pre-sales still a good deal?

nyc08:

IMHO, it's not clear that pre-sales are/were EVER a good deal. People have made lots of money flipping in a rising market, certainly, but that doesn't necessarily mean their purchases were good moves at the time, on a risk-adjusted basis. This is a very complicated topic, and my rudimentary understanding of futures pricing and valuation of risk are inadequate to crack it. What I can say with reasonable certainty is that most people who sign pre-construction contracts do so without fully evaluating the risks they are absorbing or considering the disadvantage they are at in assessing those risks, compared to the developers and bankers who do this stuff for a living and are privy to much more information about the project and its principals.

Theoretically, pre-sales should be a better deal now than they were in a loose credit environment, because developers are hungrier for cash. But clearly, if you think the same apartment will be cheaper when it's done, that overrides the macroeconomic angle.

West81- Very wll said.

nyc08, if the broker says "prices are going up - buy now", clearly, you must believe him! ;-)

on a more serious note, with pre-sales you get worst of both worlds - you get to pay higher price of today (compared to what it will likely be tomorrow), AND absorb interest rate risk - (e.g., if interest rates go up by 1 % in the next two years)

By my exp NO-New Dev is too much of a gamble. I negotiated down over 10%, since I was the first purchaser 2 yrs ago. The last units are available 5% below my price. All that new devs offer extra is a washer/dryer in the unit and in 2 years times there will be plently of inventory from the recent new devs. Also it will take you 6 months plus to get the punch list done, no real control over the sponsor for a while and it takes a while for all the kinks in the building to get fixed.

I did that once and the developer went bankrupt. It was a fun ride.

Just to add a little anecdotal fuel to the fire, consider two listings, with which I'm familiar because they are the respective "crown jewels" of two developments I've been watching for about two years:

First, the duplex penthouse of Ariel East:
http://www.streeteasy.com/nyc/sale/31715-condo-2628-broadway-upper-west-side-new-york

This apartment was on the market for two years at $6.795MM. It's a safe bet that every potential buyer heard the same story from Corcoran: "Better grab it now. Once they build it, the price is sure to go up." Nobody bit, even at the height of the bubble. On May 22nd, a Carolina trust bought it for $6MM. Considering that nobody is likely to build anything close to Ariel East's height in that neighborhood (barring a major rethink of recent zoning), it might not be a bad buy. Good or bad, it's a lot better than the deal Extell was offering in 2006.

Next up, a 5200-square foot, customized 3-apartment combo that occupies the entire Broadway side of the Avonova's 11th floor:
http://www.streeteasy.com/nyc/sale/229507-condo-219-west-81st-street-upper-west-side-manhattan

The condo was just declared effective, and I don't think the deal has closed yet. Maybe Elliman will find somebody to take this white elephant off the buyers' hands. Good luck.

With very few exceptions, pre-sales tend to rely on marketing hype and take advantage of the less-informed. Everything is stacked in favor of the developer since 1) they can make grand promises based off of pristine renderings, 2) they are under no time constraints to sell since construction is still on-going, 3) buyers have little to no negotiating power since there are no sales records for the building. It's ALL smoke and mirrors in the pre-sales stage.

thanks very much everyone - very good, sound advice. real estate in this market is more of a gamble than ever! and due diligence is difficult when there's so little information out there for new projects...

i'm thinking of buying at the edge, which is the 575-unit building coming up on the north williamsburg waterfront. it's a really nice building with a lot of amenities and pricing for the units i'm considering ($750-800 per SF - w/ no view) which is around the same pricing as other new condo units that are on the market now which are ready for occupancy, so based on the current market it seems somewhat of a fair price for the time being.

from what i understand from the seller's agent (who i know is probably biased but is also my only source of info on the project at this time...), the prices will only go up and prices will not be negotiable. according to the agent they have about 70 signed contracts already after 2 months of being on the market. i really like the place so i would like to secure a good unit at a fair price, but i afraid of finding out in a year that i overpaid before i even have a chance to move in.

does anyone else have any inside information about the sales for this project that may help me with my decision?

nyc08, you are the dream customer for any broker. if i have more people posting like this, i just might chuck my job and become a real estate broker ,.

