New Property Projects in Manhattan, How We Pick Winners
Posted by Wei Min Tan on May 11, 2020
New launch property projects in Manhattan is a strategy we focus on for investor clients from all over the world. Foreign clients are overloaded with information of Manhattan new property projects on multiple fronts.
New property projects are being marketed to foreign buyers at their home countries, and over Facebook/Instagram. When a foreigner searches for property projects online, there are way too many options, all with beautiful photos. This makes the decision process even more confusing for the investor. An investor should never make decisions based on beautiful photos online. Investing in a new launch condo has pros and cons and it is important to understand all before committing as property is not a liquid asset.
If you are a foreign buyer, just go to streeteasy.com, Manhattan’s main residential property website, and you will see an abundance of new condo projects for sale. All marketing material show upsides of the respective property projects. None will ever mention risks and downsides of buying a new launch, except in the legal documents. When representing buyers on a new property project, the below are a few things we look at to determine whether a new launch is a good investment.
Weimin’s article, How to buy new launch property in Manhattan
Demand for the condo/product type in the area?
The new project needs to cater to existing demand. For example, if an area already has 5 new development projects and all are having a hard time selling, having another one will just make matters worse. But if an area has strong demand and not enough inventory to supply such demand, then we can forecast the new project will sell well.
Demand can be divided into buying demand and rental demand. Strong rental demand does not mean there’s strong buying demand and vice versa. Even within buying demand it can be further divided, eg into demand by apartment sizes. For example, certain areas may have high demand for three bedrooms above 2,000 square feet because existing three bedroom supply are all between 1,600 to 2,000 square feet.
Read Weimin’s article, Investing in a Manhattan property to rent out
Deal Example: 959 First Avenue, The Sutton. Represented multiple buyers at the $2 million price point at this Toll Brothers’ development. Buyers reserved at pre-construction stage with only 10 percent deposit. Upon completion, rented out to high quality tenants immediately. Close to United Nations, Citigroup Center, Blackstone, Blackrock. We anticipated demand for a luxury product by high income tenants in First Avenue, Turtle Bay area.
Weimin’s article, Foreigner buying Manhattan property, the 8 questions that matter
Price of the property project
Do not assume lower priced offerings will have more interest. It depends on what the buyer or eventual renter wants. Quality will be commensurate with price. Lower priced offerings won’t have top of the line appliances, higher ceilings, better amenities etc. Higher priced new projects should have higher quality interiors and finishings. Some may not, and this will affect the sales of the project.
For example, the investor buyer intends to rent out the property after closing. If the new property project is asking $3,000 per square foot, the forecast rental rate may be $100 to $130 per square foot. Renters paying $100 per square foot for renting a residential condo will have high expectations – higher ceilings, top of the line appliances etc. Commensurately, if an investor wants to get into a more mass market price point, we need to make sure the demand is there.
Competition from rental buildings
If the new project’s quality is average and there are multiple rental buildings in the area offering a superior product and the same rental rate, then it doesn’t make sense. This because when renting in a rental building, the tenant does not need to pay broker or board package fees. When renting in a condo, the tenant pays broker and board package fees. The reason a tenant rents at a condo is the better quality interiors and finishes compared to a rental building.
Rental buildings are usually owned by REITs where all apartments are for rent. A condo is an individually owned apartment. Investors buying at a new launch property project are buying individual condo units. Matching property with what the market expects for a given price point is crucial in making sure the buy is a good investment.
Deal Example: 111 Murray Street. Located opposite Goldman Sachs headquarters. Tribeca’s latest luxury new development with amazing amenities. We got the smallest size apartment available, anticipating stronger demand in this price point. This studio is 755 square feet, larger than most one bedrooms, hence targeting one bedroom tenants who definitely would want to live in the most luxurious Tribeca building.
Wow factor refers to amenities that impress. A Turkish hammam is a wow factor. 40,000 square feet of amenities including a rock climbing wall is a wow factor. Day-to-day, these wow factors are seldom used by residents. They serve to impress during the showing and influence the “I’ll take it” decision. Wow factors are incredibly important because ultimately what we want is the eventual “I’ll take it,” whether it’s at the resale or at the renting out, right?
Of course, a wow factor comes with a wow price as well. Hence the decision becomes whether the wow factor is worth the price.
Location of the new property project
Location of the new project has to have a driver. For example, buying in an area Google is moving into is a good decision because we know there will be demand coming from 7,000 new Google employees. Buying on Fifth Avenue or Times Square may not be so good because I don’t think local New Yorkers like waking up and walking into throngs of tourists every day.
Most foreigners only know locations like Fifth Avenue, Times Square, Central Park. As such, they want to get property in these areas, thinking these are the prime areas where their property value will be safe.
Ask a local New Yorker, whether they want to live in Times Square.
Deal example: 99 John Street, apartment with 500 square feet terrace. Buyer reserved at pre-construction at favorable pricing. Having a terrace is a rare luxury in Manhattan, and this terrace is a massive 500 square feet. Location is between World Trade Center and South Street Seaport, both top destinations. We sold the apartment a few years later and had the highest price per square foot for a sale. The second photo is of the terrace.
In a nutshell
The most common question I get from new clients is, “What’s the best area in Manhattan for investment?” Answer is always, “It depends.” The buy decision is based on price point, long term objectives and risk tolerance. If buying property were so easy, then people can just buy with a click of the mouse from a computer, like buying stocks.
Buying property is a complex process and there are a lot of factors involved. This is the biggest differentiator between buying property vs stocks, and why the latter is volatile while the former is stable.
What We Do
We focus on global investors buying Manhattan condos for portfolio diversification and long term return-on-investment.
1) Identify the right buy based on objectives
2) Manage the buy process
3) Rent out the property
4) Manage tenants
5) Market the property at the eventual sale
Article updated May 11, 2020