You would think a balcony makes living in a New York City apartment a little bit nicer, right? After all, you get a little bit of private outdoor space, plus you can keep the door open for fresh air—and good ventilation is more important than ever in the Covid era.
On November 3, 2020, Gov. Andrew Cuomo issued Executive Order No. 202.72, which extends the expiration date of numerous previous Executive Orders to December 3, 2020. Importantly, Executive Order 202.55 was among those extended, meaning sponsors and developers may continue to benefit from the tolling of various offering plan-related and other regulatory requirements for the time being.
We have been receiving many inquiries regarding the numerous and multi-faceted effects and ramifications of the COVID-19 pandemic on real estate development projects in New York City and, in particular, the recent policy changes affecting offering plans, required disclosures and sales and marketing procedures. In response to these inquiries, we have drafted the attached article to provide an overview of some of the noteworthy changes. It is important to note that many of these policy changes are in place temporarily and therefore may be revoked or modified in the future.
New York Gov. Andrew Cuomo recently issued Executive Order No. 202.18 (“Executive Order”) to temporarily suspend or modify statutes and local laws thereby tolling important statutory deadlines for the period of time commencing on April 16, 2020 and continuing through May 16, 2020 (“Tolling Period”)
Closing in the time of coronavirus is onerous but not impossible.
Developers are agreeing to a variety of contingencies, attorneys are personally ferrying dossiers between parties, and staid institutions including banks and co-operatives are being surprisingly flexible.
In our continuing effort to keep you apprised of events impacting the ability of our clients to continue doing business during the public health emergency, we attach a new guidance document issued by the Attorney General entitled, “Temporary Submission and Review Policies and Procedures Due to COVID-19 State of Emergency.” This guidance document is effective as of March 25, 2020 until further notice.
In response to the rapidly evolving public health emergency the coronavirus (COVID-19) has produced, Starr Associates LLP is implementing a remote work policy. Effective immediately, the Firm’s lawyers and support staff will be working from home remotely to keep our staff safe and to do our part in the effort to reduce transmission of the virus.
Shaun Pappas, a real estate attorney who works with Magnum, said he has been contacted by smaller developers about whether rent-to-own would work for them. One of his clients, Italian-born developer Stefano Farsura, said he was considering it for his 14-unit condo on 139 East 23rd Street. Sales launched in January, and all units are asking below $4 million. “We decided to stay flexible and see how the market reacts,” he said.
We are thrilled to announce our litigation department’s successful representation of a sponsor-developer that brought suit against a defaulted purchaser, who claimed his default was justified because of construction delays that amounted to six months beyond sponsor’s anticipated closing projection.
You would think a balcony makes living in a New York City apartment a little bit nicer, right? After all, you get a little bit of private outdoor space, plus you can keep the door open for fresh air—and good ventilation is more important than ever in the Covid era.
But not all balconies are alike and that’s something to keep in mind if you are apartment hunting. You might want a balcony to escape from constant Zoom calls in your apartment, but you may wind up dealing instead with pigeons, leaks, and other maintenance issues.
The first thing you should consider when looking at an apartment with a balcony is the overall condition of the building, says Rowena Dasgupta, a broker at Warburg Realty. “Safety is the first concern and you should ask how strong the balcony is and how much weight it can hold, especially if it’s an older building.”
You also need to be aware of the building’s bylaws and house rules, says Tara King-Brown, a broker at Corcoran. Most buildings have a separate section in the lease or house rules specifically for a balcony, like if you can smoke out there.
Liability is another thing to keep in mind, says Shaun Pappas, a partner at Starr Associates. If the wind blows your outdoor furniture off and it injures someone (it happened to this New Yorker last year), then you would be held liable. So you also have to be smart with what you store out there.
Keep reading for 10 things to consider when living in an apartment with a balcony, and how to make sure it’s the right outdoor space for you.
1. It might be noisy
Obviously, if your balcony faces a busy street, school, bar, or restaurant with outdoor dining, it is going to be noisy out there. What you may not realize is that a balcony—which usually has sliding glass doors, can mean more noise inside your apartment than a regular wall. So think about where the balcony is located and whether it’s noisy inside is going to be a problem.
2. It all depends on the weather (and wind)
Unless it’s a covered or an enclosed balcony, you probably won’t get much use out of it during the colder months. You also need to consider how high up you are. “The higher the floor, the colder it will be,” Dasgupta says. Wind is also an issue: If you’re on the 15th or 20th floor, you will probably use it a lot less.
If you’re renting and want to enclose it, check out your building’s rules, King Brown says. For buyers who want to permanently enclose it, you have to consider the zoning of the building. “You would be turning an exterior space into an interior space, and the square foot of the apartment might already meet the building’s floor-area-ratio,” she says.
3. What and where is it facing?
If you’re expecting some sun for you or your plants, you need to consider which way it’s facing. If it’s facing north, then you will get little sunlight, Dasgupta says. A south-facing balcony is optimal, but you can also get sunlight on an east- or west-facing balcony at certain times during the day. (Pro tip: You can pull out your iPhone and use its compass to figure this out ). King-Brown says you should also consider how far the balcony is from the adjacent building. If it faces south, but it’s close to the building next door, then you might not get optimal sunlight.
