Look for some seriously good new construction real deals in Manhattan in the next few weeks.

First time buyer here - how do you find out about these good new construction deals? Should we just make super low offers on the crazy prices that are listed? Or do you think they will actually drop the listing prices?

I would read the NYT article from Feb 8 very carefully about a condo owners' liabilities should neighbors default (maintenance or mortgage) or the building stays relatively empty.

http://www.nytimes.com/2009/02/08/realestate/08COV.html

"First time buyer here - how do you find out about these good new construction deals? Should we just make super low offers on the crazy prices that are listed? Or do you think they will actually drop the listing prices?"

Unless the building is at least 70% sold, which very few are, no bank will give you the mortgage. So making low offers is a complete waste of your time unless your a cash buyer.

We can offer all cash - so what should I do? Just make a really low offer? What percentage off the listing do you think is reasonable? (since the listings are clearly not reasonable)
Or do I wait for prices to fall?

do developers have full lee way to lower prices. ie they are not restricted by their lenders to sell below xxx per sqft?

I believe 211 e 51st claimed it was impossible to lower their prices... This might drag out much longer than a few months (eg wait for developers to default)

then why is everyone talking about how cheap they could be bought at now

The new constructions will remain vacant for some period of time -- they will be "zombie" buildings. The lenders will not allow the developers to sell at "true" market prices b/c this means the lenders would get 50 cents on the dollar. Eventually, the developers will go bankrupt, the banks will auction off the apartments and all will return to normal.

But that is 2-3 years in the future. This is what happened in the early 90s.

So, it's pointless to purchase in a new construction right now.

"So, it's pointless to purchase in a new construction right now. "

I bet not so for buildings that have been ready-to-live-in for a year or so - some of them have already reached that tipping point.

bella, if building is nearly sold out, you should offer low-ball. these buildings are "safe" as they aren't going bankrupt. let me know if you have any questions.

how low ball can you go? 20% below ask? 30% below ask?

depends how eager they are. is there a specific building?

seriously good new construction real deals in Manhattan = oxymoron

LA Times on the jumbo mortgage market loosening up:

New supply of 'jumbo' financing in pipeline
Bank of America and others are stepping up the availability of high-value loans for low-risk borrowers.
By Kenneth R. Harney
March 22, 2009

Reporting from Washington — New money is about to flow into an area of the real estate market that has been hardest squeezed by the credit crisis: mortgages too large to be purchased or backed by Fannie Mae, Freddie Mac or the Federal Housing Administration.

Though the so-called jumbo mortgages are heavily concentrated in California, portions of Florida and the Northeast, higher-cost neighborhoods throughout the country traditionally have depended on their ready availability to finance houses. But with the collapse last year of the private mortgage bond market on Wall Street, home buyers, builders and refinancers who relied on jumbo financing were left with few sources -- except at punitively high interest rates and huge down payments.

That's about to change. Major banks are heading into the jumbo segment, originating big loans at affordable rates -- not to then sell to Wall Street bond traders but to keep in their own investment portfolios.

Full story:
http://www.latimes.com/classified/realestate/news/la-fi-harney22-2009mar22,0,1512078.story

Jason --

Pointless b/c once the developer sells around 65-80% of the units, he's in the black. So either the builder has sold less than 65% percent, meaning you will not be able to get financing or else the builder has sold more than 65% percent, so he's in the black (or close to it) and has little incentive to negotiate heavily. Fundamentally, prices are 100% higher than they should be -- is a developer going to sell an apartment to you today for half of what he sold the other apartments for in the building? No, I think he's going to hang on to for a few years and see what happens in the market.

Now, maybe you don't think prices are twice what the should be. For instance, I look at the Rushmore, see the attempt by Extell to sell 1200 square ft 2 beds for 1.7 mil. Now assuming you put 20% down and get their 4.85 interest rate (optimistic), you're carrying costs are $8,126 a month! How many two bedrooms are there in the city that you could rent for that much.

I'll assume that renting the same apartment as you could buy in the Rushmore would be 5k/mo (and i think that's being very generous, I think you could get an equivilant apt for far less). The sales price for that apartment would have to come down to 1 Million - not quite 100%, but pretty close.

Gary Barnett ain't selling that apartment to you for 1 million bucks anytime soon. But eventually he will or the the banks will foreclose on him and they will and everyone will be saying, "wow, I didn't realize that prices could go down so much!"