Are you for real? Are you really willing to pay same rate for a building yet to be built, as buildings currently available? (there's usually a 10 - 15% discount)

"prices will only go up and will not be negotiable" !! ROFL - billyburg is seeing declining prices due to oversupply of condos. Plus on a good day, L train is over crowded, on a bad day, L train doesnt run.

"afraid of finding out in a year that I overpaid" -- I assure you, it'll not take one year for you to find out you overpaid. I can tell you right now you've got "sucker" written all over you.

"prices will not be negotiable."

Then I wouldn't negotiate - just move on.

cartman, why are you such an asshole? The guy asked for some advice and you ridicule him. why would you do that?

I agree with these posts. Buying pre-construction is always a risk. It can have reward but you need to understand the comps.

This market is tough because if things do take a big dive then you get stuck -- but that is not unique to pre-construction, if you buy an existing apartment today and things take a dive tomorrow then you are screwed anyway.

Pre-construction is typically a better deal in the earlier rounds of releases. A developer will only release a few apartments in the beginning and based on how those sell they amend the prices for the next round. The risk is when the first round does not go well and they keep prices flat. Many times, however, prices continue to rise as he next round is released.

so... long story short, typically when you buy in the later rounds of releases, you are getting a worse deal than the people who bought early. with that said, in this climate, the best time can also be once the building is complete and you are able to negotiate with what is left over.

i would go with the first rleases or the last releases. The first releases are a risk but many times that is how you get the best deal. You can still get a good deal with the last releases (once the building is finished) becasue the developer just wants to move on at that point and you know what all of the other units went for so you know if you are overpaying or not.

nyc08 - apologies for the harsh note - I seldom do this, but there was something in the note that pointed out the kind of home-buyers the brokers feast on. I have heard enough stories from angry customers about crooked brokers - this is the first note I've seen from someone who seemed to actually believe the broker. I guess it made me mad to find out there are such suckers out there (apologies again for harsh note, but pls take this as tough love)

Quite frankly, I am surprised there are still people who take a broker who says "prices will go up and there will be no negotiation" seriously enough to ask a seemingly genuine question about it (unless, ofcourse, you posted the whole message in humor, in which case Nyc08 - good one:-)

Nyc08 - don't let the slick broker with made-up statistics that you have no way of cross-checking, and a glossy brochure, take you for a ride. You're getting into a bad, really bad deal. From the way you describe, cards are stacked against you all the way.

nyc08, there are 575 units in Phase 1 of The Edge alone, more to come with Phase 2. My feelings on buying Williamsburg new construction are here, and they're not very positive:

http://www.streeteasy.com/nyc/talk/discussion/3218-williamsburg-condos

Add to that previous post that the Domino development will have 2200 units, and that the water taxi is indeed in need of propping up.

As for 70 signed contracts in 2 months (assuming that's true - big if), that's 13% of only Phase 1. At that pace it'll take another 14 months to sell out the rest, plus there's all of Phase 2, and the two remaining towers (360 units) going up next door at Northside Piers, which is selling very slowly and has had to reduce prices since it's initial offering. Not to mention, sales are usually at their most brisk in the first month (there was an interesting article in The Real Deal recently that discussed this), so the pace of sales at The Edge is likely to slow.

I think there are a few over-the-top statements here, but with a thread topic like "pre-sales still a good deal?" I guess it was kind of asking for it.

Like everything, I think new devs depend on the specific location, building, apartment and of course, price. If there are good comps that are already ready for move in, then new construction should be at a discount (or the building should be much, much better if comparably priced) since you are taking the risk of agreeing now (and putting down the deposit) for an apartment you will end up closing on a year or so later.

Personally, I looked at Williamsburg, and I just couldn't do it - I like the nabe, but not enough of a discount to Manhattan to be worth it for me, and I was concerned about the sea of inventory that will hit the market in the next couple years.

The Edge looks pretty nice, but I am also pretty anti-huge buildings for new devs (and in general) - I don't like feeling like I live in a hotel, and the thought of hundreds of apartments exactly like mine waiting to be sold doesn't exactly give me confidence in my investment.

If it were me, I would only do it if I could get a very unique apartment (like a penthouse with huge terrace) but was only paying a modest premium to a "normal" apartment.