4. Upkeep is up to you
Maintaining your balcony is on you. In the fall, you’ll have to keep leaves off the balcony and in the winter, you have to remove any ice and snow. Your lease might even outline what upkeep is required of you.
Another messy issue: If your balcony is larger than those above you, any falling debris from above like cigarette butts might land on your balcony. (Although with a little detective work you can usually find out who the culprit is.)
5. Pigeons and pests
Pigeons are a part of NYC life and they’re really annoying to balcony owners, because of their habit of perching on a balcony and leaving droppings all over it. If it bothers you, you might choose to install spikes along the railing that will prevent pigeons from landing there. However, Dasgupta says she’s never experienced a building take care of this, so the solution would be up to you.
If you’re on a lower floor, or have a terrace on the ground floor, then you should also consider other pests like bugs and mice, especially since the pandemic has led to an increase in pests issues because most people are spending more time at home.
6. Know which grills you can use
It’s very tempting to have a barbecue or fire pit on your balcony, but New York City Fire Code forbids grills that use propane or charcoal, and fire pits are banned as well because of their open flame. But electric grills are allowed, and so are gas-fed grills, as long as they are professionally installed and inspected, but you should check your building’s rules before investing in one.
Another solution is to look for buildings where the developer has included a gas hook-up for a grill on the balcony, King-Brown says. The developers at 100 Barclay, a landmarked building in Tribeca, did this.
7. It’s not a storage unit
A balcony might seem like an ideal storage space, especially one that you can’t really enjoy because of noise or pigeons, but keeping lots of stuff out there it is likely prohibited by your building. Pappas says a good lease will outline that personal items shouldn’t be stored.
When it comes to seasonal outdoor furniture, you might be required to bring it inside, cover it, or make sure it’s properly secured. If you have to bring it inside, consider where you can keep the furniture. You should also aim to buy wind proof and sturdy furniture to prevent any mishaps. Even cushions and planters should be properly secured.
8. Beware the Juliet balcony
When you’re looking online for an apartment with a balcony, some apartments might turn out to have a Juliet balcony. These really don’t give you any outdoor space, Dasgupta says. They are essentially large windows that allow you open to let in fresh air, but have no space for standing or sitting outside.
9. Smoking, noise, and other building rules
Generally, if a building has a hard no smoking policy, then it would also apply to your balcony, Pappas says.
But, in some cases, a building will prohibit you from smoking in common areas, but will allow smoking on your private balcony. However, if the smoke starts to bother a neighbor then you might be asked to stop. And, if you’re subletting in a building that allows smoking, the owner of the unit might decide to prohibit you from smoking out there.
When it comes to noise, you should follow the same rules that pertain to inside your apartment. If you violate any of your building’s policies on the balcony, you can expect the same recourse as if it were inside, which could mean fines or a termination of your lease, Pappas says.
10. Your building has a right to use it for facade work
Buyers need to check to see when the last time the building inspected their facade, King-Brown says. Local Law 11 mandates that all buildings six floors or higher must have their facade inspected every five years.
If the facade work hasn’t been recently inspected or worked on, then your building might have the right to access your balcony to work on the facade, and can even deem the outdoor space not usable for several months, King Brown says.
https://www.brickunderground.com/rent/10-things-to-consider-about-living-in-nyc-apartment-with-balcony-buyers-renters-noise-trash-weather-storage-furniture
On November 3, 2020, Gov. Andrew Cuomo issued Executive Order No. 202.72, which extends the expiration date of numerous previous Executive Orders to December 3, 2020. Importantly, Executive Order 202.55 was among those extended, meaning sponsors and developers may continue to benefit from the tolling of various offering plan-related and other regulatory requirements for the time being.
On a related note, the New York State Department of Law (“Attorney General”) amended their Memorandum Re: Temporary Submission and Review Policies and Procedures Due to COVID-19 State of Emergency (“AG Memo”) on September 18, 2020. While previously the AG Memo had tied the Attorney General’s COVID-19 “relief period” to the expiration of Executive Order No. 202, this has been amended such that the AG Memo’s temporary policies and procedures are now effective “until further notice” by the Attorney General. As of the date of this news blast, no such “further notice” has yet been given and therefore sponsors and developers may continue to operate under the AG Memo’s temporary policies and procedures (including without limitation digital submissions and alternative notarizations) for the time being.
Please feel free to contact us to discuss how Executive Order No. 202 and the temporary policies established by the Attorney General may affect your project.
We have been receiving many inquiries regarding the numerous and multi-faceted effects and ramifications of the COVID-19 pandemic on real estate development projects in New York City and, in particular, the recent policy changes affecting offering plans, required disclosures and sales and marketing procedures. In response to these inquiries, we have drafted the attached article to provide an overview of some of the noteworthy changes. It is important to note that many of these policy changes are in place temporarily and therefore may be revoked or modified in the future.
