many of the buildings that have started closings recently have had enough people in contract who are willing to close to get up to around 40% sold. still untenable, but may stave off the creditors for awhile.

it will be quite fascinating to see what happens to the buildings that started construction relatively late, such as tempo and 303 east 33rd, some of the UES fright shows. i don't see them as having a chance.

AR: I agree about the lesser developments. Those are some good finds. Big developments resales are still a tell, however. In other bubble cities, the first ones on the market were usually profitable then they slowly began to fall off a cliff even in great buildings. We will see if that happens also in NYC. My guess is that we will see a new thread, If You Can Determine Market Direction Through New Development Resales.

what about the lucida and brompton? have they reached 20% closed?

also curious about 535 wea. SE shows none sold.

apt23, we should start that thread. upon further reflection that almost 30% drop at 212 east 47th seems rather significant. $482k for a one bedroom, although small, in a new development seems rather inexpensive when compared to the general market, especially as that is one of the hotter markets, ostensibly.

the lending environment is a bit different now. banks are less willing to take the loss, it seems. maybe they think a CRE bailout is in their future? although that wouldn't help hypo, i'd think.

how much cmbs has the gov't bought in the last year or so?

ar, your figures for the Laurel may be old. I can't speak to what they've got in contract, but it looks like from ACRIS the Laurel is now at 30% CLOSED.

ali r.
DG Neary Realty

thanks ali. i meant closed, not in contract, but yes i was sloppy and didn't check to see what they had accomplished in the last few weeks. i'm never quite up to date because i only do acris under duress.

30% is not so great, though.

cc, 535 WEA just filed its condo declaration the other day, without which nothing could close. It's at
http://a836-acris.nyc.gov/Scripts/DocSearch.dll/Detail?Doc_ID=2009122800476001

The condo maps were also filed at http://a836-acris.nyc.gov/Scripts/DocSearch.dll/Detail?Doc_ID=2009122800476002

Those're interesting, as usually the plans themselves aren't filed, so for 535 WEA we get to see them without schlepping downtown.

"how much cmbs has the gov't bought in the last year or so?"

None.

can anyone shed light on the premium a buyer pays for a mortgage on a building that's only 30% sold? From my understanding most banks won't lend to such buildings but there are a few mortgage underwriters who do. Are they lending at an additional cost given the loan is somewhat speculative?

modern, the gse's bought PCV/ST's debt. maybe i didn't word the question properly.

like irregardless?

"modern, the gse's bought PCV/ST's debt. maybe i didn't word the question properly."

Not in the last year, as you asked. Not sure what you are trying to get at, the government is doing little for CMBS, other than some TARP financing.

i'm not trying to "get" at anything. it was just a question.

AR: If you start that new thread, pls include sponsor price chops. 212 East 47 would be a great start.

So I read the article on Miller and Guterman's Condominium Recovery LLC again. For some reason I missed the point that they will be buying only from the banks as oppose to developers as well. In retrospect that makes sense since if the condos were still in the hands of developers, they are not as desperate yet. This makes it more likely that the developers have decided to cut its loses and the banks will want to as well. While I don't know how accurate the shadow inventory of completed or nearly completed condows quoted in the article, but I would imagine they will have the details to back those numbers up when they negotiate with the banks.

They will be converting the units into rentals and 'expects to hold the properties for about four years. Based on market conditions then, it could sell rentals as co-ops or condominiums. or it could create an apartment real estate investment trust.'

Many of these units would have sat there empty if the venture didn't buy them up and convert them into rentals. The increase in rental inventory will put pressure on the rental market which will in turn put more pressure on sale prices. With all things being the same, the prices in the buildings they are buying into will drop in prices just for having rental units. It's not like they can rent out all those units quickly either. I'm assuming they are borrowing that $billion to buy these condos. If things don't turn out as expected in four "short" years, the vulture could indeed become food for another vulture down the line. I mean, how can they accurately predict the scope of what their own actions could do to prices...

Sunday. I mean, how can they accurately predict the scope of what their own actions could do to prices...

