NY Sun re Slowing NYC Condo Sales - 5/8/08

Believe It: Condo Sales Slow BY MICHAEL STOLER May 8, 2008 http://www2.nysun.com/article/76027 Very little correct information is being floated about the state of the New York City condominium marketplace. The glossy, full-page advertisements for luxury condominiums that are liberally sprinkled throughout local publications project strong sales, while the regular quarterly reports on the state of... [more]

Believe It: Condo Sales Slow BY MICHAEL STOLER May 8, 2008 http://www2.nysun.com/article/76027 Very little correct information is being floated about the state of the New York City condominium marketplace. The glossy, full-page advertisements for luxury condominiums that are liberally sprinkled throughout local publications project strong sales, while the regular quarterly reports on the state of the local market suggest the city has been relatively immune to the real estate downturn that has crippled other cities. In reality, nervousness about the economy, falling consumer confidence, and the rising cost of commodities are slowing sales of residential condominiums in Manhattan, the other boroughs, and the suburban communities. "The truth is that people can't take the truth," the president of RAL Cos., Robert Levine, said. Mr. Levine blames press coverage for creating an atmosphere of nervousness that is slowing the sales. He said smart buyers would see opportunity today, and make purchases on properties with good intrinsic value. "The truth is that the principles and pricing of good real estate and the intrinsic values prevail. The truth is that the press has created an atmosphere of fear without basis. We are not talking about subprime real estate, we are talking about New York City and if the developer has priced his property appropriately there are interested buyers and sales. Although the impact of the press has certainly impacted velocity," Mr. Levine said. "Yes, there is a slowdown in sales. Yes, the buyers need more time to make a decision. And yes, if you are qualified to buy there are mortgage opportunities at good rates and for properties that are complete or nearing completion, it is a good time to buy." He continued: "There is no clear answer to sales — one week nothing happens on the Upper East Side, and the next you sell three units. One week Chelsea is standing-room-only at an open house, and the next week three couples show up. Overall, the buyers are still there, but they are taking two to three visits if they decide to buy, and they are comparing products. There are those properties that have pricing the result of developers overpaying for land, and higher construction costs that will have to realize that their pricing is too high. But its not the pricing, its the abundance of product, and again the atmosphere created by the press. "I am still optimistic! But then again I am a developer!" Mr. Levine said. "It's strange that the stock market is reacting as though the worst is behind us," the president of Beck Street Capital, Kevin Comer, said. "For those who remember what a real estate cycle looks like, this one hasn't even started down the hill. This cycle looks to be a textbook repeat of the late 1980s. At the worst possible time, while the equity markets are saying things are improving, the lending community has completely shut off capital. This will have the effect of snowballing property values over a cliff if liquidity isn't restored in the very near future." He added: "As transaction volume dries up, and liquidity remains nonexistent, property values will fall, and banks will begin foreclosures. The kid gloves will come off, and it won't matter if you own property at Fifth Avenue and 58th Street or Williamsburg, the banks will be brutal as they all struggle to survive and avoid Bear Stearns fate. The busted condo deals will be the first to fall given their short term financing. This scenario is now being played out in markets around the country; we've just avoided it to date in New York City. "If a condominium project has been on the market for over 12 months, and there remains units to sell, then those units need to be re-priced as rentals until the next cycle. Until this has happened, the market won't find a bottom. This doesn't mean that there won't be successful condominium projects still completed that sell out at luxury price points, but marginal projects will not be successful in this market," Mr. Comer said. A senior executive for sales of condominium at a national sales brokerage firm, who asked not to be identified, said, "Anyone who tells you the market today is doing great is flat-out lying." The broker added: "Every buyer coming in today is looking for a deal, and they are getting more brazen about given embarrassingly lowball offers. The more times they come in to view the property, the lower the offers seem to get. With this said, properties that are priced well — with room for some negotiations — are moving at a fair clip. Anything perceived as overpriced by the buyer is sitting on the market because the ball is squarely in the buyer's court, and there is little to no urgency in the market. "There are many people on the sidelines that want to buy, but are being cautious. Traffic at our sales offices in general is healthy, but the buyers are taking a much longer time to make decisions. The smart position in the market today for a developer is to remain flexible. Nobody can predict with certainty what around the corner, but I'm of the mind that it's better to take a little off the price now, than a lot off the price later and keep moving your inventory. If the developer insists on remaining inflexible on sales price, they will be in a stalemate with the buyers," the broker said. A local developer who asked not to be identified said certain markets "are flooded with product. Buyers are aware of this and are negotiating