INDUSTRY UPDATE:
Important Reprieve Afforded to Sponsors through Executive Order
Tolling Certain Crucial Deadlines Based on
COVID-19 State of Emergency
New York Gov. Andrew Cuomo recently issued Executive Order No. 202.18 (“Executive Order”) to temporarily suspend or modify statutes and local laws thereby tolling important statutory deadlines for the period of time commencing on April 16, 2020 and continuing through May 16, 2020 (“Tolling Period”)
The Tolling Period impacts the following obligations of sponsors under the Attorney General’s regulations:
The Time Frame to Conduct a First Closing is Tolled. According to the well-established regulations promulgated by the Attorney General governing new construction and substantial rehabilitation condominium and cooperative offerings, a sponsor must offer purchasers the right to rescind their purchase agreements if the first closing does not occur within the first 12 months of the anticipated commencement date of the first year of operation. As a result of the recent “stay at home” directives (essentially putting construction and the ability to procure a temporary certificate of occupancy at a stand-still), the Executive Order provides necessary relief by extending this 12-month deadline for the length of the Tolling Period. Therefore, sponsors are now afforded additional time to conduct their first closings before being required to offer recession to purchasers under contract.
Timing to File an Updated Budget for First Year of Building Operation is Tolled. Similar to the statutory deadline requiring a first closing to occur within the first 12 months from the anticipated commencement date of the first year of building operation, a sponsor is also required to update their projected budget for the first year of operation if the first closing is delayed by more than 6 months. This requirement is likewise suspended for the length of the Tolling Period, now requiring any necessary update to the budget to take place within 30 days from the expiration of the Tolling Period.
The 15-Month Deadline to Declare Effective in a Conversion Plan is Tolled. In a residential conversion offering plan, a sponsor is obligated to declare the offering plan effective within 15 months from the date the offering plan is accepted for filing, failing which sponsor is required to abandon the offering and provide rescission to all purchasers. Such 15-month deadline is also suspended for the length of the Tolling Period, affording sponsors additional time to meet these sales requirements.
Filing Fees. The payment of all filing fees to be made at the time of submission shall also be exempted during the Tolling Period, with the understanding that all such fees shall be remitted to the DOL within 90 days of the expiration of the Tolling Period.
It should also be noted that the Tolling Period may be further extended by an amendment to the Executive Order. A copy of the Executive Order can be found here.
Starr Associates LLP is proud to have worked alongside other industry leaders in an effort to bring the aforementioned relief to our clients and their condominium/cooperative projects affected by Covid-19. Our firm is available to discuss the potential impact of the Tolling Period on your project and help you navigate through these unprecedented times. Additionally, our office will be circulating updated deadlines specifically related to your individual project.
Wishing each of you and your families continued health and safety during these very difficult times.
Co-ops are bending rules, lawyers are personally messengering documents.
Closing in the time of coronavirus is onerous but not impossible.
Developers are agreeing to a variety of contingencies, attorneys are personally ferrying dossiers between parties, and staid institutions including banks and co-operatives are being surprisingly flexible.
“I’ve become a $650 [per hour] messenger, but, you know, whatever it takes to get it done we’re trying to do,” said Jeffrey Schwartz, managing partner and head of the real estate practice at Schwartz Sladkus Reich Greenberg Atlas. “We’re pulling out all the stops.”
Schwartz said he’s spent hours driving around to drop off and pick up original signed documents.
Though listing inventory and contract signings have dropped off dramatically since the pandemic brought in-person work to halt, closings are still happening — mostly on properties that went into contract weeks if not months ago.
Replacing the customary in-person closings is a challenge, but the desire to close a deal is proving strong enough to overcome barriers related to the pandemic. What’s more, some would like to see virtual closings become the new norm — though some attorneys seem to shudder at the thought.
Sellers’ urgency to close underscores the strong headwinds they were already facing in New York and concern over how long the pandemic could last.
“The fear for the seller is if they lose a deal now, and the buyer walks away, the odds of a new buyer [coming in] are essentially impossible,” said Pierre Debbas, partner at Romer Debbas. He was working on his firm’s first set of entirely remote deals late last week.
Starr Associates, which specializes in representing new development projects, has closed 15 deals remotely over the past two weeks, according to managing partner Samantha Sheeber.
That included the final sponsor unit — for a cool $19.5 million — at World Wide Group and Rose Associates’ 252 East 57th Street. Starr represented the developers, while Douglas Elliman’s Tal Alexander brokered the deal.
“It was a completely virtual closing,” said Alexander. “I’ve never been part of something like that.”
How it’s done
The way deals are getting done despite the state’s stay-home order isn’t new: It’s closing in escrow.
Shaun Pappas, a partner at Starr, said the firm has established best practices of how to do that.
About a week before the scheduled closing date, Starr will initiate an email thread with all parties involved. Virtual copies of documents, messages and questions are all sent and answered on that thread.
Meanwhile, the physical documents with the seller and buyer’s ink signatures will travel back and forth via FedEx, or courtesy of the parties’ various lawyers when messenger services aren’t available or fast enough.
After every signature notarized with the buyer and sellers’ attorneys on a video call, a scan is made and sent to the thread. Once physical copies are sent and received, confirmation messages are emailed.
For the final walkthrough, in many cases a worker on site will use a video call to guide a buyer through their unit. Construction sites in New York were open until last week, so at new developments someone was on site to film. In many cases, Pappas said, the buyer and sponsor would also sign a “post-closing survival agreement,” which allows buyers to do a physical walkthrough later.
Developer Michael Stern said he has been using a similar approach at The Fitzroy to move forward with closings.
