Pros and Cons of New Property Launches in Manhattan
Posted by Wei Min Tan on August 17, 2020
Investor buyers can buy into new property launches in Manhattan, New York and as with any investment, there are pros and cons. Buying into new launches means visiting the sales office and reviewing material and floor plans before the building is completed. Buyer puts down a reservation deposit and the balance is paid when the project is completed, usually in 1.5 or two years.
The vast majority of property transactions are Resale, which means buying from the current owner. While there are new launches, the supply relative to overall property inventory is quite small. This is because Manhattan is totally built up and there is limited available land for developers to launch new buildings.
New launches can happen when a developer buys up a parking lot, accumulates air rights over many years from neighboring landlords and then plans a new project. It’s a process that takes years or even decades before the marketing activities even starts.
Pros of New Launches
Discount: The price of a new launch condominium, when the building is at pre-construction stage, is usually at a discount to the finished property. For example, a buyer may book a condominium at $2,500,000 and in 2 years at closing, the price would have increased by 10 or fifteen percent. The discount is associated with the risk a buyer is taking.
Small reservation deposit: The buyer only puts down 20 percent to book a property. Balance is only due at closing. The buyer does not pay progressively during construction like in many countries. This booking deposit is put in the developer’s lawyer’s escrow account which the developer also cannot touch until closing. Hence the developer’s incentive is to complete the project as soon as possible because the developer is not paid until the closing happens.
Facilities: New condominium launches have the best amenities. For example, a fancy resident’s lounge, roofdeck, fitness center, and sometimes swimming pool. This commands a premium when renting out to tenants.
There are Cons too…
More Expensive: New launches are more expensive than resales. This is because, due to inflation, whatever built most recently would have the highest associated costs. Labor and material are more expensive in 2019 than in 2000. New launches currently average $2500 per square foot, while a resale could be at $1,500 per square foot.
Uncertainty: New owners face uncertainty associated with when the building will be completed (it’s always delayed), when all facilities will be done etc. Since this is a new building, it’s not yet in stable operation. New owners may experience problems such as kitchen counter top staining too easily, finishings not done well etc.
Rental and Sale Supply After Closing: For investors who plan on renting out the apartment after closing, there will be other investors doing the same. There will be competition amongst the new owners for tenants. For those who are trying to resell their new property (flipping), there will be others doing the same as well.
Everything has pros and cons and we explain clearly to our buyer clients from the beginning. About 30 percent of our clients invest in new launches. This has to do with inventory levels, what’s a good deal at the time, and long term objectives. New launches are a great way to get into the Manhattan property market.
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
The Sutton by Tolls Brothers. Amazing interior quality (classic windows, Gaganeau appliances) and low 10 percent reservation deposit made this a good investment. Very close to United Nations, Citigroup Center, Blackstone, Blackrock . Represented multiple buyers at the $2 million price point.
Aldyn in Upper West Side. 40,000 square feet of amenities. Negotiated excellent terms during a slow market for buyer client. New York Times profiled the negotiation in Developers Cease Condo Incentives.
Halcyon 305 E 51 St. Midtown East development with floor-to-ceiling windows and swimming pool on 22nd floor. Since closing, rented at premium rents, driven by the quality, lifestyle and central location.
Article updated Aug 17, 2020
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