Strategy: Investing in pre-construction new development
Posted by Wei Min Tan on April 19, 2023
Investing in pre-construction in Manhattan refers to buying based on plans and renderings, before a property is completed. This is also commonly referred to as buying off-plan property. Often, developers start selling 2 years in advance of anticipated completion date. New developments can be either:
(i) Ground-Up Construction, where the whole building is brand new.
(ii) Conversion, which means the building is existing/prewar and the developer is converting only the interior.
Buyer client booked this unit at 110 Charlton Street and waited 2 years to completion. Located opposite Google’s downtown headquarters which can be seen from the picture above. Always rented at premium rents.
Contact: tan@castle-avenue.com
Read about Wei Min’s style in Best Manhattan property agents and Role of a buyer’s broker.
Advantage of New Development
The advantage to the buyer, who is buying based on floor plans and viewing finishes at the sales office, is the pre-construction discount. Booking a unit typically requires 10 to 25 percent of the property price. The balance is due at closing, which is also when the property is completed, during which time prices would have increased as well.
New developments have the best amenities which are very attractive to tenants. This strategy works well for all client categories – those who want to rent out, use as vacation home or simply park funds.
The Risk
The risk is that, if there’s a recession and the project stalls, the buyer’s 10 to 25 percent booking down payment will be tied up until a settlement occurs.
In addition, new developments may have issues with quality of construction. For example, leakage problems, heating/air conditioning problems which buyers find out after moving in. With a Resale, the issues are already known since the building has been operating for years. With new development, the issues are yet to be known.
Weimin’s article, Buying New vs Resale in Manhattan.
Our Process With Clients
New developments are either luxury or ultra luxury. The selection process is similar, where we will recommend 3-5 projects based on the client’s objective and based on appreciation potential. We look for appreciation drivers in the neighborhood, where is rental demand coming from, whether rental yield meets expectations etc.
At the apartment level, it gets confusing because there are so many units to choose from. We will advise based on layout, floor, exposure and what the market wants.
Our value is in helping buyer clients identify the right property to buy based on objectives. The property inventory is public information in New York through websites like streeteasy.com. We will manage the entire buying process and after closing, rent out the apartment for clients. That is when the buying process ends.
Deal Examples
1) 212 W 72 Street. Building was being converted from rental to condo. Excellent location across the 72nd Street subway station and above Trader Joe’s.
2) The Sutton by Toll Brothers. Amazing interior details and reservation deposit was 10 percent, maximizing leverage to buyers. Represented multiple buyers, investment and self use, at the $2 million price point.
3) Halcyon in Midtown East. Great location close to subway and United Nations, demanding premium rents. Transacted deals between $1.7 million to $5 million.
This article was updated April 19, 2023
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