On the actual closing day, Pappas said “the faster ones are a few hours. The longer ones are five to six hours.” He recalled one $6 million deal that ran until nearly midnight and resumed at 8:30 a.m.
“Our office hours are now 24/7,” he said. “You’re going to have to be available throughout the day.”
Dorian Lam, a principal at title company Cornerstone Land Abstract, said closing in escrow has become the way 95 percent of his firm’s residential deals are closing now. That said, he noted that deal volume has dropped about 50 percent over the past two weeks.
The remaining 5 percent of Cornerstone’s residential deals are continuing to close in-person, which is legal because financial services were deemed essential under Gov. Andrew Cuomo’s stay-at-home order.
In those cases, Lam said, closings occur with each party in a different room. Each party uses their own pens, and wears gloves and masks. He attributed those cases largely to attorneys who are uncomfortable with technology.
“There are still people with AOL accounts and insist on us faxing,” he said, but he argued that closing in escrow should become the industry norm for residential deals. “We’ve been doing it this way for years.”
Stern agreed. “A lot of the residential buyers like a physical closing, or they’re just used to it, but it’s not actually necessary,” the developer said.
Banking on the future
Debbas said some banks and mortgage brokers have also been slow to adjust.
“Most of the banks are box checkers and if it doesn’t fit the box, they can’t do it,” he said. However, he is optimistic that most will figure it out shortly because “it doesn’t seem like this situation is going away anytime soon.”
Pappas admitted that the process is “trickier” when lenders are involved, but noted that about a third of Starr’s remote closings had financing.
When Debbas is negotiating for buyers who need to borrow, he reverts to strategies he relied on following the 2008 crash, notably what he calls a “funding contingency.”
“[The deal]’s contingent upon the bank having the money on the day of the closing to show up with the funds,” he explained. “We’re trying to protect buyers from an absolute worst-case scenario of a total economic collapse.”
He said one developer agreed to a funding contingency last week on a $3 million unit in Brooklyn Heights.
Some lenders have adapted to virtual closings, though. Samantha Gordon of Wexler & Kaufman represented Citibank on two remote closings at Magnum’s 196 Orchard Street.
Now, Gordon is working on five other remote closings for lenders, sellers and buyers — and reports seeing “a lot of flexibility” as they prepare to close. She recounted one deal where the buyer and seller agreed to close but keep payment in escrow until the final walkthrough could be completed in-person.
Schwartz reported similar accommodation from an unexpected source: co-op boards.
Co-ops are known for particularities. Alan Rosenbaum, the head of mortgage lender Guardhill Financial, and Citizen Bank’s Ace Watanasuparp, both recalled in a TRD Talks webinar experiencing challenges when working with co-op boards on remote deals during the pandemic.
Schwartz said his firm has sometimes gotten around this by taking on the tasks usually performed by managing agents. As of last week he had closed two co-op deals in escrow.
In one, involving financing, his firm took over the managing agent’s duties. In the second, the managing agent decided to scan board minutes and upload them to a Dropbox folder for a 12-hour window to allow Schwartz’s team to do due diligence. Usually, co-ops require that minutes be read while physically at the building. The Dropbox method is the only part of the remote closing process that Schwartz said he hopes will stick around, and some lawyers seem to agree.
Even Lam, from title insurer Cornerstone, admitted that the remote closings can have drawbacks. For instance, if a last-minute adjustment is made to any terms, initializing won’t suffice; all documents must be reissued and signed.
“It’s just a much more tedious process,” said Schwartz. “Unless we can perfect it a little bit better, I don’t see it continuing.”
Write to Erin Hudson at ekh@therealdeal.com
SOURCE: TheRealDeal.com
Temporary Submission and Review Policies & Procedures
Due to COVID-19 State of Emergency
We hope this memo finds you and your families healthy and safe.
In our continuing effort to keep you apprised of events impacting the ability of our clients to continue doing business during the public health emergency, we attach a new guidance document issued by the Attorney General entitled, “Temporary Submission and Review Policies and Procedures Due to COVID-19 State of Emergency.” This guidance document is effective as of March 25, 2020 until further notice.
These new guidance document is available at the following web address:
We urge you to review these temporary policies carefully. The guidance document covers, among other topics, sales made after the expiration of an offering plan, price change amendments, broker-dealer registration statements, changed policies concerning the submission of original signatures and notarized documents and revisions to submission requirements. Clients should note that the Attorney General has reserved the right to modify or rescind the temporary policies and procedures detailed in the guidance document at any time, and will do so by updating the guidance document.
We will continue to provide our clients with status updates as events warrant. Please do not hesitate to call us with any questions or concerns.
Please Note: This email is intended solely to alert readers to issues of general interest and should not be construed as legal advice. For advice about particular facts and legal issues, readers should consult legal counsel. This material may constitute “Attorney Advertising” under New York State court rules.
March 16, 2020
To our clients, colleagues and friends:
We hope this message finds you and your families safe.
In response to the rapidly evolving public health emergency the coronavirus (COVID-19) has produced, Starr Associates LLP is implementing a remote work policy. Effective immediately, the Firm’s lawyers and support staff will be working from home remotely to keep our staff safe and to do our part in the effort to reduce transmission of the virus. While our physical office is closed, we are working at close to full capacity and have implemented procedures to continue to conduct business, maintain productivity and serve our clients’ needs. Please feel free to reach out to us via phone and email so that we can continue to attend to your matters.
