Helps: Buyer incentives
The condo glut and credit crunch have dovetailed into new buyers’ incentives that would have been unheard of during the boom.
Free cars, buyback guarantees, rent-to-own and "live free for one year" deals are among the tactics developers have used to set their projects apart.
While some of them have borne little fruit, others have helped developers meet critical sales benchmarks.
A recent analysis by The Real Deal of the city’s best-selling condo projects found that many of the top sellers were offering incentives beyond price cuts. Price cuts are, of course, the most compelling "incentive," but can be difficult to initiate when other buyers are in contract for peak prices.
The "live free for one year" program Toll Brothers implemented at Northside Piers in Williamsburg and at 5SL in Long Island City covered all costs associated with condo ownership for 12 months, helping those projects move units.
Also in Long Island City, the View at East Coast offered buyers a five-year buyback guarantee in which developer TF Cornerstone promised to repurchase units in five years if the seller couldn’t get 110 percent of the purchase price.
"It was employed to get us over the [15 percent sold] hump so the [condominium] could be declared effective," said Leah Bassknight, director of sales at the project.
She said the firm is confident that the "apartments are going to be valued at the guaranteed amount," adding that the incentive worked and is no longer available.
TF Cornerstone, one half of the former Rockrose firm, used the same incentive to quickly sell 20 units at the rental conversion 99 John in the Financial District, said sales manager Brad Ingalls. He said there are also 95 people who came into the 442-unit building on a "rent-to-own" basis.
In Long Island City, the L Haus is offering 90 percent financing and a "price protection" program that gives buyers a rebate if someone in the building "purchases a two-bedroom, two-bathroom home, and a similar two-bedroom home within the same grouping is sold at a discounted price within 90 days of closing," said Melinda Starr of Prudential Douglas Elliman.
Flashy incentives can also help grab buyers’ attention. Three of the six buyers at 868 Metropolitan in Greenpoint took the developer’s offer of a free Vespa with purchase. "I believe it brought people in the door. But it was not a deal-maker, just a bonus," said Christine Blackburn of Elliman.
Hurts: Extend & Pretend
Banks are holding the city’s real estate market captive as they delay dealing with distressed assets.
"The fundamental reasons for the limited amount of transaction activity are simple: Buyers are seeking distressed pricing, owners do not want to sell at distressed pricing, and lenders have largely withdrawn from the market," said a recent report by CB Richard Ellis Group.
According to the report, only three Manhattan office buildings priced at more than $30 million sold in the first half of 2009, compared with an average of 32 in the first half of each year over the past five years. And while the city and Long Island have a combined $10.6 billion worth of distressed assets, according to Real Capital Analytics, only a handful have changed hands this year.
Meanwhile, Dan Fasulo, the firm’s managing director, estimates that $50 billion has been raised to purchase this property.
Peter Hauspurg, CEO of Eastern Consolidated, said that over the past two years, banks have been marking down the values of properties incrementally instead of all at once to avoid the appearance of huge write-downs on their quarterly reports.
The practice is widely known as "extend and pretend," and many believe that it’s prolonging the downturn by holding up trades on properties that lenders are pretending are worth more than they really are.
But, he said, "in the last few months, since July, there’s been a market uptick both in the number of deals and the size of the deals." He attributed that to the fact that more assets have been written down to their true value, and banks are seeing enough sales to get a sense of today’s pricing. …CONTINUED