Updated: Oct 27, 2020
An apartment combination is the stuff of lore for many New Yorkers, but if you're one of the lucky few for whom that opportunity may present itself, there are many things to consider before making the offer on your neighbor's apartment. Theoretically, combining two adjacent co-op or condo apartments requires nothing more than removing a kitchen and creating a doorway-sized opening in a wall to join the two units. However, creating an new apartment that actually feels like a home in terms of flow, functionality and durability will require a much more extensive renovation.
Before you take the plunge, it’s important to consider the costs associated with combinations, both to make sure your budget can foot the bill, but also to make sure the value of the apartment you plan to create will be worth more than the sum of its parts in a resale.
Start with your building
Confirm your building will allow a combination, and find out as much as you can about what the process will entail. Depending on your particular circumstances, it may be desirable to purchase hallway or other common space from the building.
It is also important to understand the building's rules for this type of renovation, which is usually contained in the alteration plan. Your building's fees for renovation, use of elevators, protection of hallways, and potential penalties for exceeding the scheduled timeline will all factor into your budget. Costs will also vary based on what your building will require of your renovation, for example if you must update all electrical during a renovation or when the building requires you engaged a structural engineer.
Understand the costs with a team of experienced professionals
While the costs of a renovation can range from $200-$500 a square foot, this does not begin to address the question of what is a reasonable budget for a particular combination. Vertical combinations are more expensive than adjacent, but the condition of the respective units and the final vision you have for the combination (custom features are a major driver of cost) will make a huge difference.
Apartment combinations almost always require an architect. Many architects will charge a percentage to provide full-scale service from design and drawings to construction management, but if you are on a budget, it may be possible to reach another arrangement such as hourly or a flat fee. It is most important to be upfront about your expectations on scope of work and budget when speaking to architects.
Similarly, it is important to get quotes from several contractors to get a sense of what it will cost to get the work done. At a preliminary phase, it is difficult for contractors to estimate costs without drawings or a sense of the level of finishes desired for the combination. A trusted architect may be able to help you formulate a plan and anticipate other professionals you may need to hire (an expeditor to submit plans and navigate the permitting process, asbestos abatement, structural engineering certifications, or major electrical or plumbing upgrades).
The importance of a thoughtful layout
While there are legal requirements for light and ventilation when creating or moving kitchens, bathrooms and bedrooms, other factors are important to consider when creating your new floorplan. All too often, combination apartments have odd room sizes, weird areas of “dead” or unusable space, or just seem to flow weirdly. An experienced architect or designer will be able to offer you advice on how best to configure your new space, and create a floorplan that will maximize both functionality and value of your home. Keep in mind that not every combination may result in a desirable larger home that feels like it was meant to be a single space.
Moving major systems: kitchens and bathrooms
Other than in a few specific situations, New York City only permits one kitchen per apartment. A kitchen demolition can run anywhere from $5,000 to $8,000, but it’s important to consider whether your demo requires moving plumbing or waste risers. Plumbing risers are the most expensive thing to move around. Even if one apartment has a bathroom that lines up with the other apartment’s kitchen, you won’t necessarily be able to blast through the wall to create a giant kitchen or bathroom. The risers—which begin in the basement and end at the top floor—likely serve an entire line of apartments, so buildings usually forbid moving them for safety reasons, and to avoid major disruption to other building residents. If you are allowed to shift a riser line, keep in mind that it will likely add a at least $10-20K to the cost of your renovation.
The devil is in the details
Combining apartments that are mismatched in quality (e.g. if one is in estate condition) poses additional design challenges. However, even if you’re combining two renovated apartments, blending finish work between the two will almost always require updating trim, moldings, doors and windows. Surprisingly, this finish work may be one of your largest expenses, as it will typically involve custom millwork, framing, and built-ins. High-end custom millwork, such as full height bookcases, storage cabinets or elaborate wall panels, can run you anywhere from $200 per linear foot to $800 per linear foot.
