Developers playing chicken with the market?

Several developers are doing this.

30 East 29th St.
Opened sales gallery, but no listings on SE or on their website. Scheduled completion 2020.

15 East 30th St.
Has not opened for sales yet. Scheduled completion 2020.

515 West 18th St.
Has not opened for sales yet. Scheduled completion 2020.

I am sure there are more, but those are the ones I could think of off the top of my head.

It seems people are not signing contracts for new developments till they are closer to completion. So why list too early and invite questions from investors and get a bad reputation in the market? Also, I am sure the developers want to delay completion a little. I would think the developers would want to list at least 6-9 months before completion. So 2020 completion (real completion early-mid 2021) may only want to list only in spring 2020.

Rock, What are your thoughts on potential reasons?

You pretty much summed up my thoughts on the whys. I would add that buyers want to walk around the unit/building so it probably helps the developers if they are far enough along to allow that. Buying off the floor plan, marketing material, and/or sales gallery was tolerable in the sellers market when there was a sense of urgency. Now, that becomes an obstacle in the buyers market.

However, I don't see developers deliberately slowing down construction unless they are super early in the development phase. I think the quicker they can complete the project and start closings, the better for them. Besides being able to close on sold units, inventory loans are cheaper than construction loans.

Ultimately, time is not on their side as I think the general economy will only get worse.

This my point about "playing chicken": it's a dangerous game. As far as I can see the market for new construction is showing zero signs of improvement. So the longer they wait there is a good chance they will simply continue to get less. And as much as you might think it's easier to sell completed units than off plans, I can tell you how hard it is to sell the first 30% to 40% in a building which is completed but no one lives in yet ( 22 West 15th St and several others went bust trying it). Have we seen an uptick in sales at 1 Manhattan Sq now that they have model apartments? And when you are working on thinner margins than you might have expected, paying CC + RET + interest on a bunch of units post closing gets expensive fast.
OTOH what you may have is developers realizing that they are already in the hole so if the market doesn't improve they are dead anyway so they have nothing to lose by rolling the dice. But if that's the case then you could have lenders taking back large numbers of newly constructed units, needing to unload them, and will almost have to mean a big market correction.

Rock28,
Speaking of 515 W 18, did you notice how Related doesn't have 35 Hudson Yards listed in either current or coming soon? And 515 topped out last year, and just today NYYIMBY called it "nearing completion."
https://newyorkyimby.com/2019/08/bulging-sculptural-windows-at-heatherwicks-515-west-18th-street-nearing-completion-in-chelsea.html

So are they contemplating doing something else than selling condos? Side note: One of Related's earlier NY deals was buying the failed condo 105 Duane St and converting it to a rental.

You definitely bring up a valid point regarding completed developments still having issues selling (e.g. One Manhattan Square, One United Nations Park, parts of Waterline Square, etc.). Whether that's due to the particulars of a specific project or general market sentiment is difficult to say without analyzing further.

Based on current market conditions, I don't think there is a perfect marketing strategy for developers; listing early allows you to try and capture early sales concurrent to construction but has potential disadvantages as listed by Mercer versus listing late also has drawbacks as you noted. I think it is safe to say that most new developments are having a difficult time regardless if they listed early on or are holding off until the last minute.

Not sure what you meant by 35 Hudson Yards as that has published listings on SE. Maybe you were still referring to 515? I doubt 515 is going to switch to rentals. I don't think that strategy works well with high end build outs. 515 is literally across the street from the XI so I imagine there is going to be some pain points there as they compete for the same pool of buyers.

This is the type of stuff going on in this market:
https://therealdeal.com/2019/08/21/developer-jason-lee-accused-of-defrauding-investors-at-high-line-condo-project/

What I'm talking about re: 35 Hudson Yards is if you look at Related's website it lists 515 West 18th St under "coming soon" and One Madison, 15 Hudson Yards, 520 West 28th St, and 70 Vestry as "for sale now" as well as a bunch of other projects as "previously offered," but 35 Hudson Yards seems to be conspicuously absent from the site.

Re: 35, if you go to Related's website, it is listed on their landing page below the fold front and center. Perhaps it's not listed under Coming Soon because they are listing it as Open.

https://www.related.com/
https://www.related.com/our-company/properties/35-hudson-yards

Rock, Do you know what percentage of 15 Hudson Yards is closed? I do not think Streeteasy is showing all recorded sales as they may not be capturing all underlying addresses. Wonder what appx percentage equity Related had in the beginning and still has in this project? I get the feeling that they probably have sold their equity stake, whatever it was, to someone else.

