Buying an apartment in a brand new building or in a conversion from rental to condo/co-op or even in a building under construction that does not yet exist, has enormous appeal for many reasons, including:
1. Everything is new. For some buyers there is nothing that compares to owning a brand new home that no one has lived in before.
2. Ease of purchase. When purchased directly from the sponsor of a new development project there is no intrusive board approval process, i.e. no financial statement, board package or interview. Sponsors give buyers a great deal of flexibility with financing a purchase by requiring a minimal down payment of 10% in most cases. In brand new buildings, down payments on contracts can be as high as 25% of the purchase price.
3. Flexibility for owners. With few exceptions, new development projects are condominiums. Owners are permitted to rent out their apartments with limited restrictions. Condos also have no restrictions regarding pied-a-terres, parents buying for children, or a purchase by a corporation or trust.
4. Luxury lifestyle. New development buildings typically offer an array of luxury amenities, such as: health clubs or fitness centers and spas, swimming pools, sport facilities, playrooms and classes for children, landscaped outdoor areas, plus an attentive staff of doormen, concierges, and porters.
5. Top-of-the-line appliances and finishes. To attract buyers, developers often include high-end kitchens and bathrooms, and stylish finishes throughout the entire building.
6. Cutting edge design. World-renowned architects and designers are major players in new development projects. Buyers feel excited about living in a space designed with creativity and vision which can be tailored to your own needs and taste. The media buzz created by a name-brand architect or designer infuses these projects with undeniable caché.
How do you know that a new development is a sound investment?
Sponsors are required by law to issue an offering plan that contains all information relevant to the sale of units, such as description of the neighborhood, details on construction, design and materials, projected operating budget, reserve and working capital funds, procedure to purchase, unit prices, monthly charges, and closing costs. It is important to engage a real estate attorney to perform due diligence on the project. Real estate attorneys know what to look for when reviewing the offering plan and purchase agreement. They review all relevant details of the purchase and advise you on any potential risks before you sign a sales contract.
Potential Issues with a purchase in a New Development
Even if the due diligence does not reveal specific problems there are potential complications inherent with all purchases in a new development. Some common issues that arise include:
1. Closing date. In a building not yet built or apartments not yet finished, one should expect that the promised closing date will be delayed. This is because variables such as bad weather, labor disputes, material shortages, delayed deliveries, or cash flow problems can slow construction. Buyers are then forced to wait well beyond the original completion date. Those who have a clause in their sales contract stipulating an end-date for the closing are protected from tying up their down payment if the sponsor fails to complete the project in a reasonable length of time. Developers are aware that buyers may want a solid date, and they often fight to push the end- date as far out as possible. For a buyer who wants a desirable apartment that other buyers may want as well, many often choose to go with what is standard in a purchase contract for that particular development.
2. Mortgage financing issues. With closing dates vague, buyers may find it difficult to lock in an interest rate to coincide with the closing. Most lenders offer a 60-90-day rate lock if financial markets are moderately stable. In addition, lenders may refuse to provide funds for a closing if fewer than 15% or as high as 50% of units in the building have sold and closed, or if the common areas and amenities have not been completed. Most recently, developers will line up a bank or two that make a commitment to lend in the building without requiring closings to occur. These banks usually believe in the development and will often hold a high percentage of the loans/mortgages in the building. In fact, to make it appealing to buyers, some banks are mitigating the interest rate risk by allowing a borrower to lock in a rate for up to a year! Depending on the schedule for closing, buyers should look for such an arrangement.
3. Property taxes. One of the appeals of owning an apartment in a new development is the property tax abatement that some developers receive for building on certain sites. The abatement does not take effect until the building has received a Certificate of Occupancy (C of O), so those who purchase in a building with a temporary C of O may have an initial tax bill which is much larger than expected. These tax abatements generally phase in over a period of 10-12 years. In some neighborhoods, the phase-in period of the abatement can be as long as up to 20-25 years.
