New Dev Buyers: "What Are You Going to Give Me?"
On Saturday I visited a loft conversion building in Williamsburg, which opened at the worst possible time for a new development: three weeks ago right in the middle of the stock market selloff. My buyer wants something with character, so the all-glass ground-up somewhat generic condos (like Northside Piers) are not for him. A converted factory is just what the doctor ordered. But what's the incentive to buy more than a year out in a new development anymore? Back in the day, as long as you "got in early," you were guaranteed to make money before the building closed. Those days are long gone.
When speaking with my buyer, I said "if you really like the building, we could put in an offer with a contingency that somehow protects you against prices going down by the time the building closed. It's a long shot, but it never hurts to ask!" Figuring that anything goes in this market, I called the sales office. The developer will consider putting a clause into the contract saying that if prices in the building go down, you can renegotiate the price of a unit to the average price of comparable apartments in the building! Wow! It would be interesting to see exactly how that is spelled out in the contract, but I was impressed because I haven't heard of anyone else offering that.
I think the idea of protecting new development buyers from potential declining prices is going to have to be the "wave of the future" for new developments that are six months or more out. Buyers will be more confident locking in potential upside while eliminating or at least reducing downward risk. Having developers throw in closing costs, storage units, cabanas, or parking spaces is nice, but most buyers (mine, anyway) are concerned more with overpaying for an apartment than getting a 10 by 10 foot storage unit.
Unless developers can make buyers feel that they are getting an amazing deal or are protected from declining prices, their development will be dead in the water.
So where are some of the "other" deals?
Belltel Lofts' sponsor will pay 50% of closing costs. The building is for immediate occupancy. They are also offering 4% broker's commissions (something we can sometimes use for negotiating "wiggle room").
905 West End Avenue is offering up to 90% financing for seven years through the sponsor at a 4.875% fixed rate for a limited time. This is pretty huge - getting 90% financing is like finding a needle in a haystack these days.
Isis Condo was offering $50,000 towards closing expenses for all buyers through mid-October (I wouldn't be surprised if they have extended this deal).
Jade Living is offering discounted furnishings from BoConcepts. Basically they are offering furniture and a professional decorator for 75% off. Buyers can work with a designer to furnish their apartment and pay $6,250, (25% of the $25K value) for the furniture that they choose. Jade is also offering a 5 year tax refund/credit. Buyers can either take the money off of the purchase price or get a check back at the closing. They only have a few units left, though, starting at approx $1.4M, so they're offering these incentives to finish out the building.
300 east 64th Street is only requiring $10K down on the contract deposit, the rest you can come up with at the closing, which will be sometime around Spring of 2009. It would appear to me that they are running the risk of people backing out of their deals if prices in the building go down. It's not that hard to walk away from your deposit if it's $10K! (But I haven't seen the fine print.)
Court Street Lofts is offering a few "buyers incentives," either 2% cash back at the closing, 2 years of paid common charges, or a half point rate buy down through Wells Fargo. (If you are being quoted a 6.5% rate, they will buy it down to 6%).
Besides these publicized "deals" a lot of negotiating is going down at new developments these days. Ask for the moon and the stars and you might just get it! It will take time for the reports to 'catch up' to where deals are being done at today, so be sure to look beyond pricing reports when playing this market.
Comments (17)
How would the building determine the current average price of comparable apartments at any given time?
Posted by pettenor | November 5, 2008 9:27 AM
I dont think we will see mass migration to this clause in Manhattan yet. Maybe 8-12 months when things hit home harder here.
Also, the bigger and better capitalized developers can withstand a longer time on market than the little guys. So, its likely that this will trickle up from the small fish to the big fish as time goes on.
Posted by Noah | November 5, 2008 10:16 AM
yea thats a good point pettenor. I mean I interpreted that to mean they will use current contract signing prices to determine that, which then raises the questions:
a) how does the previous buyer know this
b) why would the developer disclose this info
...Im wondering the legality of total disclosure here for that clause. Seems like a great selling tool, but how is it written in the contract?
