Bulk condo buying strategies evolve over the life cycle of a new condo development. As the developer sells more units, they face different incentives when it comes to negotiating with buyers.
In this article, we outline the benefits for bulk buyers and condo developers at each of the major stages of a condo project’s life cycle. Every milestone provides a new opportunity for deal making.
Before offering declared effective (0-15%)
A condo declaration can be recorded when the sponsor has sold 15% of the units. Before this milestone, the risk is the highest, and the buyer can likely get the highest discount possible.
The risk for the buyer is high at this point because the developer can walk away from the project before the offering is effective (Ex. go rental). After that, jumping ship becomes much harder for the developer. In addition, sponsors want to meet this milestone because it signals the success of their project to the market. In turn, more buyers and lenders are likely to embrace the project. That boosts the chances of its overall success.
Therefore, buying at this critical early moment can be a win-win for the seller and buyer. It means lower prices for the buyer and kick-starting the project for the seller.
Check out Marketproof New Development for the most information anywhere on NYC condos. Contact us to learn about our advisory services, including private off-market introductions to buyers and sellers.
Portfolio lending (35%)
Before an offering plan is declared effective, most lenders will not back a new development. Risk is high, and federal agencies will not guarantee loans at this stage. Thus, there’s still a very high incentive for the sponsor to offload units.
For most banks, when the sponsor sells 35% of units, the portfolio lending stage begins. Portfolio lending means banks give out loans to buyers but hold onto them. In other words, lenders do not pawn their loans off on Fannie Mae or other federal insurers.
Consequently, 35% is a milestone for sponsors, but it’s still not the sweet spot for finding new buyers. This means buyers may still be in a good position to negotiate prices down at this stage.
Fannie Mae eligibility (50%)
When the sponsor sells 50% of the units, their confidence in the project may increase considerably. That is because, at 50%, Fannie Mae will buy mortgage loans, taking them off lenders’ hands. In turn, lenders are more willing to hand out mortgages to new development buyers.
But this does not mean there is no opportunity at this stage for bulk condo buying. On the contrary, this is when developers will typically open their doors to investors. Bulk condo buyers can quickly push a project from the halfway point toward the finish line. And at the 50% mark, developers gain Fannie Mae eligibility and do not need to be worried about investors buying up more than 50% of the project, assuming the developer has mostly avoided investors until the midway point.
Also, market conditions can slow sales — and many projects could use a boost. So, for this and other reasons, there is still plenty of opportunity for bulk buyers to strike a deal after the sponsor has sold 50% of the units.
Once the sponsor has sold 80% of units, those remaining are typically less desirable. They may not have great views, be next to the gym or playroom, or just have less desirable floor plans.
Thus, all other things being equal, the opportunity for bulk condo buying rises a bit at this point. Bulk buyers can help a sponsor get their project to the finish line.
Sponsor wrap-up (90-100%)
This is when the sponsor aims to sell out their last few units. Obviously, the prospect of a bulk buyer closing out the project has its appeal.
Sometimes, the sponsor will hold onto apartments for rentals. But other times, they want to move on. Enter the bulk condo buyer.
Who participates in bulk condo buying?
Often, bulk condo buyers are hedge funds or private equity funds. But they may also be family offices or individuals. They could even be groups of people who pool their resources.
Getting started with Marketproof
Check out Marketproof New Development for the most information anywhere on NYC condos. Contact us to learn about our advisory services, including private off-market introductions to bulk buyers and condo sponsors.