4. Fixtures, appliances, overall condition. Sponsors, who are permitted to close on units with a temporary Certificate of Occupancy, may begin to schedule closings on units where details have not been fully finished. A pre-closing inspection is essential to verify that the apartment is ready for occupancy and everything in it is in order, as promised. Very often, buyers will have a “punch list” of smaller details that need to be completed or rectified post-closing. This is common and there is usually a time limit during which the sponsor is obligated to complete the punch list.
5. Ground and second level commercial space. Most new development buildings have a large commercial rental or condo on the ground (and sometimes second) floor. Since the quality of the commercial tenant will have an impact on your building, it is important to try to find out what plans the sponsor has for renting any space dedicated for commercial use. One question to ask: are there restrictions on the types of businesses that will be permitted? While residents may have no problem with sharing their building with professional offices or boutiques, some may not be happy with a noisy bar, restaurant, or unappealing business on the premises.
6. Adjacent properties. Is there a possibility that future construction will negatively impact the building and/or the unit you are purchasing? Since developers are generally permitted to build a certain number of interior square feet based on the zoning of their property (known as FAR “floor area ratio”), an open view from your apartment could abruptly become a view into a brick wall if a new building is built next door. It’s wise to research zoning laws and neighboring sites to see if that might be the case in the future. Your real estate attorney or a land use/zoning attorney should be able to research that and inform you about the zoning surrounding your apartment.
7. Lot line windows. Some apartments have “lot line” windows. These are windows that are on the legal lot line of the building. If a lot line window of an apartment is overlooking an empty lot or a short building, make sure to find out if a building can be built that reaches the height of your window. If so, it is possible that your lot line window will have to be bricked over. Information about lot line windows must be disclosed in the offering plan. However, there is no requirement that the offering plan disclose anything about neighboring development potential. In this case, “buyer beware” (caveat emptor) comes into play. You should have a knowledgeable real estate attorney help you in this regard.
New York City Real Estate Buyer's Guide
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In anticipation of the Spring 2016 market we analyzed the first half of 2015 across all submarkets. The Spring market is historically the strongest season of the year for residential real estate sales in Manhattan.
New development units led the way in terms of record sales prices. The large number of high end sales in the new development market had a huge impact on the overall perception of the NYC real estate market, yet new development currently makes up only 11% of the total market! It is evident why there was so much press attention on this segment: new development closings in Q2 2015 increased 64% from a year ago, and available new development listings were up 30% compared to last year. (There were 294 sales in Q2 2014 and 481 in Q2 2015). Record high prices of a small percentage of units can skew the average or median price point of a market segment higher. For example, closings of high priced units at the Carlton House (21 East 61st Street) and The Charles (1355 First Avenue at 72nd Street) pushed the East Side median price for new developments to $7.328M! The next highest median price of any neighborhood was nearly half that at $3.954M downtown.
Properties sold off the floor plans also have an appeal to buyers who are looking to purchase “pre-construction”, who will have better choices within that building and will potentially see values appreciate by the time they close 1-2 years down the road.
In addition, the finishes in brand new luxury buildings in many cases have a much higher design aesthetic and quality, ultimately creating a spectacular product. In the past 20 years, it was more common for people to buy an apartment for the floor plan, the views, and the building cache – they would expect to customize their unit once it closed. Now developers want prospective purchasers to buy unfinished units in part because the finishes can be tailored to the buyer’s needs. Working with top “star” architects and international designers has become more common in this luxury segment.
Location and views that cannot be disturbed in those new ultra-luxury buildings, especially on ‘Billionaire’s Row’, have – for good reason – become status symbols.
Upper West Side
There were very few new development closings in the first half of this year. Closings in the now-famous One57 averaged nearly $6,000 per square foot, which affected average square foot numbers significantly. On the other end of the spectrum was a wonderful new conversion of a prewar rental to condo called the Mirabeau, located on 91st Street and Amsterdam Avenue, which had several closings averaging $1,800 per square foot. Due to the limited number of new development closings in the beginning of the year and the widely varied price points, the Upper West Side averages are less indicative of the true market condition than other neighborhoods.
