Developers in trouble?

30, Great post. My view is that if they cut the price 20 percent, which still gives them enough profitability, they can move it rather than holding on to apartments in 157 west 57.

Barnett got through the recession well enough and has consistently shown ability to raise capital from a variety of institutional and non-institutional sources. Chase just gave him a $900 million term sheet on Central Park Tower and I doubt Barnett would have signed it without a pretty firm commitment from Chase. He has almost certainly made his money back on One57 so can bulk sale or finance unsold units if he needs cash or just post as equity for Central Park Tower. I am guessing he is OK. Not sure about others.

I think the developers are fine. They just would not make the money they thought they would make. I eagerly await the fire sales so that I can buy some.

It's been over 3 months since 217 West 57th's Offering Plan was approved and still no announcement of a sales office opening that I'm aware of. What's up wit dat?

I'm waiting for that beautiful project at 70 Vestry Street to get in trouble ... over $3k PPSF for the higher floors? Who are these people buying this?

I'm waiting for an opportunity to swoop in. Please please!

elling off pieces:

https://therealdeal.com/2017/09/28/hong-kong-private-equity-firm-buys-into-extells-lincoln-square-project/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+trdnews+%28The+Real+Deal+-+New+York+Real+Estate+News%29

https://therealdeal.com/2016/05/19/extell-offers-38-condos-at-one57-at-a-big-discount/

Captainofthegate:
70 Vestry is 90% sold, you have a good taste, it is a very good project.

I'm curious where you are getting the 90% sold figure from?

I had a discussion with the broker who is involved in this project. Met her at the dog run. She specializes in Tribeca.

So i guess what you mean is that ypur best friend’s sister’s boyfriend’s brother’s girlfriend heard from this guy who knows this kid who’s going with a girl who saw the salss records at 31 Flavors last night. I guess it’s pretty clear.

Back in another lifetime when I did real estate publishing, developers would say "% sold" to indicate what had been sold of what had been RELEASED, not what had been sold of the TOTAL UNITS. So if a building had 100 units, released 20, and sold 18, it would be trumpeted as "90% sold" whereas to a mere mortal that building would seem to be only 18% sold.

Not sure if it still works the same way, but that might be the source of the confusion.

Ali, Are the developers required to disclose number of units sold to potential buyers?

Well, that seems to be one of the issues involved in a story about a SoHo building that is making the rounds right now. I'm not an attorney, so I don't know the legal answer to that question, but as a broker I can say that we are obligated not to misrepresent when we disclose. From my POV saying that a dachshund is a cat, just because it's cat-sized, is a no-no.

When developers think about selling their assemblages rather than developing them:

https://therealdeal.com/2017/10/10/isaac-chetrit-quietly-shopping-sixth-avenue-development-site/

It will be interesting to see how this one does compared to 1 Manhattan square.

https://ny.curbed.com/2017/10/12/16462910/downtown-brooklyn-extell-skyscraper-website

30, I do not know the price point of this one but it may do better than 1 Manhattan square due to better transport connections.

As far as I know studios start at $840,000 up to 3 BRs max at $4 million. So it sounds like pricing may be pretty much the same as 1 Manhattan Sq, but you don't have to walk through multiple blocks of low income housing projects to get there, and you've got the 2,3,4,5,B,Q and R within about 4 blocks as opposed to just about the worst station on the F half a mile away as the only subway choice.

It looks like within the last week they have decided to list all of their already in contract units to make it look like they have been doing sales. Reeks of desperation.

That is only 10 percent of the units in contract!! Wondering what discounts are they offering to new buyers?

Any color on the best distressed opportunities? Which developers are cutting prices the most, offering the most incentives?

Nothing over $2,000 PPSF please, still not quite sure the delusion. If you buy something for $3,000 to $7,000 PPSF, who do you expect to re-sale to?

People still look at PPSF. It's the same as gut renovating an older re-sale. People don't check out or know what you paid for your custom renovations, or care for the most part. It's your sunk cost.

I just don't get it.