Just my 2 cents - if there are similar apartments in the Burg for the same price - go with the apartments that are already built. 1. You don't have to wait over a year. 2. You know what you are getting. 3. Less worry. 4. You will hate yourself if you buy and then find out that people after you are getting price cuts for the same or similar units. Again - just my 2 cents.

holy crap nyc08 ... seriously, holy crap. Don't plunk down hard earned dollars on this right now, the risks are huge. 70 units on the size of the development and based on the plans for the area, hold off. Really, cartman may be an asshole because he points out a bit too harsly the flaws, but in this case he's really trying to help, I think.

The ppsf you are talking about in Williamsburg for a non view apartment is just not a bargain. And the increase in supply means a real dampener on resales... think the depreciation on a car right after you buy it new off the lot.

I just bought a condo in LIC - new construction - and while I know there are risks, so far I'm happy with my decision. The deciding factor for me was that I got to pick the unit I wanted, I did not want to risk waiting and then choosing from units that did not have the features I wanted - like a terrace and a view. Since I'm not in the $1 million+ market, I don't anticipate fluctuations in price to be too dramatic. Recently, the developer raised prices on the remaining units. A unit similar to mine is now about 8% more. I anticipate moving in by Feb. 09. In the meantime, I know exactly what I've purchased and am saving while I wait. I probably should be more nervous given market conditions, but honestly, I'm very comfortable with my choice.

I've had a great experience, so far, with a pre-sale. In 3 months, the value of my apartment increased by $110,000 -- I'm also lucky that my pre-sale price was under a $1,000 per sq. ft.. The risk is always that the there are going to be huge delays in construction and who knows where interest rates will be when we actually close. But, I feel GREAT about the price that I paid.

Also, a pre-sale was the one way I could use the equity that I had in a West Village two-bedroom. We sold for $1,110/sq ft and purchased for $920/sq ft in the Financial District. A pre-sale was the only way that we could stay in downtown Manhattan, near a good public school, in a two-bedroom and with a lower mortgage. Of course, you have to be able to handle the risk and the uncertainty of your move-in date. Our builder has up to a year after the projected completion date to finish the renovation.

If you like the development and think you will stay there for some time, and the numbers work for your present situation and compared to what else is available, then you should buy. I assume you looked at other existing buildings and like the Edge the best. The risk of the price going up or down based on the market is the same as for an existing building purchase. The downside of pre-construction is that the seller has more negotiating power, and small details may differ from the renderings or offering plan to the finished product. The upside is that you have a brand new building with the most modern finishes and amenities.

micrina:

You mentioned that the value of your apartment "increased by $110,000" in three months.

How do you know that, if you haven't sold it? Or do you simply mean that the asking price for similar units has risen by $110K? If that's the case, it's an interesting data point, but it doesn't really say much about the value of your apartment. Even if a similar unit has gone to contract recently at a higher price, it's important to consider that the terms may be different for variables like closing costs and upgrades.

Butters08 - which building if u don't mind?

thanks again all for your advice - including eric_cartman, tenemental, vverain, etc. it's all solid advice and much appreciated. obviously i'm taking everything the broker says with a grain of salt, which is why i turned to the savants of streeteasy ;) but the problem i was facing earlier was the lack of information and perspective.

i did the comps for the nearby developments and while the edge's current asking prices are in line w/ the current (somewhat inflated) market prices it is waterfront property so i thought there should be a premium for that. that was the only reason i considered buying at this time. however, due to the huge inventory at the edge alone - 500 units to go, not including all the other new condo developments in WB - 1,000 units, i now agree that it's more prudent to wait and see what happens in the next 6-18 months. since these are non-view units anyhow, it's highly possibly that they will still be on the market at that time - at a discount.

as for steve's comment about negotiations - or the seller's agent's unwillingness to do so - it's true that it really any productive discussion ends at that point. oh well.

as for steve's comment about negotiations - or the seller's agent's unwillingness to do so - it's true that any productive discussion ends at that point.

nyc08,

i bought at the edge early on (so you should take my advice with a grain of salt, too), but i think i understand where you're at, considering i was in a very similar position as a first-time buyer a few months ago. i am not a broker, and my job has nothing to do with real estate or finance, so i really had to learn a lot in a short period of time. three pieces of advice i would give to you are:

1) don't listen to other people's advice. ;) do your own research. get your own facts. check out the reputation of the developer. visit other buildings they have built (get this info from their website - google Levine Developers) there's one building near the empire state building which looks very similar to the renderings for the edge and that i thought looked great. also check out the architecture and design firm - they also did the hotel gansevoort. visit competing developments in the neighborhood. visit developments in competing neighborhoods (esp, LIC). and above all, don't let anyone rush you into a decision.