Posted by Noah | November 5, 2008 10:19 AM
you are right about the new development. i was negotiating on a condo conversion in FIDI, and i was offering an riduculous offer of 15% less than the already discounted price and they were willing to give me very close to the price i offered. i was very surprised.
do you know if the regular listing (not new developments) are willing to come down on their listing price (if they listed conversatively)?
Posted by joey | November 5, 2008 12:55 PM
you are right about the new development. i was negotiating on a condo conversion in FIDI, and i was offering an riduculous offer of 15% less than the already discounted price and they were willing to give me very close to the price i offered. i was very surprised.
do you know if the regular listing (not new developments) are willing to come down on their listing price (if they listed conversatively)?
Posted by joey | November 5, 2008 12:57 PM
This clause that supposively protects buyers if prices go down in the building is not worth the paper it is written on. In most new devleopments, prices never go "down." That is because, isntead of lowering the prices, builders will instead offer all sorts of incentives. So while prices might be down, nobody will know it.
Posted by Donald | November 5, 2008 1:19 PM
I also think that this guarantee is subject to some manipulation.
My sense is that they would guarantee that if you bought, say, an A line, you would get some kind of adjusted average of the other A lines by the time you get to first closing.
However, my sense is that this will just lead to a lack of repricing prior to the first sets of closings and then a swathe of price drops thereafter after the guarantee expires.
Posted by Anonymous Banker | November 5, 2008 1:29 PM
Joey - Was this a new development? Do you mind sharing the building you were looking at? Thanks.
Posted by Fred | November 5, 2008 1:58 PM
The Sky Is Not Falling, People!!!!!!!!
Jesus fucking christ.
Posted by Anon | November 5, 2008 8:38 PM
Welcome back, Toes. Info is changing extremely rapidly. I've been calling for a downturn for FOUR TO FIVE years since that's when fundamentals ceased making sense to me. I was extremely surprised at the short-term resiliency, but in the long-run, we make the decisions we can. What saddens me is those who lose their homes. Kind of adds some perspective.
Posted by brenda | November 5, 2008 9:20 PM
We saw this same exact thing in AZ; ANYTHING goes. They aren't exactly giving away properties BUT to make a deal you can do a lot of things that would of gotten you laughed out of the building 6 months ago. As long as your on the buy side life is much better.
Posted by Michael Oliver | November 5, 2008 11:22 PM
fred,
it is a rental conversion building. the fixtures are not the greatest, but i just want somewhere close to work (still have a job at wall street) and a good school zone.
Posted by joey | November 6, 2008 11:34 AM
Hi Joey, Prices are extremely negotiable right now. I'd say ~10% below asking price, more in some segments of the market. It depends whether the apartment was grossly overpriced to begin with or if it was listed at a realistic price for the current market conditions. Not everyone HAS to sell, but put in a few low offers. If someone has lost their job or has a life change (marriage, kids, divorce, etc) and has to move, they may take it!
Posted by Christine Toes | November 6, 2008 4:46 PM
We are also offering this "Price Protection" program at Clermont Greene in Fort Greene, Brooklyn. We have been offering it to buyers for many months and it has been succesful. Commission is also 4% to other brokers. www.elliman.com/chb for details.
I think it works best when developers are catering to the needs of clients and can offer the right incentive for them. Sometimes its cash. Sometimes its rent-to-own. Sometimes its a mortgage rate buydown or price protection. These days flexibility is key...
Posted by Christine Blackburn | November 11, 2008 12:35 PM
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Posted by TestKing | March 18, 2009 2:42 AM
A little late coming to this read, but I was wondering how much all these promotions have translated into actual sales for the buyer? The market has gone down and I don't know if it has stopped sinking or how long I will have to wait until it recovers. While I believe that real estate is always a good investment, I would really want to see a return on my investment during the years that I can still enjoy the profits.
Glenn
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