Apr 4 2021

A Home Buyers Bonanza in Manhattan

The New York Times

By C. J. Hughes
April 2, 2021

Anyone rooting for the recovery of New York City’s housing market has probably been heartened by the data trickling out of brokerages in the past few months.

At a pace that is strong enough to rival that of previous busy periods, buyers have been scooping up new homes, including apartments in condo developments that have lagged for years — but often at huge discounts.

To drag their projects across the finish line, some developers have been slashing prices by as much as half, which could be the equivalent of millions of dollars less per apartment than originally intended. That is in addition to now-typical concessions like free common charges, free parking or a cash credit to pay for an interior designer.

The aggressive discounting may be necessary, especially in Manhattan, where sales have been weaker than in Brooklyn or Queens. From soaring condos in affluent enclaves like TriBeCa to boutique buildings on gentrifying blocks in the East Village, Manhattan is awash in price cuts.

“It’s like the Rothschilds used to say: ‘If there’s blood on the streets, take advantage of it,’” said Graham Spearman, the founder of Blu Marketing, which embraced discounts to unload three apartments at the condo 260 Bowery in the past year. “We’re willing to negotiate.”

“It’s like the Rothschilds used to say: ‘If there’s blood on the streets, take advantage of it,’” said Graham Spearman, the founder of Blu Marketing, which embraced discounts to unload three apartments at the condo 260 Bowery in the past year. “We’re willing to negotiate.”

Even as buyers have re-emerged, the new development market continues to struggle, in large part because sales had slowed before the pandemic hit. So even as new buildings are launching sales, they must compete with recently built towers that have yet to sell out, which is forcing the older units to discount to keep pace with new arrivals. At the same time, developers known for brash optimism are admitting the once-unthinkable: Some projects will fail financially.

“From here on in, it has to go up,” said Gary Barnett, the chairman of the Extell Development Company, adding that three of six of his current condos are expected to be money-losers.

Some coping strategies are familiar from previous downturns. In addition to those free common charges, some developers are trying to buy time by selling multiple floors to a single investor at cut-rate prices. And some projects have switched to rentals, abandoning condo dreams.

But there are differences, as well. Unlike in the last collapse, in 2008, lenders don’t seem to be shutting down construction. Instead, they are taking a longer view, extending lifeline after lifeline to keep condos afloat, although it is the major builders who are mostly benefiting.

Price-wise, the Manhattan condo with the widest gulf between expectations and reality may be 111 Murray Street, a 157-unit project in TriBeCa that has spent six years trying to attract buyers. The average discount between first and final prices there is 38 percent, based on an analysis of winter closings by Garrett Derderian, a director at the brokerage Serhant.

The everything-must-go strategy may be working. As of last month, 150 of the 157 apartments were spoken for, said Winston C. Fisher, a partner at Fisher Brothers, which codeveloped the condo with the firms Witkoff and New Valley. In March, according to StreetEasy, a four-bedroom on the 22nd floor was the condo’s least-expensive unit, at $6.25 million. (The average Manhattan apartment last year cost around $1.9 million.)

“We’re proud of our sales to date,” Mr. Fisher said in a statement, “and our ability to shift in a changing marketplace.”

Two projects from the Related Companies, one of New York’s largest landlords, are also in deals mode.

At 35 Hudson Yards, a tower with hotel rooms, offices and 143 residential condos that has been around for two years, a 23 percent discount was in effect, based on Mr. Derderian’s data. Nearby, 15 Hudson Yards, a 284-unit condo marketed since 2016, shaved prices by 17 percent. “Pricing is a reflection of market conditions, and as a result of current pricing there is really strong sales momentum,” a Related spokeswoman said.

A singular challenge of the current market, brokers said, is how much older housing stock has been hanging around. The condo 157 West 57th Street, from Extell Development Company, for instance, still has not sold all of its sponsor units despite marketing them for a decade. This winter, units at the blue-tinted skyscraper, which helped usher in the name Billionaires’ Row, traded 24 percent down, Mr. Derderian said.

“We are in a very weird cycle right now,” said Mr. Spearman of Blu, who used to work for Extell. “The weird part is the overhang of old inventory. There’s an oversupply, and a narrow bandwidth for buyers.”