I would assume that they would be picking up these units at firesale prices. The banks don't have any options if they don't want to run the buildings themselves. I'm sure they would like to get these troubled assets off their books now under the "cover" of this troubled economy. Banks are going to have to write them down so they can have some upside to future quarters and recover their investor base. As to predicting the scope of Miller/ G's actions on the market, we have just had four major bubble cities to draw conclusions from. I assume that as in other cities, they assume firesale prices and long term worse case scenario -- like in Miami or Vegas.

The Miller/Gutterman LLC will be joined by other vulture funds. I think it is very telling that the first big announcement of vulture fund comes from the guy on the front lines who knows exactly how much shadow inventory is out there. I think it is going to be a bumpy ride and I think it is going to be a great time to be a renter. But we won't know for sure until we know which developers are really in trouble. I would say their first purchase will be the first window the common folk will have on the extent of the problem in NYC.

apt23, no doubt they will be getting a very good discount else they just won't buy. However, the banks will negotiate regardless of how badly they want/have to sell. As you pointed out, other such ventures will pop up as well which means a bit of potential competition. There's always a buyer at the right price.

My last point from the previous post was that, they might not be able to accurately predict the 'severity' of the domino effect their actions might cause. No one can. They will negotiate based on certain assumptions/returns. With a four 'short' year expected holding period, that seems a bit risky.

"what about the lucida and brompton? have they reached 20% closed?"

Brompton 74% by number of units (although less by $ value since more of the larger units have not closed).

Lucida 40% (39/98) of the condo units. Interesting in the case of the Lucida that no new closings are listed since mid-November. While lags of two to three weeks from closing to ACRIS filing are common, to have six or seven weeks pass with nothing makes me wonder if Extell has run out of in contract buyers willing/able to close. By contrast, the Brompton already shows 5 December closings and there could be others yet to appear in ACRIS.

The more entertaining situations top follow on the UES will include the Georgica and especially the Azure. Marginal and poor locations, respectively, and way too late to the party.

Also on the UES fun-to-watch list will be the Isis. Forgot that one before.

To the OP, a casual scan of closings at some of the more visible recent developments (Brompton, Rushmore, etc.) suggests that developers are in a "10-15% off ask if that will get a deal done" kind of mindset, rather than a fire sale / salvage whatever equity I can get mindset. Of course there are exceptions at larger discounts to ask, but there are more closings at ask or a 5-ish% discount than there are at, say, 20% off ask. An example: even at the Georgica, which clearly missed the window and is in much worse shape from a timing standpoint than buildings that started to close a year ago, has had closings at ask, down 15% and down 22%. And of course for some of these developments "ask" is after a series of increases in ask from 2006 or 2007 through mid-2008, so there is room for the developer to give a "discount" while still clearing a decent margin.

Bottom line: inventory new dev inventory is moving slowly but it is still moving, and at what to my mind are modest average discounts, all things considered. We must be close to the end of the pre-Lehman new dev contracts, where the discounts required to induce a closing are perhaps lower because the developer has a card to play, namely the buyer's deposit. It may be different once the price truly needs to entice the marginal buyer off the sideline to buy in a struggling building. Perhaps we will see that phase of price discovery as 2010 rolls on.

SLS... yes yes... letz just see where "mkt" clears w/o a 10% deposit.... hmmmmmmm hmmmm hmmmm .....

starting to giggle... hahahahahahahhahaa...

now rolling on floor... hahahaHHAHAHAHAHAHAHAAHAHAHAHAHAHAHAHAHA

Lemmings...

Bump

sls, there are still a few buildings with pre-lehman contracts. i don't think the alexander has begun closings (what IS taking them so long?), but i haven't checked recently. quite a few in chelsea, i believe.

Yes, Alexander is a great example. And a mystery, as you note. I'll take your word on Chelsea; as you can see from my comments, I'm pretty UES focused. I thought after I had posted yesterday that I should have looked at some Chelsea and FiDi buildings before commenting.