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.