As housing prices around the country began to tumble about three years ago, the New York market kept rising, and only in the last year did it begin to show some weakness.
But now sales in the city have slowed so significantly that worried developers are planning to auction off some luxury condos in the spring for around half of what they were asking just a year ago.
Developers who are awash in unsold inventory see auctions as a tactic to jolt a paralyzed public to life.
A two-bedroom on the Upper East Side, for example, could be marked down to $1.1 million from $2.2 million.
Real estate professionals say Wall Street’s continued prosperity through much of 2008 shielded New York from the forces that were pushing the rest of the nation’s housing market down.
But today, with the credit crisis and the Wall Street meltdown, fewer people are able to buy homes. With the economic crisis spreading worldwide, there also seem to be fewer wealthy foreigners buying Manhattan condos.
Real estate auctions, rarely used in New York, have the potential to both move property and indicate to reluctant buyers what the true market prices are. Given the current sales drought, even a handful of auctions could reset prices for new condominiums citywide, said Jonathan J. Miller, the president of Miller Samuel, a Manhattan research and appraisal company. He said he expects the auctioned properties to sell for 40 to 45 percent below the asking prices of the first quarter of 2008, when the market peaked.
Today, almost every signpost is bleak for new developments. Buyers who signed contracts long before condo projects were completed are expected to walk away in droves this coming quarter. In many cases, these buyers will be abandoning deposits of $100,000 or more that pale in comparison to the slide in market values. Many buyers may have lost jobs, or may be worried about their jobs, while others will be unable to get financing.
Accelerated Marketing Partners, a real estate marketing firm, is discussing auctions that will start as early as April on five mid-range to high-end projects in desirable neighborhoods of Manhattan and Brooklyn. “We’re in a deflationary, devaluating market in which no one knows the value of anything anymore,” said Jon Gollinger, the co-founder and chief executive of the firm, based in Boston.
There are 8,000 new condos on the market in New York City, and 22,000 more are scheduled to go on the market by the end of next year. “You’ve got all this inventory that’s been based on this young financial buyer and international buyers,” Mr. Gollinger said, but those buyers have been hard hit by Wall Street’s collapse.
Most developers declined to discuss the subject. But one lender, who asked not to be identified because his plans are not final, said he intends to hire Accelerated to auction a large group of units in April. “We have quite a large investment in a new condo building in a good location downtown,” he said, but sales have been “very, very slow.”
With just under 50 units, the building is currently priced around $1,000 per square foot. Minimum bids will probably be set at around $600 per square foot, the lender said.
Henry Justin, a developer who has 48 units left to sell in a 73-unit Midtown building, said sales hit a wall in December. “All the deals I’m doing are all-cash, mostly from foreign buyers, because only people with a private banking relationship can get any money out of a bank right now,” he said. Mr. Justin doubts that lower prices will sell many units because so many buyers cannot obtain mortgages.
Accelerated, the auctioneer, has been working with the development marketing group at Prudential Douglas Elliman. Andy Gerringer, the group’s managing director, said he has urged clients to consider auctions, because many of them are selling only one or two units a month, if any.
In the auctions run by Accelerated, only a portion of a building’s unsold units are sold in one swoop, to avoid depressing values more than necessary. The remainder are marketed the traditional way, at the new, lower auction prices.
Auctions of unsold New York City condos in a wider range of quality and locations are also anticipated in May by the national auctioneer Sheldon Good & Company. This week, the company announced a deal to auction all 17 units of a completely unsold new condominium building in Weehawken, N.J.
“Large amounts of inventory will be offered at aggressively low or no minimum bids,” said Jeffrey L. Hubbard, an executive managing director at Sheldon Good.
Auctioneers say inquiries from developers rose in early January. “The general impression I get is that this period of denial — the market-will-get-better mentality — is coming to a close,” said Mr. Miller, the appraiser, who will likely be working with Accelerated to determine the market value of units put up for auction. “The reality that everyone is coming to grips with is that demand levels will remain lower until liquidity is returned to the mortgage markets.”
Auctions have succeeded in loosening other battered markets, like South Florida. In two held there last fall by Accelerated, 30 to 40 units in partly sold developments went for about half their peak prices. The developers say sales have picked up since then, at prices slightly below those received at auction.
Auctions have not been used in New York in any significant way since the early 1990s, when an oversupply of rental-to-co-op conversions collided with a recession and double-digit interest rates.
While many developers resist auctions, investors are pushing for quicker sales. “Auctions will hit New York City because of pressure from the underlying lender,” said John Di Fiore, the senior vice president at Real Estate Capital Partners, which runs a fund that invested in two Manhattan condo developments.
The reduced asking prices could bring condos in line with prices seen just a few years ago. The average sales price of a two-bedroom Upper East Side condo was just above $1 million in 2002. It rose to $1.5 million in 2004, and to $2.2 million at its peak in 2008.
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