In theory, market forces should close the gap between buyers and sellers. But since last fall, the national scarcity of mortgage financing made most sale discussions irrelevant. That’s starting to change now, observes Rosemary Scanlon, an economist who teaches at NYU’s Schack Institute of Real Estate. “Nobody has repealed the law of supply and demand,” Scanlon says. “This is a slice of time—and I can’t tell you how long it lasts, whether it’s a month or three months, before the bidding process starts working.”
As the standoff lingers, longtime renters have already started hunting, letting their imaginations run wild. Who hasn’t heard the tale of the bohemian couple who bought a Soho loft for pocket change during the Beame administration, or the folks who snapped up a brownstone in Fort Greene back when Spike Lee still lived there? People who were brave enough to buy during the last major real-estate downturn, in the early nineties, realized fantastic returns on their investments. And if you look closely, scouring the transaction records and the blogs, you can already see isolated cases of serious discounts.
Take Wayne Isaak, a consultant and producer who works in the entertainment industry. He sold his apartment in Soho in the summer of 2006, near the height of the market, and moved with his family into a rental in Boerum Hill. For two years, he aggressively trolled the market, working with multiple brokers. After making offers on several properties, none of which were accepted, he came across a brick townhouse in Cobble Hill that had been put up for an estate sale. Last September, the townhouse was listed at almost $1.7 million. Isaak got it for $1.1 million, more than a third off the asking price.
The properties that are most vulnerable to changing market conditions are the many luxury condominiums that started construction at the top of the boom, and are just arriving on the market now. Their developers often have to answer to their own lenders, and they’ve typically promised banks that they won’t go below a certain price per square foot. At the same time, tighter mortgage standards have made business unusually difficult. (Banks are leery of giving mortgages to buyers in new buildings—particularly in ones that are small, or less than 50 percent sold. And according to laws governing condominiums, projects must reach a threshold number of sale contracts before closings can occur, meaning that a buyer’s payoff for putting down a deposit can be a long, stressful wait for well-financed neighbors.)
In order to reach critical mass, some developers have adopted new strategies, such as advertising low “introductory” prices, like at One Rector Park. Rockrose Development, a major residential builder, is taking on buyers’ mortgage notes and also offering “rent-to-buy” deals, in which a buyer signs a lease that gives him the option to buy the apartment down the road, at a set price. “I will do what it takes, because I don’t have much of a choice given these market conditions,” says Kevin P. Singleton, a Rockrose senior vice-president. A few building owners are talking of turning to online auctions to unload unsold condos. Though the method is untried and developer interest is tepid so far, a company called Bid on the City will launch its first auction on May 17, promising to break the pricing standoff through the purest expression of the market.
Some developers are quietly marketing large blocs of units to wealthy investors, who can rent them out until the sale market improves. “A lot of the real-estate families are getting ready,” says Josh Rahmani, senior managing director of Venture Capital Properties, which specializes in what he calls “discreet” disposition of properties. The website Curbed recently reported that Rahmani’s firm was marketing 80 units at 20 Pine Street, a luxury development in the financial district, at the half-off price of $64 million, something the building’s marketing agent, Michael Shvo, denied, and Rahmani declined to confirm. Rahmani did say, however, that such deals were becoming more common, as the professional opportunists—including some hedge funds, which are said to be looking for inflation-resistant places to park their money—are poking around foundering projects. “There’s lots of people circling with cash,” confirms developer Cary Tamarkin, who says he is one of those looking to capitalize.
What will happen as vulture investors take over empty buildings, or banks acquire them through foreclosure? In the near term, new owners may prefer to rent the units before accepting fire-sale prices. But as time goes on, there should be plenty of room for prices to fall, and not only in new construction. After all, only a decade ago, the average cost of a Manhattan apartment was merely $500,000—less than a third of what it is today.