Shadow Inventory

In 2008 after financial markets crashed and the real estate markets followed, 'Shadow inventory' was a big part of the discussions here on Streeteasy.

Is it different this time? Will Shadow inventory have a significant negative impact on the New York City real estate market? Or does it simply just exist in its own shadowy world, with little impact on more desirable neighborhoods and resale properties?

Keith, are you talking about shadow inventory sales or rentals? The article is talking about rentals.

Either way, I think there is a lot more shadow inventory now than there was in 2009 in both. In the sales market, from the new construction glut (as there has been for years). In the rental market, simply from the fact that the visible inventory is much higher than in 2009.

There is indeed big shadow inventory in New Development at high $ per sq ft and some in undesirable areas (Manhattan Square anyone?). And almost all come with high taxes $ per sq ft relative to resales. Prime area resales do not really have much shadow inventory and are priced much lower than New Developments in most cases.

It's definitely out there. One rental building I've been watching took all its listings down on SE, then brought back 1/3 of those that had been listed. The others have vanished. Surely they weren't all rented on the same day.

For rentals yes. Actual building websites have far more listings than Streeteasy.

@nada yes, sales.

Also heard about shadow sales inventory. Brokers holding back listings at the moment to create some scarcity.

For resales, I don't see how a broker could hold back a listing - if they've got a contract to sell a unit, it seems like their failure to market and list the unit would be a breach of contract.

For rentals, per the posted story, renters who do some due diligence to determine the shadow inventory may find they have a better negotiating position, becuase they know more about the actual vacancy rate in the building they want.

Aaron2, that's a good point. What are some ways that renters can find out about buildings' shadow inventory?

Isn't the composition of the shadow inventory for sale an issue? My understanding is that it's mostly composed of ultra luxury units. While this is great for very wealthy people looking for an apartment, how much relevance does it have for the typical NYC buyer in the short term? I could potentially see it having an impact when defaults start happening and creditors take over, but how long will that take?

Thoth, That is why I just look at resales. While it is true there is some pressure from new development, but it is reflected in YOY comparisons. New development market pulse is a useless number due to shadow inventory.

300: what I'm wondering about is if anyone has a feel for when the game will be up for these units as senior creditors take over. I would suspect that this is when pressure could be felt throughout the market, because these creditors might be willing to take major cuts to exit and recover whatever cash that they can.

I wish I knew more about inside workings on large new developments and who the equity investors are. I am guessing there was 35% equity in these projects and there are inventory financing loans which can be used to repay constructions loans. So, on an average, the prices have room to come down before creditors take over. In addition, the projects has fair bit of profit built in on initial pricing. In most cases, creditors don't really want to take over as they do not have management capability to take over a development project.
1 Manhattan square is a good one to keep an eye on. Despite being a big failure, they have not been foreclosed by the creditors.

Rental shadow inventory? compare the quote below from Crain's, implying that 770 apartments in new 2017 construction Jackson Park were vacant, to having 17 listings on its own site (and 20 on SE):

"The 1,871-unit luxury development in Long Island City, which had been gaining popularity with renters for years, saw occupancy fall from 96% in 2019 to 59% by September of last year. "