We will update you further as matters evolve.
It was set to be the tallest condo tower in Lower Manhattan, capped with a ring of golden bands that arched toward the sky.
But as the new year arrived, with the high-end condo market in freefall, developers Madison Equities and Gemdale Properties pulled the plug last month on their 1,115-foot supertall at 45 Broad Street, citing “market conditions.” In the previous quarter, sales in the Financial District sank almost 45 percent.
Now, the project will be delivered later, and 80 feet shorter than expected, a spokesperson for the developers told The Real Deal — though time will tell.
“Assuming 45 Broad can’t be built as a rental, due to the costs of the project, then going on hold is a smart decision given the amount of inventory on the market,” said Andrew Gerringer, managing director of new business development at the Marketing Directors.
The site, a gaping hole encased in a cordon on a busy street in the Financial District, serves as a gloomy reminder for developers: The luxury condo boom that defined the past decade has come to an end.
Back in 2013, when the U.S. economy was rebounding and foreign capital was flowing through the city, 84 Manhattan condo projects were filed with the New York attorney general’s office, according to a TRD analysis. The next year, that number peaked at 86.
Today, many of the units in these luxury buildings are still sitting vacant, and they could take more than six years to sell, according to appraiser Jonathan Miller of Miller Samuel.
To put that in perspective: There is $5.7 billion in existing inventory on the market and $2.2 billion in contract, according to a 2019 new development condo report from Halstead Development Marketing, which counted $13 billion in sales that have closed since 2018. Those figures combined still fall short of $33 billion worth of inventory lurking in the shadows, according to Halstead.
Condos conceived at the peak of the market are launching sales at a time defined by oversupply and uncertainty, forcing developers to cut prices, seek lender lifelines and come up with creative concessions to stay afloat. There are more than 1,000 unsold units across Manhattan’s four biggest condo projects, according to an analysis of figures from Nancy Packes Pipeline and Transactions Databases that are licensed to the real estate industry.
“Anyone who thinks they can just sit there and charge the exorbitant prices they were able to get three or four years ago and they’re going to be able sell inventory in a prompt manner … it’s not going to happen,” said Christopher Delson, a partner at the law firm Morrison & Foerster.
While some developers are choosing to halt projects before they rise from the ground, others are opting for smaller boutique models over the gargantuan skyscrapers that hallmarked the boom. Eighty percent of the 51 Manhattan condo plans filed in 2019 were for projects with fewer than 50 units, according to TRD’s research. None of the projects had more than 200 units.
“I don’t think anyone is running to do a lot of new condo now,” said JDS Development Group’s Michael Stern, who argued the slowdown will clear the runway for new units to sell.
Others note that it’s a mixed bag for existing inventory, based on quality and price. “I think we are in a fragmented market, and all projects are not created equally.” said Robin Schneiderman, business development director for Halstead’s new development division. “While there are challenging spots, there are also spots that continue to perform very well.”
The decade’s boom-to-bust trajectory has taken a professional toll on many in the industry — and a personal one. Perhaps few have felt it more than Joseph Beninati. The Bronx-born developer burst onto the scene in 2013 with plans for a 950-foot-tall condo tower at 3 Sutton Place. But the 113-unit project collapsed under financial pressures, including costly payments on a $147 million construction loan. A 12-unit condo project at 515 West 29th Street sponsored by the developer’s firm Bauhouse Group also collapsed into litigation.
This January, Beninati filed for personal bankruptcy in Texas, disclosing that he has $24 million in liabilities and just $900 in his checking account. He surrendered the Mercedes and Audi he had been leasing. The developer, who could not be reached for comment, now earns $1,500 a month doing acquisition work for a company named Other Side Industrial, according to filings.
Beninati’s collapse was more a result of his inexperience and missteps than the market downturn. But the risk of casualty is high across the board.
“If the U.S. goes into recession, the stock market will be down, everyone will be hurting, and that will undermine the luxury market,” said Mark Zandi, chief economist at Moody’s Analytics.
“I do think recession risks, generally, are high and will remain high because of where we are in the business cycle,” he said. “The odds are probably one in five for this year, but if you told me we had a recession sometime in the next two to three years, I would not be surprised.”
A big correction?
Last March, veteran condo developer William Zeckendorf traveled to Albany to lobby against a proposed pied-à-terre tax. While his efforts helped kill the proposal, increased mansion and transfer taxes were imposed as an alternative, hitting high-end buyers directly.
These legislative changes, which followed a federal cap on state and local tax deductions, are part of a wider political shift that has rocked the industry’s long-standing power in New York and caused tension with a younger generation of activists concerned about gentrification, corporate transparency and climate change. The shift also put pressure on a sales market already struggling with a sharp decline in foreign buyers.
It’s difficult to know which factors had the most impact — from overpricing to politics to foreign buyers, the pool is vast — but by the end of the decade, no one doubted that the market had taken a major hit. In 2019, only 935 luxury contracts — which included condos, co-ops and townhouses — were signed for a total value of $7.65 billion, the lowest dollar volume since 2012, according to Olshan Realty.
