Been hearing a lot about the NYC Luxury condo market, new articles saying there is currently a 6 year supply if they stopped building today. Just wondering if any of you guys worked on these deals, or know who is funding them and how they are doing.
I have seen some crazy plans here in LA for condos getting approved like This one, and it feels like a lot of these developers should be getting wrecked. Pretty curious about whats going to happen, seems like a lot of Luxury Class A apartments are trending the same way, like the $10-25K per month apartments that keep getting built.
On my end I have worked for companies that own a few ultra luxury buildings, and also some that are just like really nice think $6-9k mo/rent. These "lower end" Luxury buildings have had pricing that is just through the roof in BOVs and Lender Valuations but no real distributions outside of Capital events. The Ultra Luxury seems to meet DS but thats about it, with business plans to improve, and mainly capital calls trying to get out from a sinking ship, with weird accounting practices to help get more loan proceeds/Cash in Refis.
Wonder if anyone has seen any interesting solutions in the market for these buildings. I have a feeling this one of those things where the writing is on the wall but until there is a slow down we wont really see how badly these guys are hurting.
I get that unique financing options are available to developers, but to what end? Many act like the $3000+ / sf market went away and will come back, when in reality we're seeing that it was never really there.
"Normal" people want to pay $1200-1600 / sf for a decent home with good schools nearby, and UHNWIs are willing to pay $7000-10000 / sf for a trophy home. Who's going to buy all the unremarkable stuff in between?
I think Extell's One Manhattan Square is a good example--421a until 2039, but $2500 / sf to live in a food desert? 815 units, 20% sold (as of Aug so perhaps more like 25-30% now), and they're trying a rent-to-own option where if you purchase your unit within the lease term the credit your paid rent toward the purchase. Clever, but how do less sophisticated developers justify doing anything nowadays?
https://streeteasy.com/building/one-manhattan-square
https://ny.curbed.com/2019/9/26/20884997/extell-one-manhattan-square-sa…
If you're asking who's buying this stuff theres plenty of info on that, its not like this is a new market. By now you should kno people don't "live" in these buildings, if you're buying at 157 its probably you probably have 6 other "homes"
But to nit pick your numbers are a bit off. 1,200 PSF are 2br/1ba 1960's coops you can buy for 1.2MM-1.5MM, a couple making 300K a year can afford that. Those are "middle class" (in terms of manhattan) homes. Theres plenty of space 2,500 psf + in my opinion, you think greenwich lane condo's are "unremarkable"?
I digress as OP wasn't asking about the 3K psf units but the ultra luxury going up on billionaires row and why people are still building them. We know that space is depressed on the buy side but as long as developers still raise equity and can find decent construction loans they are still going to go up.
You missed my point, or rather you made my point. We are in agreement that the middle class purchase the 2BR as you mentioned, and the ultra wealthy purchase at Greenwich Lane. My point was that the unsold inventory is actually in the middle ($1600-7000 / sf) and that is the unremarkable stock asking a premium price.
This is what I'm curious about. Why? (Not directing that at you). Indeed this is a developer's raison d'être and they all have their profitability models, but at some point the supply will topple over on itself, no?
Equity is terrible at regulating itself. Think about a shop like Extell, they will never turn down funds to build. They are a machine now, they have 100's of employees pay, which means fees to generate. As long as they can reasonably expect to find financing for the other 80% (which is still the case) they wont turn down the first 20%. The simple fact is that most of the development market are behemoths that cant stop until someone makes them.
Same goes for most investment markets regardless of product, there's so much cash that has to be invested you sometimes just need to keep going and hope it works out. Its not like insurance companies, pensions, etc can just sit out a cycle they think its too hot, the money has to go out. Maybe you can reallocate a bit but at the end of the day the money has to be put into something that will conceivably generate return.
Which is the dirty little secret of finance, the overwhelming majority of cash is invested because it needs to be, not because its going to generate outsized returns, cash need to go out the door and today's near zero real rates generate a lot of invest-able cash.