Back on the auction block:
https://therealdeal.com/2017/10/18/foreclosure-auction-back-on-for-one57-pad/

It couldn't find a buyer even with an asking price discounted 25% off of the 2014 purchase price.

I think this is the type of activity which will force the developers to cut aspirational prices. I think it will sell for $5k per sq ft at low $30mm.

It is still probably much more than what it cost the developer meaning the developers are likely ok as the profit margins are ridiculous.

And if it sells for low $30mm what does that do for this:
https://streeteasy.com/building/one57-condominium/fl-85
which is essentially the same unit asking $70mm?

30 - I don't know, but I do think that the cascading effect of price cuts is an interesting dynamic to think through, and I think it will become increasingly relevant in the luxury market as properties are staying on the market longer (and with downward pressure).

Clearly the seller for 85th Floor is out of touch with the market. They bought for 55mm and other similar units traded at 47mm in 2016. If they want to sell, they will need to come down to 40mm or below.

TeamM-
I agree and that is why I don't think a correction could be segregated to the "luxury" market.

30 - you might be right, but I think it requires some really detailed analysis on whether there are gaps between segments or not. In other words, in a hypothetical world in which there is every possible type of inventory in the market, then downward pressure at the top should flow all the way to the bottom. However, if there are gaps in the types of inventory then there will be limits to the impact of the downward pressure across the board.

There are gaps in inventory but also gaps in demand. Luxury apts. especially new construction seems to be mostly marketed to foreigners and HNW buyers who may not be willing to trade down to "second hand" product. But I agree that for those who desire to invest in residential, the softness in super-luxury could eventually filer down the chain. This depends more perhaps on what happens with the economy and less with any current over-supply. If the economy stays relatively strong, this current oversupply in luxury product may get absorbed faster than some would suspect given the high margin of developers profit in this segment. In other words, developers may have a lot of flexibility to lower prices to meet demand if demand does not evaporate.

I think that people conceive that there is more air in most developer's prices than their actually is (i.e. profit margins aren't necessarily what you think they are).

Example: We bought a Coop in https://streeteasy.com/building/345-montgomery-street-brooklyn#tab_building_detail=2 for $2.50 (it would have been $1.00, but my partner didn't have any change and when he asked around at the auction from people he knew, a guy threw him a quarter, which represented 10% of $2.50). By the time we did an eviction, a light renovation, etc. we ended up selling the unit for $32,000.

Our net profit at the end of the day? $200.

Bought in 2015 for $28,005,375 plus big renovation newly listed for $27,000,000
https://streeteasy.com/building/one57-condominium/67b?context%5Bcontroller%5D=%23%3CBuildingController%3A0x0055e7b7bcf0d0%3E&context%5Bcurrent_user%5D=1040784&hide_if_empty=true&section=sales

That's what happens when you skimp on the bidets in the master bathroom.

Interesting they couldn't find better ways to hide the open curtains.

This could be one of the comps people will examine in determining whether the market is crashing. I am guessing this price is way too high compared to other discounts we have witnessed. I am also guessing that given the scope of redecoration, the owner is not motivated strictly by profit so ultimate price could be quite low, especially for a high floor full view unit.

Any guesses on the redecoration cost?

It's really hard to tell from the pics but at $250 a foot it would be a little over a million. But since it was done my some fancy design firm it could easily be twice that or more.

But look at the one on the 85th floor which is exactly the same as the one which sold at for foreclosure (except for the renovation) at TWICE the price.

Good strategy for Barnett to keep the best units at the higher prices but can't see getting anything close to 70m for it today as amazing as it looks. But market conditions can change rather quickly so it would not surprise me if Barnett keeps this at the original ask for quite a while.

Does anyone rent this type of apartment other than a celeb, a sheik or an oligarch?

And I'll bet that the real square footage is much less than reported. The higher up you go with construction, the greater the loss factor.

"Does anyone rent this type of apartment other than a celeb, a sheik or an oligarch?"

Corporations., as executive housing. (though more often purchased)

I think it's interesting that Extell is paying Google enough in AdWords that 1 Manhattan Square shows up as the top search result when someone Googles Essex Crossing condos.