Part of what makes the present situation so dire is that it is still in the early stages of unfolding. There are already about 400 new apartments on the market in Williamsburg, and additional condos are completing construction every month. According to a study Maundrell released last month, 2,818 new apartments will have hit the market by the end of this year, with another 2,766 projected by the end of 2010. On top of this, Fannie Mae, the country’s most dominant home-mortgage lender, recently implemented a policy requiring that buildings be 70 percent in contract before guaranteeing mortgages, thus delaying the moment when a developer can stop covering the taxes and common charges on a finished project. (While most other banks require 50 percent of a building to be in contract, Freddie Mac, the other chief lender, is expected to follow Fannie Mae’s lead later this month.)
“The thing is,” Maundrell told me as we drove past a sarcophagus of a building on Berry Street, “a year ago, those inventory numbers would have been great news. Buildings around here have been selling out so fast that there didn’t seem to be an end in sight.” He paused. “Now, with the new restrictions, the bottom line is that most of the new buildings will have to be turned into rentals. The problem is that, for a lot of these guys, that’s just not an option.”
Like many people in the real-estate industry I spoke to, Maundrell placed blame for this implosion on the city as much as the hubris of developers. The “inclusionary zoning” plan of 2005 was passed largely to foster the revival of the neighborhood’s waterfront, where developers would be allowed build as high as 40 stories—and receive huge tax breaks—so long as they dedicated a portion of their building to low-income housing. But in reality, most new construction ended up inland, where developers could receive the same benefits on smaller buildings without having to set aside affordable units.
Recognizing this design flaw, the city amended its tax-abatement program in June 2008 to require all new buildings, no matter how small, to devote 20 percent of their units to affordable housing. “That 20 percent? It’s a developer’s profits,” Maundrell said as we parked outside a vacant lot on North 10th Street. “What the city did is they forced all these guys to take down the existing building and drive the pile”—in other words, to rush construction far enough along that the development would not be subject to the new rules. “Most of them did it with their own money, or they took a hard-money loan at some outrageous interest rate. Well, that was just as the banks stopped lending. It was like Armageddon. You had the city looming, you had to take down your old building, and then—poof!—there was no money.” He sighed. “So here we are, everyone asking the same question: What the hell is going to happen?”
On October 16 last year, a party was held inside a storefront on North 6th Street to celebrate the launch of what once seemed like one of the neighborhood’s more promising and unique new projects: a development called the Steelworks Lofts, which, when completed, would offer 88 high-end units featuring exposed beams of salvaged wood, claw-foot bathtubs, and wide-plank oak floors, as well as a rooftop outfitted with private “cabanas,” an outdoor cinema, and a communal fire pit. The scene, at that point, had become a familiar one in Williamsburg, where a number of storefronts formerly occupied by eccentric boutiques had been converted into “sales galleries” that invited young professionals to buy apartments on spec in buildings that existed only as renderings on flat-screen monitors. Inside the Steelworks Lofts party, a stylish crowd streamed in and out over the course of a few hours, sipping cocktails provided by Woodford Reserve and Finlandia while admiring the model kitchen and bathroom that had been designed by AvroKO, the firm responsible for the Nolita restaurants Public and Double Crown.
Two of the guests, however, were having trouble fully embracing the festive mood. Greg Belew and David Berger, former classmates at Wharton who went on to found Fifth Square Partners, the boutique development firm behind the project, were quietly beginning to question the timing of their endeavor. A year and a half earlier, when they paid $26.5 million for the 130,000-square-foot former steel factory on North 4th Street—one of the biggest deals the neighborhood had seen—the Dow was soaring toward 14,000 points and Wall Street was handing out $33 billion in bonuses. Their faith in the endurance of this kind of economy was implicit in their somewhat unorthodox business model: As part of the deal they had struck with their lenders—a combination of private investors and the Anglo Irish Bank—they were required to “pre-sell” fifteen units before construction funds would be released. Then came the collapse of Lehman Brothers and the dismal events that followed; the day before the party, the Dow had plummeted 733 points—the second-largest single-day drop in history.