If the average discount at some Manhattan condos is large, the reductions on specific units can seem staggering. The penthouse at 37 East 12th Street, which the developer, Edward J. Minskoff Equities, hoped to sell for $33.5 million when it was listed in 2015, finally closed in February for $15.5 million.

“I just wanted to get it off my plate and not think about it,” Mr. Minskoff said, adding that the development, with one of its six units remaining, would likely be unprofitable. “That’s not what I would have hoped.”

Even the last asking price for the penthouse, about $20 million, can seem divorced from reality, although it points to a market-wide trend of new developments being sharply discounted even in the final rounds of marketing, brokers said.

Of course, waiting years until buyers come around is not an option for some developers. Pressured by lenders to generate at least some revenue as loans come due, some sponsors are selling groups of apartments in bulk to single investors to move the product along, even if that means losses.

This winter, the El Ad Group sold 70 units at Charlie West, a 123-unit condo in Midtown, to Tishman Realty in an $87 million deal — which represents a 40 percent cut, according to a source familiar with the deal.

Such a clearance sale could translate into big savings for buyers when the Tishman units hit the market, brokers said, although it could also drive down prices on El Ad’s remaining inventory in the building.

Representatives for El Ad and Tishman had no comment on the deal.

Charlie West, which was built at 505 West 43rd Street on a platform atop railroad tracks, has also tried less-aggressive tactics. Last summer, El Ad began offering $10,000 credits that could be redeemed to decorate apartments, at a time when the condo had sold only a quarter of its apartments.

While freebies like design bonuses may not be as significant as price cuts, they can help get buyers through the door, an important consideration where activity has been flat. In February, for example, 500 West 25th Street, an eight-unit condo called the Emerson near the High Line, began offering a pair of concessions — a year’s worth of free common charges and parking fees — worth about $30,000.

“I hope it will make us stand out from the crowd,” said Michael Kirchmann, the chief executive of GDS Development, the developer of the condo, which has not sold a unit since marketing began last summer, but has rejected lowball offers. (A three-bedroom with a balcony is about $4.5 million.)

Alternative strategies are also getting a look. Three Waterline Square, a tower that is part of a complex on the Far West Side, originally planned to offer 47 condo units atop 167 rentals. But sales were so sluggish that after three years the condo did not meet the key legal threshold of 15 percent of its apartments sold — in this case, seven of them — which would have allowed closings to begin and buyers to move in.

So last March, as Covid hit, GID Development Group, the project’s sponsor, decided to turn the whole 34-story tower into a rental building, returning some deposits.

Developers of small projects are also thinking creatively. Last month, at Houston House, a boutique building in the East Village, the developer, Matthew Lee, decided to try boosting sales by auctioning off a low-floor unit at the condo, which has sold just two of its seven units in three years.

Bidding for the auctioned apartment, valued at $3.4 million in the offering plan, began at $1.75 million and attracted 10 bidders, before ultimately trading above that reserve. Misha Haghani, the founder of Paramount Realty USA, which ran the auction, would not say how much it sold for.

“How do you create urgency in a market that is lacking urgency?” Mr. Haghani said. “How do you generate excitement?”

Houston House and similar projects are in a tough spot, said Kael Goodman, the president of Marketproof, a real estate company that analyzes the health of developments on behalf of investors, using an algorithm that looks at sales figures and other data.

On one hand, the condos have completed enough construction to be at least partially up and running, a point of no return for many projects. But sales are slow and residents are few, which means that developers, not owners, are on the hook for the bulk of operational expenses, including electricity, staff salaries and taxes. And those tabs can run to several million dollars a year.

Even projects that seemed healthy a few years back may be struggling now, as buyers renegotiate contracts to obtain more favorable pricing or simply walk away to cut losses, Mr. Goodman said.

In March, there were 78 of those potentially troubled condos citywide, with a total of 1,872 apartments, according to Marketproof, which scours public sources for its data, a task that can be difficult in the notoriously opaque real estate industry.

Manhattan accounted for 22 of the condos, some of which have been marketed for a decade and still reflect the aspirations of an earlier era. “What was built then is not really appropriate for the buyer of today, because how many billionaires are really out there?” Mr. Goodman said. “The type of buyer has changed.”

Among the condos on Marketproof’s red-flag list is Greenwich West, a 169-unit building at 110 Charlton Street from a team that includes Strategic Capital, the investment arm of China Construction America. The condo, in Hudson Square, is the first for Strategic in Manhattan.