As always, there were outliers: Vornado Realty Trust’s 116-unit tower at 220 Central Park South brought in record-breaking sales following its 2015 launch, including the $238 million penthouse purchased by hedge-funder Ken Griffin last January — the most expensive home sale in U.S. history.
Farther downtown, Amazon’s Jeff Bezos dropped $80 million on three units at 212 Fifth Avenue five months later, marking the largest downtown condo deal in history.
But while news of big sales gave the appearance of continued strength in the luxury market, they often spoke more to an extinct market rather than to current conditions: Many of the prices were fixed years ago when the units went into contract.
With the sales market in flux, high-end rentals reaped some of the rewards as buyers retreated to temporary homes to wait for prices to hit bottom. “Luxury rental prices boomed at the onset of the financial crisis and then stabilized for about six years, then began to climb again in 2019,” Miller said. In the last quarter of 2019, they hit a median price of $9,000 — the highest in 10 years.
Of course, in the world of big money, big stakes and big egos, real estate is an inherently risky business, and some brokers insist the narrative of doom is overstated. Volatility is par the course, they say, and New York will always be seen as an attractive place to buy.
“I think it’s easy to jump on the bandwagon and say how bad the market is,” said Douglas Elliman’s Richard Steinberg, who noted that, while 2019 was a particularly difficult year, his team saw a 50 percent increase in sales in the fourth quarter, and he was positive going into 2020.
He said the uptick showed that developers and sellers were slowly accepting that prices had to come down.
The last big drop in luxury pricing came at the onset of the financial crisis, Miller said. The current retreat is notably longer; prices peaked in 2016 and continued to fall through the end of last year. While there may be another price correction ahead, Miller said, the “heavy lifting,” by and large, is over.
Longtime Sotheby’s International agent Nikki Field said brokers themselves are jumping into the market, a vote of confidence for buyers considering their options. “My senior partner Kevin Brown bought a condo recently, and I’m buying a co-op,” she said. “When an experienced professional in the field is buying at this time, you know that we feel this is the right opportunity.”
But despite positive forecasts, the declines in recent years have undoubtedly led to collective soul searching about where things went wrong. The climate should be ideal for sales: The U.S. economy is still strong; the S&P 500 skyrocketed 30 percent last year; and interest rates are near an all-time low. Yet one-in-four new luxury condos built in New York City since 2013 were unsold as of last September, according to an analysis by StreetEasy.
The glut of inventory raises questions about whether there was ever enough demand for all the luxury units that were built and whether developers relied too heavily on all-cash foreign buyers who saw Manhattan as a safe haven for their money.
Donna Olshan, head of the boutique residential brokerage Olshan Realty, said developers should have given more thought to who was coming to the city, including the thousands of tech workers who are expected to move here in the coming years as companies, including Facebook, Google and Amazon, boost their New York operations.
“I think the developers suspend reality — if they can raise the money to build a project, they do,” she said. “They’re like Broadway producers. They always think they have a hit.”
One57 for all
When the financial crisis rocked Manhattan’s luxury condo market in 2008, everything from bank lending to construction ground to a halt. But in 2014, an ambitious skyscraper rose up over Central Park, built by Gary Barnett’s Extell Development.
One57 — a record-breaking, 75-story structure with a facade of silver and blue squares — cemented Barnett’s place as a pioneer, pushing prices higher and ushering in an ultra-competitive era of luxury real estate.
“It was the great project at the time,” said Charlie Attias, a broker at Compass who’s been selling condos in Manhattan for nearly two decades. “There was nothing else.”
But 10 years into the country’s longest economic expansion and one of the city’s most dramatic real estate cycles, Barnett — like dozens of other high-profile developers — is struggling to sell.
Extell’s One Manhattan Square, the biggest project on the market with 815 units, has sold just 223 apartments with another 39 in contract, according to TRD’s analysis of data provided by Nancy Packes.
At One57, resale prices have reflected the market’s decline. Last year retail heir David Lowy sold his three-bedroom unit at the tower for $19 million, about 32 percent less than what he paid in 2015. It was the largest resale loss of 2019.
Extell declined to comment for this story. But in an interview with this publication last December, Barnett said the city’s unpredictability has led his firm to look more outside New York and move further into rentals.
“We don’t have the velocity we’d like to see, but we are signing deals,” Barnett said of Extell’s Billionaires’ Row projects. “We are chipping away at the inventory. There’s less inventory at that super high level. There are also fewer buyers.”
He expressed confidence, however, that the Manhattan condo market would recover. For high-stakes developers, an aura of confidence can help to allay buyer nerves in a sentiment-driven climate. But some are seeing clearer results than others.
HFZ Capital’s Ziel Feldman famously paid $870 million for a full city block near the High Line — one of the priciest Manhattan land deals ever — and borrowed $1.25 billion — one of the largest construction loans of the cycle — to build his firm’s two twisting towers at 76 11th Avenue. Sales officially launched at the building in September 2018.
The developer is targeting a total sellout of $2 billion. But while New Zealand billionaire Graeme Hart reportedly went into contract for a $34 million penthouse at the building last June, there have been no recorded sales on XI’s 236 condo units to date, Packes’ data showed. HFZ declined to comment.