50 Riverside Boulevard (between 61st and 62nd Street) is another new development which had 90% of the units in contract over the summer. Closings have just begun to take place; however, these closed sales do not figure into the picture of the first half year’s sales. There are also several luxury conversions on the Upper West Side that have opened sales offices since April. They include The Astor (235 West 75th Street), The Chatsworth (344 West 72nd Street), 360 Central Park West (at 96th Street) and The Orleans (100 West 80th Street). A new building at 1 West End Avenue (between 59th and 60th Streets) also commenced pre-sales in May of this year and will have 246 units with an estimated occupancy at the end of 2017.
Upper East Side
Closings at several premier properties in the first quarter, such as The Carlton House (21 East 61st Street) and The Marquand (11 East 68th Street), drove prices upward (41% surge in average price in the first quarter and 36% increase in the second quarter from a year ago). The East Side’s new development median price rose to $7.328M in Q2 from $4.95M in the first quarter as there was a significant increase in the sale of larger new development apartments in the second quarter.Read More »
The new development and conversion market on Park Avenue is primarily centered on just a few buildings. Some of the new development is comprised of older rental buildings which have been converted to condominiums, and the others (now four) are notable new buildings. Park Avenue is seeing reasonably strong buying activity in new development: in the last six months there were 7 closed sales at 737 Park Avenue, 10 sales at 530 Park Avenue and sales are in process at 432 and 1010 Park Avenue. Below is a review of what is currently on the market, as well as what is on the horizon in new development on Park Avenue. Only two of these new buildings are above 75th Street.
432 Park Avenue
432 Park Avenue is the second-tallest building in New York City and will be the tallest and the first luxury residential mega-tower in the Western Hemisphere. The building has redefined the skyline and is adding to the 57th corridor, which is hailed as “Billionaire’s Row.” Apartments will not close until late 2016 or later. The active Penthouse listings are hovering close to $10,000 per square foot!
520 Park Avenue
When 520 Park Avenue’s 12,394 square foot penthouse triplex hits the market, it could be the most expensive apartment in the city with an asking price of $130 million. The 54-story, 31-unit condo tower developed by Zeckendorf Development and designed by Robert A.M. Stern is scheduled for completion in 2017. Four units hit the market this spring ranging in price from $16.6M to a $70M duplex Penthouse.
530 Park Avenue
530 Park Avenue is an exceptional pre-war condominium conversion (converted from a rental building) featuring classic interiors designed by William T. Georgis, one of Architectural Digest’s “Top 100” design firms. Closings began in December 2013 with sale prices averaging $1,792 per square foot.
737 Park Avenue
Renovation is also in the final stages at Harry Macklowe’s Art Deco condo conversion of 737 Park Avenue (a former rental building), where half the units have been sold. There have been 44 closed sales over the last 18 months ranging from 1,330 to 6,003 square feet ($3,530,624 – $32,658,763). The highest-priced sale was an 11-room penthouse.
807 Park Avenue
Aion Partners has owned 807 Park Avenue since 2004 and had a very difficult time selling the condos. The developer is planning to take down the 7-story addition, preserving the original 5-story structure and reconstruct a new 12-story building, which was just recently approved by the Landmarks Commission.
1010 Park Avenue
Extell is planning to build a16-story condominium where the Park Avenue Christian Church rectory and parish hall stand. Although there have been issues because of the height with the Landmarks Commission, the plans seem to be moving forward. 1000 Park views will be impacted by this contruction.
1110 Park Avenue
The Toll Brothers’ luxury condo building at 1110 Park Avenue with nine residences features Barry Rice- and Christopher Peacock-designed interiors. The building’s 7,000 square foot penthouse is asking $35 million and features a 1,738 square foot rooftop terrace. Constrution continues and closings are expected in late 2016.
The Waldorf Astoria
Earlier this year it was also announced that the Waldorf Astoria Hotel is planning on renovating and converting the two towers into luxury residential homes. The timeline has not been announced.