New Creative Ways to Sell New Developments
Toes here.
Am going to keep this post short, but wanted to let you know about a new way one developer is trying to sell apartments in a new construction building.
I visited 500 Fourth Avenue with a customer this weekend for their Grand Opening event. I thought their "Early Bird Special" was a unique idea that I hadn't yet seen. They are offering 10% off of all apartments for contracts signed in March and April. The building is expecting occupancy in late 2009.
It appears that they have released pricing on almost all of their units, which is something I don't normally see. Generally only a few apartments in each line are released at a time in a new development. One reason they may be doing this is that they have over 90 different layouts in the building, so almost every apartment is unique.
500 Fourth has approximately 40 studios (539 - 636 sq ft) and one bedrooms (556 - 799 sq ft) from $342K - $558K, some with balconies. When you take off the 10% discount, $308K is by far the least expensive apartment I have seen in a large luxury condo building in Brooklyn in the general South Slope/Park Slope area. (Unfortunately that particular apartment faces Fourth Avenue and probably wont work for my buyer. I am waiting to hear back about what kind of windows they're using. Triple paned would be most appropriate, especially for the lower floors).
There are approx 34 two bedrooms from 911 sq feet to 1,151 sq ft. 911 square feet for a 2 bed, 2 bath is really small, so I'm curious as to what demographic research led them to create such small layouts. I am wondering if the demand is there? A lot of developers have been shrinking room sizes in the last few years to get as many bedrooms and bathrooms into an apartment as possible.
They also have released 5 three bedroom, 2 bath homes that are 1,175 (small for a 3 bedroom) - 1,456 sq ft from $805K - $1,077,000.
421-A tax abatement
Another thing I have noticed lately is at 99 John Street in the Financial District. They're offering $20,000 off of the purchase price or closing costs for contracts signed by April 1st as well as a 110% "buy-back guarantee." If your apartment doesn't appreciate by 10% after 5 years, they will buy it back from you. Sponsor financing is also available for qualified buyers. Rockrose Development Corp is probably one of the few developers with deep enough pockets to offer this kind of incentive. They are also offering the "guaranteed profit" incentive at the View at Eastcost in Long Island City.
If memory serves, Related is/was one of the first to offer the "guaranteed profit" idea on Roosevelt Island at Riverwalk Court.
Of course when you sell a condo, you have about 8% in closing costs - 6% in broker's fees and 2% in NYC/NYS transfer taxes, plus other miscellaneous costs.
In addition to the closing costs, parking spaces, storage units, cabanas, and other incentives that we've been seeing since 2007, we're now seeing actual price reductions.
Posted by henry
Thu Mar 19th, 2009 05:36 PM
What does 10% off mean in this case? Their sale plan (likely pre-Lehman)? Neighborhood comps? What happens when the price goes down further? It would seem very risky to lock oneself into a long-term contract at this point... especially if you would be one of the first into contract given financing requirements.
Also, the "guaranteed profit" idea is only as good as the financial strength of the company providing the guarantee. If you ever needed/wanted to use this put option, you would likely find yourself in a crowd. Further, the NY real estate market has likely remained poor (given the assumed limited appreciation in any case where the guarantee has value), so there is a good chance that the developer's financials have deteriorated since the guarantee was offered in these downside cases. Then, there is the little matter of how many other buildings will be offered this guarantee... now and in the future.
Posted by Thomas
Fri Mar 20th, 2009 08:52 AM
In addition to the credit worthiness of the guaranteeing counterparty and the transaction costs to consider, the "guaranteed profit" presumably is a nominal guarantee. Even if one believes that real estate is still overvalued, a 5 year / 10 percent NOMINAL price guarantee offers very little protection against value decline in REAL terms. This is even more likely to be the case if the current massive monetary expansion ends up in a significant inflation pick-up.
Posted by adrian
Fri Mar 20th, 2009 10:14 AM
Have you seen the area around 500 4th ave? It's loud, heavy traffic. It's not a pleasant area to live. Paying >$500 per sqft is silly, especially in those areas.
Posted by jeff
Fri Mar 20th, 2009 12:54 PM
What should be mentioned is that if you wait four months to buy at 500 Fourh Ave you'll probably get 30 - 40% off.
Posted by adrian
Fri Mar 20th, 2009 03:31 PM
Jeff, just curious, what makes you think that? Do you think the place is over-priced that much? Or do you think that's what market will drop to?
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