PropertyShark has it listed as 545 West 30th St and shows 107 closings totalling about $418 million. Now, this makes you wonder if they ever actually had $800 million in contracts (Roughly 46%), if a bunch of deals fell out of contract, or there is an address/recording issue. Based on how cagey they are being about putting other projects on the market late in the game and how it looks like almost nothing is selling at 35 (and it's scheduled to start closings in the next few months), I'm going to guess it's not that a whole bunch of closings have occurred but no one can find them.

There is a bulk sale to Ohio Pension fund.

https://streeteasy.com/closing/10573815

Are you sure that is a bulk sale of residential units and not commercial space?

Looks like that was for a piece of 10 Hudson Yards:
https://irei.com/news/ohio-strs-invests-432m-manhattan-office-building/

Thank you.

https://rew-online.com/2019/08/study-finds-the-15-best-selling-new-condo-buildings-in-nyc/

Another for the list:
https://ny.curbed.com/2019/8/19/20812169/new-developments-nyc-kips-bay-condo-andres-escobar-interiors

Remember when that area was hooker central?

Yes, Park/Lex - 24th to 32nd.

This coop building has always been a tough sell:
https://streeteasy.com/building/140-east-28-street-new_york#tab_building_detail=2
So it makes me wonder how they are going to sell condos essentially across the street in this market.

108 Leonard secured an inventory loan: https://therealdeal.com/2019/09/11/el-ad-peebles-land-450m-condo-inventory-loan-for-tribecas-clock-tower-conversion/

Rock, Thank you for the info on 108. A couple of questions:
1. What do you think inventory loans becoming more common place and rates being extraordinarily low mean for the unsold new development condo inventory? Essentially the developers have 2-3 more years to sell.

2. Are you still seeing money being raised for new residential condo projects in Manhattan and BK? If not, when did it stop? I am guessing starting early 2018 very little new money was raised but do not have any data or reliable sources. Is there a good source for new condo pipeline estimate by year?

Thank you.

I could give you my thoughts on the market, but I think this NY Times article sums up the new development market rather nicely.

https://www.nytimes.com/2019/09/13/realestate/new-development-new-york.html

Love this quote: “I can smell it from here, I just can’t figure out yet where the stench is coming from,” he said. “But it’s guaranteed to be happening.’

The numbers highlighted in this story are staggering.

Thank you. Here is the Streeteasy link.
https://streeteasy.com/blog/nycs-unsold-condos/

That article was insane! Didn’t realize how bad the supply overhang was. I guess the question is how long can lenders keep refinancing before the day of reckoning? Game of musical chairs.

One thing I noticed by further analyzing the data in the article is a big chunk of unsold is either in less desirable areas (Fidi, Gramercy north east, or 1 Manhattan Square), at very high $ tags or in both categories as in Hudson Yards, Midtown East. Not a whole lot of unsold supply in say UWS, Village or UES.

75%~80% already sold in these extra luxury new developments are surprisingly good

https://newyorkyimby.com/2019/11/extells-50-west-66th-street-appears-stalled-on-the-upper-west-side.html

So many units, so few buyers -

https://therealdeal.com/2019/12/27/related-no-longer-giving-timetable-for-finishing-hudson-yards/

Makes sense for them to delay any part of Hudson Yards, which has not been started yet, by a few years as they have to sell existing condos there. Many companies moving to Hudson Yards should help sell remaining ultra luxury condos but not without price cuts.

I don't disagree, but the benefits to the developers were front loaded (like $1.2 billion in EB-5 funding by gerrymandering to make it seem like Hudson Yards is in East Harlem, those most expensive mile of subway extension in world history at $2.5 billion, etc) while much of the public benefits in return (like a K thru 8 school and a public park) were scheduled for Phase II. So again it's the public financing a private project for illusory benefits.

PS note that they seem to confirm my assertion about how many of the condos have actually been sold.

https://ny.curbed.com/2020/1/10/21060123/hudson-yards-new-york-phase-two-high-line

Did everyone see this?
https://www.nytimes.com/2020/01/10/realestate/new-york-decade-real-estate.html?action=click&module=Well&pgtype=Homepage&sec

It's almost the end of January so I've been wondering about all these new developments which were supposed to come on the market already, but we assumed were being held off until the new year. Apparently some of them have come on the market so quietly that they didn't even make the standard PR announcements (like that sales have begun or that their sales office had opened). They don't even tell you pricing or availability on their own websites (much less sites like Streeteasy) and simply direct you to contact their sales offices.

