Strategy: Investing in pre-construction new development

Posted by Wei Min Tan on March 3, 2019

Investing in pre-construction in Manhattan refers to buying based on plans and renderings, before a property has been completed. Often developers start selling 1-2 years in advance of anticipated completion date. New developments can be either:

 

(i) Ground-Up Construction, where the whole building is brand new

 

(ii) Conversion, which means the building is existing/prewar and the developer is converting only the interior

 

New development with high ceilings in Midtown

 

 

Contact:  tan@castle-avenue.com

 

 

Advantage of New Development

The advantage to the buyer, who is buying based on floor plans and viewing finishes at the sales office, is the pre-construction discount. Booking a unit typically requires 10 to 25 percent of the property price. The balance is due at closing which is also when the property is completed, during which time prices would have increased as well.

 

New developments have the best amenities which are very attractive to tenants. This strategy works well for all client categories – those who want to rent out, use as vacation home or simply park funds.

 

 

The Risk

The risk is that, if there’s a recession and the project stalls, the buyer’s 10 to 25 percent booking down payment would be tied up until a settlement occurs.

 

In addition, new developments may have issues with quality of construction, eg leakage problems, heating/air conditioning problems etc which buyers would find out after moving in.  With a Resale, the issues are already known since the building has been operating for years.  With new development, the issues are yet to be known.

 

 

Our Process With Clients

New developments are either luxury or ultra luxury. The selection process is similar, where we would recommend 3-5 projects based on the client’s objective and based on appreciation potential. We look for appreciation drivers in the neighborhood, where is rental demand coming from, whether rental yield meets expectations etc.

 

At the apartment level, it may get confusing because there are so many units to choose from. We would advise based on layout, floor, exposure and what the market wants.

 

Our value is in helping buyer clients identify the right property to buy based on objectives.  The property inventory is public information in New York through websites like streeteasy.com.  We would manage the entire buying process and after closing, rent out the apartment for clients.  That is when the buying process ends.

 

Hopefully our client is so pleased that we get a referral.

 

 

Deal Examples

1) 111 Fulton Street.  Client purchased during recession of 2009 when prices were $800 per sqft.  Buy decision based on property being close to World Trade Center, Fulton Street subway station and South Street Seaport.  Loft style apartment with high ceilings.  Always rented out immediately.

 

 

2) The Sutton by Toll Brothers.  Amazing interior details and reservation deposit was 10 percent, maximizing leverage to buyers.  Represented multiple buyers, investment and self use, at the $2 million price point.

 

3) Halcyon in Midtown East.  Great location close to subway and United Nations, attracting top quality tenants for investor client.  Transacted deals between $1.7 million to $5 million.

 

This article was updated March 3, 2019

 

 

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Related Links:

Strategy: Investing in a full service, high demand building

Strategy: Investing in ultra luxury for above market appreciation

Foreign Buyer Guide to Manhattan property

About Wei Min

  • Focuses on investors of Manhattan condominiums, interviewed by CNBC, CNN, Wall Street Journal, New York Times
  • Ex-Citibanker, managed $500 million portfolio
  • MBA, University of Illinois at Urbana-Champaign
  • Manhattan resident since 1999. Currently lives in Tribeca with wife and 2 kids
  • 352 burpees in 23 minutes, student of muay thai kickboxing

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About Wei Min


  • Focuses on investors of Manhattan condominiums, interviewed by CNBC, CNN, Wall Street Journal, New York Times
  • Ex-Citibanker, managed $500 million portfolio
  • MBA, University of Illinois at Urbana-Champaign
  • Manhattan resident since 1999. Currently lives in Tribeca with wife and 2 kids
  • 352 burpees in 23 minutes, student of muay thai kickboxing

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