In mid-March, after three years of sales, just 13 percent of the units were closed or in contract, according to Marketproof. And the building has been fully open since February, meaning there is no longer any major barrier to closings, even if that process can take several months. A spokesman for the project declined to comment.

On the flip side, Greenwich West does not seem to be slashing prices to speed things along. More than half of the units with completed deals sold for slightly more than their intended prices, like No. 11B, a one-bedroom originally listed for $1.5 million that ended up selling for $1.625 million. But the increases are not a sign of bidding wars. The developer hiked some prices along the way, so the values are in line with revised expectations.

The development team, which includes Cape Advisors and Forum Absolute Capital Partners, and which paid $52 million for the site in 2014, may be trying not to bend until the market recovers, analysts said. But that go-slow approach may be testing the patience of Bank OZK, which lent the project $124 million, $92 million of which remained outstanding in March, according to city records.

A bank spokeswoman said the condo’s developers had actually paid down the balance of their mortgage since last month, but declined to provide documentation and had no further comment.

Other properties on Marketproof’s list include Central Park Tower, a 178-unit Extell project marketed since 2018 and partially open as of this winter. Although deal activity picked up at the condo in March, Mr. Barnett said, overall conditions remain challenging.

Indeed, three of Extell’s six current condo projects — a group that includes 1010 Park Avenue, an 11-unit building on the Upper East Side with two unsold apartments — will not turn a profit, said Mr. Barnett, who declined to be more specific. “Some will be small losses, and some will be big losses,” he said. “At the end of the day, you’re at the mercy of the market.”

The downturn hasn’t been victimless. Over the last few months, HFZ Capital Group has surrendered the keys to four of its Manhattan projects to CIM Group, its lender, over missed payments. HFZ, a prolific builder that once seemed to have a project in every trendy neighborhood, is also locked in a court battle over troubled loans for the XI, the twisting, two-towered hotel and condo project near the High Line.

At the same time, not every project seems to be in the hot seat. At 130 William, a 242-unit high-rise in the financial district, there was zero difference between listing and closing prices this winter, Mr. Derderian said.

But buyers have tried to get deals. Emboldened by learning that his sister convinced a developer of a Gramercy condo to knock $300,000 off the price tag, Henry Minskoff decided to adopt a similar strategy when he began looking at 130 William last spring. “I thought, ‘She got a pretty crazy deal; maybe I can, too,’” said Mr. Minskoff, an affordable housing developer (and a relative of Edward Minskoff). But the developer, Lightstone, “really held the line,” he said.

In the end, he and his wife, Jennifer, a teacher, bought their two-bedroom for just over $3 million, a price that Lightstone sought from the start.

Lightstone declined to share how many units have sold at the address.

Other places where bargains may be scarce include the Vandewater, a 183-unit condo from Savanna; Rose Hill, a 123-unit tower from Rockefeller Group; and 25 Park Row, a 110-unit offering from a team led by L+M Development Partners. All three had closing prices within a few percentage points of their introductory prices, Mr. Derderian said.

Developers late to the Covid market may have been in a better position to adapt to it, leaving less wiggle room for buyers.

In February 2020, Grid Group began marketing a 15-unit church-straddling condo at 124 West 16th Street in Chelsea. Four units traded pre-Covid, said Yiannes Einhorn, Grid’s managing principal, before sales were suspended for months.

When sales resumed, buyers pounced, snapping up eight apartments at prices ranging from $3.5 million to $11.5 million, or about $2,300 a square foot, Mr. Einhorn said. (The church got the final three apartments.) After less than a year, the condo sold out.

But while Mr. Einhorn never formally shaved prices — a sign of possible weakness, and an invitation to demand bargains, in some developers’ eyes — he cut some deals, although by no more than 5 percent. “A smaller boutique building is not always in fashion, because it doesn’t have the bowling alleys and movie theaters,” he said. “But I think we proved there’s an attraction to this product.”

Whether discrete or out in the open, bargains may increase in the coming months, as developers run out of rope with their lenders and are forced to shed inventory. And for the overall health of the market, that may not be such a bad thing.

“Developers are always getting drunk on the power of building and believe their own product is better than anybody else’s,” said Donna Olshan, the president of Olshan Realty, a company that tracks high-end sales. “But that makes you too emotionally attached. They need to be detached and to constantly re-evaluate.”