Not since 2009 has the market offered such an attractive entry point for buying a brand-new New York City condo. According to Marketproof research, since peaking in 2018, condo prices have already retreated 20%.
Some Wall Street firms, experts in risk-based investing, have raised hundreds of millions to buy these condos in bulk. But you can get the same opportunity, even if you are buying just one condo. Coupled with today’s Covid-19 market, additional discounts of up to 20% can be had—a total of 40% below the market’s peak in 2018.
For buyers with an opportunistic mindset and undeterred of a bit of risk, 2021 potentially offers an opportunity for a NYC condo purchase that hasn’t been seen for over a decade. Marketproof research shows that if you bought a condo in Manhattan in 2009 and sold in 2018, you would have seen more than a 50% return ($890 ppsf to $1430 ppsf). To capitalize on this opportunity, there’s one must-know milestone in a condo developer’s timeline worth tapping that can help you get the deepest discounts.
Ahead, we’ll walk you through what you need to know about making the most of a developer’s first benchmark and show you how to use the Marketproof New Development tools to gain an advantage at this pivotal time in a developer’s sales process.
First, Let’s Review What A Condo Offering Plan Is
Condo Offering Plans are legal documents that lay out the terms under which a Sponsor (the building’s developer) can sell a condo. You can think of it as being similar to a prospectus for an IPO. Just as an IPO prospectus is submitted to the SEC for approval, an Offering Plan is submitted to New York State for approval or Accepted. Here’s what happens:
- A Sponsor’s attorney submits an Offering Plan to the New York State Attorney General’s office
- The plan is reviewed by an attorney at the AG
- If NY’s legal requirements are met, the plan is Accepted
Once an Offering Plan is Accepted, a Sponsor can legally begin selling the condos. This means they can sign contracts with buyers. And, of course, a building’s first buyers are the ones taking the most risk, given that the condo’s completion is further away.
The Number-One Milestone You Need to Know
One of the most important legally-driven sales milestones developers need to reach is their Offering Plan being declared “Effective.” Once this threshold is met, developers can begin to close units under contract. Since it’s their first sales benchmark, helping them reach it can potentially lead to better deals for buyers early in the sales process. An Offering Plan is declared “effective” when:
- At least 15% of the units have gone into contract with ‘bona fide purchasers‘, eg. not the sponsor’s family and business partners.
So, we’re talking about the pivotal stage between the Offering Plan being Accepted and before it is declared “Effective.” For the right buyer, this can be an ideal time to make an offer. Remember: 15% of the units in contract does not mean 15% of the value, according to Marketproof New Development research. In fact, it can be as low as 7% of the value. Why? Because the units that Sponsors typically sell first are the lower-priced units. Sponsors want to reach the Effective milestone quickly and will complete the deals needed to get there—but, they often don’t want to sell the higher-priced or premium units to achieve this goal.
Why The ‘Declared Effective’ Milestone Is So Important
Prior to the Offering Plan being Declared Effective, the sponsor has a backdoor-exit out of the project. According to Romer Debbas managing partner Pierre Debbas, before a plan is effective, the sponsor can, at its option, “abandon the project and, upon the return of deposits collected, cancel the purchase agreements.”
This would most likely happen if sales were not meeting minimum expectations or if the Sponsor was experiencing some other financial or legal difficulty jeopardizing a project’s viability.
In short, a condo reaching the Effective milestone is a signal of success to the market—and Sponsors will do what they need to do to reach it, especially in today’s market. They don’t want one of the ugly alternatives, such as handing over the building’s keys to the bank, bringing in additional partners, or pivoting to a rental building. By helping them avoid these scenarios, Developers or Sponsors are incentivized to work with you on price and other concessions—closing costs, discounted carrying charges or free storage and/or parking spaces.
Putting It into Practice
Now, we’ll walk you through how to use Marketproof New Development to search for properties under the 15% sold threshold. No other publicly available tool can help you search by sales percentage—if you’re not a subscriber, sign up for a 7-day free trial now.
Step 1: With Marketproof New Development, you can isolate the buildings in this stage of development. Using the below example, you’ll see the result contains more than 60 condo buildings in Manhattan, 70 in Brooklyn, and 25 in Queens that meet this criteria—talk about a wide opportunity set.
Step 2: After you have the buildings in your view, you can use the many filters on the website (location, size, price, etc.) to find the properties that meet your goals.
Step 3: Take action. Reach out to the property’s agent through the site to learn more, schedule a virtual showing, and begin the buying discussion. Don’t hesitate in negotiating for your best price, as well as for getting your closing costs and potentially other concessions covered in the deal.
Step 4: Recommend to your buyer they hire an attorney with new development experience, who’s particularly skilled in reviewing Offering Plans. Getting a good price is important, but having the right language in your contract is crucial. According to attorney Pierre Debbas, “the biggest protection a buyer can negotiate is a drop-dead date for the Sponsor’s ability to convey title to their specific apartment. During an economic downturn, construction is almost always delayed and buyers would want the protections of having a drop-dead date and not being subjected to the risks of prolonged delays.”
Get Started Now
With Marketproof New Development you can easily search both publicly listed properties and unlisted off-market properties not available on popular listing sites. Marketproof can increase the inventory you see by 9-10x what you may see on other sites. Create an account today and get a 7-day free trial. After your free trial, it’s only $14.99 per month for access to Marketproof New Development’s listings, exclusive tools, content, and community.
Top photo: 130 William Street