For now, the Related Companies appears to be leading the pack at its 15 Hudson Yards development, where 171 of the 285 units are sold, and 10 are in contract, according to the firm.
On the other end, Aby Rosen’s RFR Holding and Chinese firm Vanke have started to slash prices at its 94-unit, 63-story condo at 100 East 53rd Street, where just 23 of the property’s units had closed as of December 2019, according to public filings. The developers took on huge debt for the project, including $360 million from the Industrial and Commercial Bank of China.
“I don’t think there’s a single new development building that has not come under pressure from banks,” Leonard Steinberg, the Compass agent directing sales, told TRD in December. “But it’s not like there’s a gun to our heads.” RFR declined to comment.
Olshan said players who are being squeezed will need to renegotiate their debt, noting that every developer has a different relationship with their backers. “Obviously, if they’re not selling, they have to placate their equity partners,” she noted.
“Some of them will stay forever and hang in there. Others won’t.”
Money matters
In Downtown Manhattan, on the border of Chinatown, Extell’s One Manhattan Square stands as a symbol of boom-era goals and market realities.
Since sales launched in 2015 — the first push targeting buyers in China, Malaysia and Singapore — the developer has introduced an array of concessions to spur deals, offering to waive common charges for up to 10 years and even launching a rent-to-own program that allows residents to try before they buy.
The program has also been rolled out at two Downtown properties owned by Ben Shaoul’s Magnum Real Estate Group.
Jordan Brill, a partner at the firm, said the plan made sense in an uncertain market fraught with psychological barriers. “Product’s moving very slow because people are being extra cautious and want to make sure they make a sound investment amidst this relative state of paralysis,” he said.
Shaun Pappas, a real estate attorney who works with Magnum, said he has been contacted by smaller developers about whether rent-to-own would work for them. One of his clients, Italian-born developer Stefano Farsura, said he was considering it for his 14-unit condo on 139 East 23rd Street. Sales launched in January, and all units are asking below $4 million. “We decided to stay flexible and see how the market reacts,” he said.
The developer, who filed plans for his project in 2019, said he had changed course as he watched the market struggle. First, he scrapped a penthouse with a rooftop garden — an “ego apartment,” he called it — in favor of making the units more uniform in price and converting the rooftop into a communal space with open-air seating and a barbeque. His next step was to push sales back to when the project was all but complete, a trend that is becoming more common because buyers don’t have the same sense of urgency they once did and often want to see their units before signing a deal.
“We have a number of condo projects that are on the drawing board — things that we know will happen — but people are holding off putting them on the market until they are close to completion, as opposed to pre-construction marketing,” said Jay Neveloff, a partner at the law firm Kramer Levin Naftalis & Frankel.
But as concessions, incentives and even delayed sales launches become pervasive — in many cases coupled with price cuts — the line between solid strategy and marketing gimmick can narrow. In January, star Nest Seekers broker Ryan Serhant surprised some in the industry by posing behind a pile of cash for an Instagram video, in which he announced, “I’m going to offer $50,000 in cash to the first broker who brings me a deal at 196 Orchard in 2020.” (Magnum, the firm behind the Downtown project, later confirmed it was footing the bill.)
Brill said he was surprised to see a few people suggest the promotion was unethical and put the criticism down to shortsightedness. “Any broker looking to push a transaction through today is going to offer either a piece or all of that incentive to their buyer, and what would be unethical is not sharing that extra $50,000 with their buyer,” he said.
The need to lift sales is particularly pressing for developers weighed down by large amounts of debt. One luxury condo project that almost came apart because of missed loan payments and sluggish sales is 125 Greenwich. Sponsored by Davide Bizzi’s Bizzi & Partners, Howard Lorber’s New Valley, China Cindat and the Carlton Group, the building topped out last March but is plagued by litigation and has yet to be completed.
Singapore-based United Overseas Bank, which lent $195 million on the 275-unit project, moved to foreclose on the developers at the Downtown site last summer, then sold the debt to development firm BH3 Capital Partners. A separate foreclosure action by an EB-5 lender, Nick Mastroianni’s USIF, is also stalled after a planned auction did not happen last summer. And in December, a complaint was filed against the developers for skipping seven months of rent for the project’s sales office on the 84th floor of One World Trade Center.
“If you haven’t started and gotten your construction loan yet,” the Marketing Directors’ Gerringer noted, “why would you build today in a market like this when there is so much uncertainty and so much at risk?”
Despite the challenges at some big development sites, Neveloff predicted most well-backed projects would withstand the current market pressures with plenty of options for prominent sponsors to recapitalize.
But George Doerre, vice president at M&T Bank, predicted there would be fewer construction loans in 2020.
“The number of people coming forward looking for condo financing just isn’t there,” he said, noting that rent reforms had hampered condo conversions. For those projects that were initiated, Doerre added, “you have to feel really confident in their ability to sell out.”
Tall orders
JDS Development’s Stern — one of the luxury condo market’s newcomers of the last decade — has been building an ambitious 1,428-foot development at 111 West 57th Street on the backdrop of the luxury slowdown.
The 60-unit condo project, which has a projected sellout of $1.3 billion, was co-developed by Kevin Maloney’s PMG and equity investor Ambase, which was later sidelined from the project after a drawn-out legal battle over ownership stakes and missed capital calls.