hard and really taking their time in making decisions, and consequently, sales are slow. "When a new building hits the market, there are a bunch of early sales during the initial buzz period from friends and family and the interest list, but then sales slow down rather quickly," the developer said. "It is clear that we are experiencing a change in the overall state of the real estate market," the president of Citi Habitats, Gary Malin, said. "One change that is apparent is that even though the volume of transactions is off of the 2007 peak, prices of properties continue to increase in the first quarter of 2008. By no means, however, has business dried up. In fact, properly priced apartments are, at times, leading to bidding wars. I think that some market changes are to be expected given the economic conditions currently eroding consumer confidence, such as increases in the cost of oil, gasoline, food, etc., as well as an uncertain job market and the increase in the foreclosure rate as a result of the subprime market." The president of Troutbrook Companies, Marc Freud, said that in general, "the volatile market means that sellers are ready to negotiate off of sales prices. The malaise of the housing crisis is still with us, and buyers are very cautious." The president of Winter Financial, Gregg Winter, said, "Without question units in 'b' locations of the New York City condominium market, like parts of Queens and further reaches of Brooklyn, are moving slowly, even though well-qualified buyers can make very good deals right now with developers and can still get excellent mortgages at low rates." He added: "For the moment, developers who have slow unit sales are paying for some of the closing costs and or taking single digit discounts on pricing to execute the transactions. Sponsors are acutely aware that there are limited sources of debt available today to take out their existing condo construction loan." A local developer in Brooklyn who asked not to be identified said: "My project in downtown Brooklyn had consistent sales up until the third week in March. Since that date, the offers have slowed down and the quality of the offer has decreased. The amount of foot traffic of purchasers to open houses has decreased. In order to sell units we are now paying transfer tax, attorney fees, and other closing costs which amount to approximately a 4 to 5% discount." The president of the City Investment Fund, Thomas Lydon, said the pace of sales "has definitely slowed in Manhattan. No price concessions of major proportion as of yet, but definitely a willingness to negotiate transfer taxes, brokerage, etc, on higher priced units. "Everyone knows there are fewer 'real' buyers in the market, and the smart owners are being flexible to capture every prospect," Mr. Lydon said. "I can speak directly to the townhouse market in Greenwich Village area. Prices for properties, both renovated and unrenovated, were very strong the past two years. Prices rose over 10% both years, with properties selling between $2,000 and $3,000 a square foot, depending upon location and condition of property. Buyers are much more conservative this spring, making offers substantially below asking prices for unrenovated properties. Expect to see comparables dropping from previous highs, but still at substantial nominal dollars." Many real estate experts are still bullish on the overall condominium marketplace. "In our Williamsburg development, the 575 market rate condominiums in our first phase of the Edge, we have entered into 65 contracts during the first 30 days of marketing," the chairman of Douglaston Development, Jeffrey Levine, said. " Mr. Winter said, "In the unique and peculiar algebra of New York City condominium sales, smaller projects in Manhattan which offer something unique and special to the marketplace are still selling and will continue to sell. The modest, outlying units in the boroughs may be sitting there for a moment, but the Manhattan projects with both sizzle and substance still seem to be selling." Mr. Freud said, "Overall buyer sentiment has improved from the beginning of the year. Bidding contests have not totally left the marketplace." The principal of Essex Capital Partners, Mitchell Rutter, said: "This past weekend I attended a grand opening in Williamsburg located in a section which is called the North Fourth; at the corner of Fourth Street and Driggs Avenue. Approximately 70 people were in attendance and according to the sponsor; four of the initial 20 units listed for sale were sold. Even with prices in the range of $750 per square foot, there seems to be many potential buyers undeterred by the current economy. "Sales activity remains strong in Park Slope section of Brooklyn. For example, the Argyle Condominium located on the west side of Fourth Avenue, which many consider the wrong side of the street, and is not in the preferred school district has a sales office on Fifth Avenue has had steady and consistent sales," Mr. Rutter said. "The average sales price per square foot is $740, and about 60% of the units have been sold with the building's steel still in process. Another sign of the frothy Park Slope market is that these sales have occurred from floor plans and not from walking the actual units." It looks like some difficult times are ahead for the New York City condominium market place. As Mr. Freud said: "Condominiums that are well-executed and in stable neighborhoods are selling at a brisk pace." One must concur with Kevin Comer when he says that for a project to be successful in this market, it has to have a truly great design, a great location, and a reasonable price. "Now more than ever its location, location and location. Long term, real estate remains a great place to invest capital, especially in New York City, and we are headed for one of the best buying opportunities of my lifetime," he said. [less]