2) get a good real estate attorney. DO NOT use the attorney recommended by the broker. this is especially important for very early pre-construction like the edge. in the case that the construction does not meet the specifications of the contract, you want an attorney who can get you out.

3) understand that you may have reasons to buy or not buy that trump any investment concerns. you might need more space, or you might want to stop renting (which even in a declining real estate market, is not necessarily a good idea - check out the recent nytimes article about rent vs. buy). in order to buy at the edge, obviously, you have to have some flexibility as the completion date may be way into 2010.

okay, now for the subjective and more detailed analysis:

OVERDEVELOPMENT
there is a ton of new development coming on-line in williamsburg, as well as LIC. on the williamsburg waterfront you have northside piers, schaefer's landing, the edge, and the domino factory. of these, only northside and edge are located in "prime" waterfront williamsburg, which in my opinion is the n 6th st corridor. the other "prime" wiliamsburg neighborhood is near the bedford avenue subway station, and what i would consider "alt-a" williamsburg is beside mccarren park, and "sub-prime" would be south of the bridge and east of the bqe. so in a worst case scenario, when edge is near completion, it's comparable new construction competition will be phase II of northside piers and domino factory. in a more likely scenario, the domino factory won't be ready until 2010-11, and northside until 2012. eventually (10-15 years?) the entire waterfront will be developed from williamsburg bridge to lic so there will be continually increasing inventory to hold prices down, but once that is developed there is no more and prices will accelerate. and of those waterfront developments, i think the edge has the prime location right now.

PRE-CONSTRUCTION RISK
no doubt this is real. if you can't handle the possibity that some catastrophic event will cause the building not to be built, you probably shouldn't buy pre-construction. if you absolutely have to move into a larger place by the end of 2009, you probably shouldn't buy at the edge. if you think you are guaranteed a lower price because you are buying pre-construction, you are wrong. but if you think the unit you are interested in is underpriced based on your own comparative analysis, and will not be available at a time closer to completion, if you have a good lawyer who will comb through the contract for potential problems, and if you are flexible enough to handle delays in completion date, then you should buy pre-construction. should you buy preconstruction simply because it is preconstruction and you think that means you are getting a lower price? maybe in miami 5 years ago, but you'd be a fool to think that now. so is there risk in buying preconstruction? yes. but is there also risk in waiting? maybe. it depends entirely on your view of the direction of the market and your perceived desirability of the unit at the current asking price.

OK THIS IS GETTING TOO LONG AND I'M GETTING TIRED AND OFF TRACK.
the bottom line is that the edge is definitely asking for a premium over existing developments, but given the location, amenities, reputation of the developer and architect, i thought the premium was fairly priced, including the risk of preconstruction and the anticipated, continued decline of the nyc real-estate market.

by the way nyc08, you can pm me if you want more detailed info. that is, if this site allows pm's...

I am currently in contract on a pre-construction condo building that is set to start closing in May (we signed our contract in the "friends and family round" (or so we were told) before the building first was officially on the market, and think we got a deal. Who knows? The building is sold out, except two multi-million dollar penthouses, and has all the positives re: location (on a park, subway 1/2 block away, central location, new grocery story a block away, ESB views, starchitect, etc). We plan on selling as soon as we close, to "take the money and run." We will take a hit on the short-terms gains tax, but still will be up significantly, if it all works as planned. Fingers crossed. I think the prices will continue to go up (it's all on paper now, so in theory--have to walk out of the casino to realize your winnings, right?), but the monthlies are less comfortable than we would like. All that to say this: I found this discussion while searching info on pre-construction purchases, and am wondering, 6 years on, what happened, @NYC08 and @minicooper24? Did you invest, @NYC08? Did you make money, @minicooper24? I see that prices at The Edge (which were $650-$800/ ft² 6 years ago) are now $1,672 per ft² avg over the last 180 days. I would be interested to know if you bought and held.

sounds like you're talking about norfolk?