But if Stern is worried about marketing 111 West 57th — the world’s skinniest skyscraper with just one unit per floor — he doesn’t show it. After launching sales in 2016, he suspended them amid the slowdown and relaunched in 2018. While the developer declined to discuss figures, he said interest has been strong, primarily from domestic buyers. The project’s first closings are expected in April, and construction is expected to wrap this year.
His project is one of the newest on Billionaires’ Row, which has become crowded since One57 was built and is known for both record sales and disappointing resales.
A recent Miller Samuel analysis of eight buildings in the area found that close to 40 percent of units remain unsold as of September 2019. (Extell’s Central Park Tower at 217 West 57th Street was not included.)
“The developers on 57th Street started building condominiums for people that barely exist in the world,” Terra Holdings owner and co-chair Kent Swig told TRD last December. “I don’t think people did their demographic homework.”
At Vornado’s 220 Central Park South — which Miller estimated to be 85 percent sold — the 116-unit building’s golden touch is soon to be tested: The first reported resale was listed this year with owner Richard Leibovitch asking $10 million more than he paid just a year ago.
Stern said that while 2019 was difficult for the industry, the slowdown in new projects was positive.
“We should see some of the older inventory absorbed, and that bodes well for moving more product in 2020 than we did in 2019,” he argued.
Future Outlook
In the past decade, 22,304 condo units were built in Manhattan, the most of any borough, according to data from Packes first reported by The New York Times.
Although the 10 biggest Manhattan condo projects on the market have hundreds of empty units among them, Miller said condos priced below $5 million were faring well. Commentators often speak about the condo market as a monolith, he said, but sales below $5 million make up 96 percent of it. That portion, he said, “is moving sideways or rising.”
Though often discounted, sales are still happening. There were 611 condos sold last year, according to CORE’s year-end report, fueled in part by the pre-mansion-tax rush in June. That was a slight uptick from 605 the previous year but down from 840 sales in 2017 and 883 in 2016.
Many luxury brokers are still optimistic about the year ahead, while reserving caution about the potential effects of the federal election. An analysis for TRD by Jonathan Miller of co-op sales between 2008 and 2019 shows this concern is warranted: Sales in presidential election years dropped 12.7 percent between June and October and peaked again in November and December.
Global volatility, which brokers say has wreaked havoc on the sales market in the past few years, will not slow any time soon. The impeachment trial, unrest in Iran and mounting concern over climate change all play into buyer sentiment.
“The biggest concern, for me, is the pied-à-terre tax,” Elliman broker Frances Katzen said. “I think if that goes into effect — excuse my language — we’re fucked because we are heavily reliant on that investor component to diversify and absorb a big chunk of what’s being built.”
Many in the industry argue that well-priced inventory will continue to sell, though disagreement persists about what pricing is realistic. “Part of the condo story is, What is the good inventory and the bad inventory?” said Stephen Kliegerman, president of Halstead Property Development Marketing. “At some point, when do we not count them as inventory anymore when they’ve been on the market for so long?”
Neveloff is confident developers can navigate the uneven terrain. “I don’t expect to see many foreclosures,” he said. “I certainly don’t expect to see many bankruptcies.”
Morrison & Foerster’s Delson differed. “My guess is we’re going to start to see foreclosures,” he said, noting that the process usually takes about two years.
Outside Manhattan, other boroughs are also showing growth, and Brooklyn has been transformed with new development in the past decade. “New York is a bifurcated market,” said Compass’ Elizabeth Ann Stribling-Kivlan. Despite industry fears of a recession, she has seen much worse.
“In the 1990s, you couldn’t give apartments away,” she said. “We aren’t in a situation like that.”
Source: The Real Deal
We are thrilled to announce our litigation department’s successful representation of a sponsor-developer that brought suit against a defaulted purchaser, who claimed his default was justified because of construction delays that amounted to six months beyond sponsor’s anticipated closing projection. Although not entitled to terminate the purchase under the offering plan or purchase agreement, the defendant-purchaser failed to appear at the closing and consummate the sale. Defendant-purchaser claimed that sponsor had materially misrepresented the timing for the closing, which led him to forego exercising a right of rescission provided to all purchasers that had since come and gone. Our firm filed and won summary judgment in its entirety, permitting the sponsor to retain the full deposit as liquidated damages as well as pursue reimbursement of all attorneys’ fees, costs, and expenses.
In granting summary judgment, the Court determined that sponsor met its initial burden of proof and that defendant-purchaser was unable to establish the existence of a triable issue of fact that would excuse his failure to close. In particular, the Court found that defendant-purchaser not only failed to establish the requisite “knowingly false” (a/k/a scienter) statement on the part of sponsor, but also that defendant was unable to establish any material misrepresentations or justifiable reliance.
This decision is an achievement for all developers as we are unfortunately in a time in which many purchasers will threaten litigation as a tactic to force settlement regardless of the quality of their claims. The decision underscores that the obligation to abide by the terms of the offering plan and purchase agreement flow not only to the sponsor, but also to each individual purchaser who purchases thereunder, and it serves to refute and deter unsubstantiated claims by a purchaser who ultimately had no legal right to avoid closing and cancel the contract.
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