New York’s Glut condo luxury puts developers in the red
One of the favorite expressions of economists is that of Herbert Stein “if something cannot last forever, it will stop.“
Ask the luxury condo developers.
Contrary to the belief of activists who believe New York City rents and house prices defy gravity, builders can’t keep apartments empty indefinitely in a Captain Ahab-like quest to land a whale from a buyer.
They have to offer concessions and cut prices to move units before their lenders shut them out, even if they save time with a inventory loan – secured by unsold units – to repay maturing construction loans.
This is exactly what happened in New York, where the luxury market saw prices are eroding since 2017. Prices have fallen further after the pandemic turned the central business district into dead city last March.
In response, buyers are starting to buy homes cheaply, at least compared to prices a few years ago. “A godsend for buyers in Manhattan,” said New York Times article I judged him on Friday.
As the story notes, developers have cut apartment prices by up to 50% in Manhattan, where the market is weaker than in Brooklyn and Queens, than it used to be. “From booming condos in affluent enclaves like Tribeca to boutique apartment buildings on gentrifying blocks in the East Village, Manhattan is inundated with price cuts,” the article reads.
Bloomberg News reported that 97% of Manhattan’s 2,457 homes sold in the first quarter of 2021 sold at or below asking price, the highest share since 2009, according to an analysis by Miller Samuel.
Some projects turn into rentals or sell units in bulk to discount investors.
Even reputable, successful builders are seeing red ink in the depressed condo market. Extell Development Gary Barnett admitted to The Times that he would lose money on three of his six ongoing projects.
Barnett then delivered an unlikely citation of joining Stein in the pantheon of economic classics. “From now on,” he declared, “it has to go up.”