To me the net-net of all of this is developers are continuing their vote of No Confidence in the market to the extent that they are passing on their opportunities of free publicity by making "Grand Opening" announcements (which are historically the life blood of marketing these projects) in favor of not having them not "officially" being on the market and not selling, therefore accruing "days on market." If this were a hockey game this strategy would be labelled as a "Katy, bar the door! defense" which are widely derided for being unsuccessful.

The clock appear to be ticking loudly for developers as construction loans start to near payback dates and lenders seem more reluctant to grant renewals.
https://www.newsbreak.com/news/0NjVpmJT/loan-wolves-bankers-are-stalking-developers-as-debts-come-due

Here's an example of a project which didn't try to play games:
https://streeteasy.com/building/200-east-21st-street-new_york

They put the units on the market 1.5 years before estimated closing, didn't have a huge amount of bizarre"Amenities," didn't overspend on some "Starchitect," didn't engage in some costly ridiculous Superbroker marketing campaign, but instead gave value for money at $1,700 to $2,200 (mostly) per square foot, in not prime but certainly ok location.

And the result? While everyone else is holding back because "it's impossible to sell in this market," they are apparently 75% sold.

And the result

I saw it. It is pretty nice and price is reasonable for a new development. Average of $1800-1900 per sq ft puts it at a 10-20 percent premium to a very nicely renovated resale with 9 foot plus ceilings, big windows, and good light, which is reasonable.

Given the current state of the market, when are these buildings going to come on line with actual listings and how are they going to weather an extended period of time carrying entire buildings with zero income and potentially seeing their construction loans come due?

Maybe they'll buy some time via extend and pretend with their creditors? It might be in everyone's interest to act like there are no major problems here as long as they can.

https://therealdeal.com/2020/04/29/hfzs-the-xi-has-considered-wholesale-deals/

$4k pricing less 20 percent discount. Is it a deal with no unique view or difficult to build location? $2500 may be.

It might have been an easier sell if they could have gotten the city to spring for a few billion to extend the L train as part of the tunnel renovation project.

It's also going to be hard if buildings like the Solar Carve a couple of blocks away can't keep getting new tenants to pay a quarter of a million dollars a month per floor. And I can't imagine how many Genesis cars they will need to sell to justify paying almost a million dollars a month rent for that showroom.

Did they get any of the covid socialist loan for business recently?

If I did my search correctly, there's been 1 new development condo contract signed so far this year. How long do you think it will take to sell 536 when 1 Wall Street finally starts?

https://newyorkyimby.com/2020/05/one-wall-streets-residential-conversion-and-retail-addition-progresses-in-financial-district.html

In FiDi.

Hayworth may be toast.
https://therealdeal.com/2020/05/15/were-exploring-everything-ceruzzis-ues-condo-under-pressure-after-loan-falls-through/

Who's next?

Sharif El-Gamal threatening to deconstruct condo tower, lender claims
Developer accused of “bad faith scheme” to devalue 45 Park Place upon foreclosure

https://therealdeal.com/2020/05/21/sharif-el-gamal-threatening-to-deconstruct-condo-tower-lender-claims/

Bluster. They won't tear it down.

The Kevin Brown Team at Sotheby's International Realty has been publishing a weekly Manhattan "New Development" Weekly Contracts Signed Report.

This week's report shows 3 signed contracts, down from 7 the week before. More shockingly down from 21 for the same period in 2019 - that's a YOY decrease of almost 86%.

These still seem expensive to me

https://therealdeal.com/2020/08/04/the-getty-condo-chops-prices-up-to-53/

At least they're recognizing reality.

https://www.urbandigs.com/forum/index.php?attachments/unnamed-4-jpg.33/

This week's New Development Report from Sotheby's Kevin Brown Team. Odds are this is an outlier week, but only 2 sales is a major disappointment going into the Fall selling season. About 1,100 new construction units officially on the market, but probably around 6,000 in shadow inventory.

What happens when you lose at chicken.

https://commercialobserver.com/2020/09/stalled-ues-condo-conversion-bankruptcy-carter/

305 E 61st: Ghastly block. Ugly, and lots of bridge traffic.

New Development contracts signed have been on a year the last 2 weeks (25 and 23) when compared to the prior 6 months. We will have to wait till they close to see if the reason is the dam broke and prices came down.