I agree with AgentRachel that if you "lowball" the sponsor will probably respond -b/c most people see 1.7 and think lowball means 1.5. Now Gary knows that the apartment is only worth 1 million, so he'll take the "lowball" offer of 1.5. And Bella will be sitting on an asset that will not return to the value she paid for it for 7 years, assuming a 6% yearly increase in value from the time she bought it.

jmkeenan, I am one of those people who bought into the Rushmore almost 2 years ago. I am expected to close shortly on the original price that I contracted for. Of course that condo is worth at least 25 to 30%less. I see that Extell is making NO concessions to those already in contract. I don't know about the new people coming in...but how many can there be (you make an excellent arguement). Unfortuneately, I may have to walk away from a very hefty deposit, because I will not throw bad money after bad money. Very upsetting

bds- that deposit can be written off on your taxes- thoguh i know that doesnt make a huge difference
i called the rushmore yesterday and they have only 7 closings, though 60% sold-

extell will wake up soon- the high end rental building they own on the uws is having tons of tenants leaving and half the rent stabilized tenants in the building are bringing down their costs- etc

if they dont make any concessions to those in contract, more of the building will walk, you'll see- they will change their ways..

Please, from your mouth to god's ear. As far as the taxes, it really doesn't help much. And even though they say 60% sold, how do the lenders continue to hang on with Barnett if a large percentage of the 60% don't close?

bds- they hang on until the loan comes due and then they most likely demand additional paydowns in lieu of extending the loan. the last thing a construction lender wants to do in this market though is foreclose on a property in an extraordinarily distressed environment. banks will start to foreclose when financing comes back into the market and when developers stop making payments. period. it will happen again just like it did in the 80s. you will see a lot of developers eventually start to file for bankruptcy.

Well I don't want him to file for bankrupcy...I love the bldg, but in this market I cannot believe that the developer would not give concessions to entice the purchaser to close rather than walking away.

jmkeenan is right on the money with what happened historically. We are seeing some new devs that are willing to deal, but I can only think of one isolated instance where it was in the 30% range. Much more likely to get a small price cut/closing costs, and most unlikely that that happens if you're already in contract.

ali r.
{downtown broker}

bds -- the situation is analogous to AIG -- they couldn't offer GS or SocGen 90% of the value of the CDS or 80% of the value of the CDS, b/c the CDS was worth FAR FAR less than that. But they couldn't give GS or SocGen 50% b/c then everyone would want 50% and then they would be bankrupt. So they were basically stuck between doing nothing or going bust (which is why our government saved them).

Same thing with Extell, Related, etc. The only thing they can offer is maybe (huge maybe) 10 or 20 percent off (or allow you to buy a smaller apartment, etc.) Their loans do not allow for any more flexibility than that. Now, I don't think 10% off is going to change many people's behavior in buying at Rushmore/harrison/lucida/etc.

This is the deflationary spiral that is behind Bernanke printing loads of money. This is why there should/needs to be government intervention to fix the economy -- only the federal (maybe city or state) government can come up with a plan to force the developers and the lenders to each take a haircut on the deal and reprice the apartments accordingly. otherwise, the banks will do what is mandated by their shareholders -- waiting for the default -- and then auctioning off the apartments. Should take about 2 years time.

Oh dear, not in time for me. I am already in contract so I don't see any options other than walking away. I do not want a smaller condo even if they offer. And 10% concession is still not even in the ball park of what the condo is worth right now, so there really is no way out. Thanks for all the information.

I have friend in the construction business in Chicago. He works in high rise construction development. He has told me that the margin in Chicago for profit is 12% after all expenses. I was blown away by that number at how low it was. Yes in a big building 12% of a big number is a lot, but the risk premium is also huge. He is working for a building that is going bankrupt. They sold and closed 70% of the building at reasonable prices because 70% of the presolds closed. The main developer told the banks 'take it.' They didn't want it and are letting him sell and close as many as possible for whatever prices he can get. The banks got most of their money back but by no means all. They are about 30 million in the red. They thought that he can probably do better than they can at selling especially because they would probably sell wholesale. Chicago was ahead of the game time wise compared to NYC by 18 months or so. So just wait. There is still more product in Chicago compared to NYC so there is more competition for that buyer. We will see what happens.