NYC Housing Taking a Hit

NYC Housing Taking a Hit
The ecconomic slowdown has turned a vibrant real estate market into a developers nightmare.

Slim A 40 story luxury condominium building in Downtown Brooklyn had a seemingly promising future although it was still under construction, but that was two years ago. The real estate market has drastically changed since 2007, and what was once considered to be the next hotspot amongst New York condos now sits virtually empty.

This 300 home building is just one amongst countless others in New York, which were being built a few years ago with virtually no end in sight. However, as the economy rapidly worsens, many of these condos in what was once a prime real estate location are having a very difficult time filling the units with residents. New York City government officials and real estate professionals agree that the market is in serious distress. Uncompleted projects sit "on hold" in many neighborhoods as their stagnant presence has become a nuisance for nearby residents.

As the condo market began to taper off in mid 2007, those who were overseeing projects that were already underway remained optimistic, thinking that this would prevent so many new projects from beginning thus leaving them with less competition. However, as the market continued to worsen since then, its effects spread to buyers- or lack thereof. This has left many projects uncompleted due to lack of funding and the inability to obtain necessary loans.

Unfortunately, outlooks on the near future of the local economy do not appear very positive. Tens of thousands of individuals who live in the city now find themselves unemployed or earning much less than they did a few years ago. Because of this, many decide to leave the city and return to where they were originally from. This means that more and more residential real estate properties would become vacant with no buyers in sight. Some expect another 15-20 percent drop in real estate value before the conclusion of this year.
 
Of course, real estate developers are doing their best to project a more optimistic future.

Don Capoccia, the developer of Toren Condos in Downtown Brooklyn has reported that his biggest challenge is getting prospective buyers to sign a contract. Buyers are taking their time comparing properties and weighing their options before settling down. However, Capoccia says that he has signed multiple contracts since the beginning of this year and that local real estate costs have not taken as much of a hit as other area markets, as units in the Toren Condos have been averaging $750 to $775 per square foot. He remains confident that his units will sell.

Although adding as many luxury and unique amenities as was possible a few years ago was mainstream, the market is swaying more towards affordability than anything else. Instead of searching for a property with all the "bells and whistles", buyers are now keeping an eye out on the best deal possible.

Because projects that were already underway are running into dead ends, those that have yet to break ground are facing an even greater hardship.

Billionaire developer and mayoral candidate John Catsimatidis had a supermarket torn down on a parcel of land he owns in 2006 to make way for a gigantic project that was to include almost 1.5 million square feet of new development, including 200 affordable and 600 luxury condos. Now, three years later, the land sits vacant and nothing has yet to been built. Catsimatidis has been forced to considerably scale down his original plans which totaled a $500 million project composed of four to five large and one small building to a much smaller project with just the one smaller building in the works.

Banks are much more hesitant to hand out construction loans, requiring developers to put up more cash guarantees and take on an equal risk in the project. This alone has put many smaller developers out of commission.

With New York's current state of affairs, fingers start pointing as to the culprit of the problem. Many appraisers over-assessed the value of properties which contributed to overdevelopment. Developers flocked to the real estate market like a gold rush, never anticipating the economic crash that has been seen in recent years.

Even Mayor Michael Bloomberg has been the brunt of much debate as many residents believe that his policies leaned toward the benefit of developers. Critics state that he enabled the selling of residential properties for the sole purpose of generating an immediate revenue although many buyers were potentially unable to afford such high-end purchases, which has trickled down to disrupt and displace residential communities and residents.

Whether the local economic hardships are the result of one source or that of many, it is clear that New York City is feeling its effects. Proposed budget cuts and tax increases are already in the works to counteract the city's deficit. Property transfer and mortgage reporting taxes have also plummeted. Revenue from these taxes depends exclusively on property sales. With a bulk of what was once units to sell transformed into rental property, revenue from these taxes will be permanently lost since these properties will no longer be sold.

Because the most effective use of unsold properties is to convert them into rental properties, City Council Speaker Christine Quinn has put forth a proposal that aims to help in converting thousands of vacant condo units in the city to affordable housing. This will allow middle income residents a place to buy or rent that falls within their price range. The proposal states that individual developers could have the option to negotiate with the city to create a better circumstance for the developers, the city and its residents. The proposal still has a long way to go before anything is set in stone. Some feel that if the city intervenes, the economy could take an even deeper dive because it will make things appear worse than they really are.

In any event, although the city now finds themselves in the middle of an economic hardship in the real estate market, most have no doubt that it will fully recover. The real question is not so much if it will recover, but when.