Both Fox 5 News and ABC NY Eyewitness News had stories this evening about "the new trend" of developers offering rent to own programs in the slow sales market. That says to me someone's PR firm is pushing it, so get ready for a new wave of offerings.

https://www.brickunderground.com/buy/where-to-find-rent-to-own-programs-luxury-condos-manhattan-brooklyn-coronavirus-covid-nyc

New development sales continue to escalate even though overall sales are down. We won't know for a few months till these deals close but I have to think a decent amount of this has to be the child of reduced prices.
This week's New Development Report from Sotheby's Kevin Brown Team:

https://www.urbandigs.com/forum/data/attachments/0/38-9f0554c78b6e0e0f1cc5d4de5b55918a.jpg

https://therealdeal.com/2020/10/08/wonder-works-ues-condo-being-shopped-at-foreclosure-sale/

From today's NYT:

By the end of 2020, Mr. Miller estimated, there will be 8,700 unsold new development condos in Manhattan, which will take about 8.7 years to sell out. “In a balanced market, you’d expect two to three years to sell out,” he said.

One way developers can succeed in such a market, “is to create a product that has been sorely missed,” he said, including apartments at somewhat more attainable price points. “I call it ‘housing for mere mortals,’” Mr. Miller said.

When developers aim to keep prices lower, there’s less money available for dazzling stone, custom-made bronze hardware and Gaggenau steam ovens. But that might be perfectly acceptable for many of today’s buyers.

https://www.nytimes.com/2020/10/16/realestate/nyc-condo-design.html

_-------_------_------_

Perfectly acceptable, maybe even highly desirable. I always felt that the star architects, fancy appliances, and weird stone were all designed to justify condos costing far more than they should. The added cost of the materials was maybe $50k but this somehow justified $1m added to the price. Just no.

Thank you posting the article. A couple of observations
- 45 East 7th didn’t look cheap finishes.
- Finish upgrade cost is appx $75-150 per sq ft. Some examples. Laminate cabinets at 10k vs designer one for $35k for mid sized kitchen. Fancy Slab marble $40k vs $10k nice marble tiles for a large bathroom.
- Something not discussed enough and missed by the article. Real change in cost is tall and narrow structure with nicer facade. It can change the completion time from 2.5 to 5 years and all-in cost difference with carry can easily be $1000 plus sq ft. Add profit for 5y which changes the ask by $1500 per sq ft. Essentially difference between ultra-luxury and mere luxury new development. And city screwed some of these new developments with $3-4 per sq ft in real estate taxes. This is where the real over-supply is.

I think it's been typical of development cycles in NYC for developers to turn to brokers to ask where the demand is. There was an unfortunate confluence where 5 to 10 years ago almost all the brokers told almost all the developers to build large, fancy, expensive units more because that's what they wanted to sell than there being a deep market for them (can we call it "Million Dollar Listing Syndrome?). I don't think there was ever a market for the volume of luxury units which have been built (including what's in the pipeline). The current state of the market is just making it worse. But I think the concept that simply toning down some interior finishes is going to fix things is fallacious. The kinds of buildings to be built and the sellout prices needed to have the projects make sense are kind of baked in at land acquisition. I think 220 CPS was both skillful and lucky (at least timing wise), but I don't think there is nearly enough gas in the tank for everyone else.

Yes. There is certainly not enough gas in the tank for $4k per sq ft plus units which were formerly $5.5k per sq ft plus.

These places were selling as long as the real estate/laundering system was working. Now that that's abated we are back to earth.

@30Y What do you see as the eventual end game for this market segment? I agree that the projected demand just isn't there, so changes on the margin (playing with finishes, incremental price cuts) likely won't be sufficient. Who is eventually going to have to absorb the losses?

A lot of these projects have mezzanine debt. At some point senior debt will take the projects and wipe out junior debt. Then they will sell for whatever it takes to move the units. This could be bulk sales to investors, auctions, whatever.

stache,
This probably won't help that:
https://therealdeal.com/2020/10/16/theres-a-lot-of-money-to-be-made-irs-targets-foreign-real-estate-investors/

No it won't help and I see this as a good thing. RealDeal is frustrating to me as they ran a couple of $100 for a year promotions but I was never able to click through, and I could never find a phone# to help with the transaction.
I get the impression that some other countries are more on the ball about taxing rental income.

Is 100 Vandam going rental?

All listings $2M and above have been removed.

Rentals now listed $8350 to $39500