Look at the big picture
While much of our focus here has been on the costs, ultimately the goal is to create value. Speak to an experienced real estate agent to get a sense of a realistic offer on the neighboring apartment and what the resulting combination may be worth. Their guidance may even shape your renovation plans including decisions on number of bedrooms/baths that would be most desirable as well as what level of finishes are likely to be appropriate at a certain price point.
While prices and sales volume declined again in the final quarter of 2019, Q4 actually saw the lowest rate of decline since the fall of 2017. An uptick in activity in the last month of the year -- and another drop in interest rates at the start of the year -- hopefully leads to further stabilization in the first half of 2020. Our analysis is below, along with links to Compass’s Q4 Market reports for even more data and details.
A “wait and see” approach by Manhattan buyers, coupled with anxious sellers, continued to weigh down prices this fall. As a result, 2019 price figures settled to their lowest year-end levels in five years, with average price falling 10% to $1.862M and median price—less skewed by high or low prices—slipping 3% to $999K to remain below $1M for a second quarter in a row. Manhattan’s luxury market saw sales over $5M drop 41%. It's important to keep some perspective on these figures: even at the lowest point this year, prices remained nearly 15% higher than ten years ago.
While days on market continued to increase, other metrics were neutral or slightly improved relative to the prior year. Manhattan sales volume were almost even with this time last year, and prices in some product types have begun to bounce back. Inventory is lower, and mortgage rates have remained steady. We saw a 1% uptick in resale co-op sales and an 11% boost in new development sales, but overall sales figures were brought down by a 13% drop in resale condo sales. Signed contracts in the final quarter, however, were up from 2018 figures for a third consecutive quarter—improving 4% annually—suggesting that demand, after four years of declines, may finally begin to absorb supply.
In a market hungry for improvement, the last quarter’s results leave us cautiously optimistic as we enter the new decade.
Much like the first half of 2019, sales activity in the second half of the year in Brooklyn moderated compared to a very strong 2018, though prices continued to rise. Average price across the borough hit its highest figure in any fourth quarter, and median price did the same, this year hitting a record high of $800,000. While these figures only represent a marginal increase, median price per square foot increased by double-digits in the final quarter of 2019. This reflects a shift towards smaller apartments, as many buyers chose to hold firm on price by opting for smaller homes -- indicative of a greater overall price sensitivity in the market.
Properties in the $500K-1M segment made up 36% of inventory in the final quarter, but accounted for 47% of closings, and competition for these units resulted in a 2% higher average price per square foot. For properties priced in the $1-2M range, inventory outpaced closings, but price per square foot increased 6% versus 2018 because units in this price tier were also 5% smaller compared to past years. Properties priced $2M and higher made up just 6% of all recorded sales, and these units offered the largest average discount. The $3M+ segment saw a decrease in average price per square foot, as more of this inventory was made up of townhomes instead of luxury condos compared to last year.
Days on market increased for properties over $1M as Brooklyn buyers also lost some of the sense of urgency that has driven the Brooklyn market to record-fast sales in previous years. By product type, co-ops had the smallest market share but moved the quickest, with 42% of listings entering contract in the first 59 days on market. Mirroring a trend across the river in Manhattan, condos (particularly new development), which commanded the highest average price per square foot figures in the borough, were the slowest to enter contract -- just 32% entered contract in the first 59 days, while 32% took 180+ days.
Updated: Oct 27, 2020
New development is a category all its own in NYC real estate and includes both ground-up new construction and pre-war conversions (essentially new construction inside of a pre-war building shell). Everyone knows there is a cachet (and price premium) to buying brand new. What are the pros and cons of buying in a new development?
Pros of New Development
1. Floor Plans Designed for Modern Living: Naturally, new developments are designed with today’s buyer in mind: en suite master bathrooms, double vanities, walk-in closets, large open plan kitchens with high-end appliances and vented hoods. New developments tend to maximize their usable square footage by eschewing layout elements often found in their pre-war counterparts, such as long hallways, closed kitchens, and over-sized foyers.
2. Quality of Finishes: To get top-dollar, developers know they have to invest in high quality, eye catching finishes. At a certain price point, that means things like solid slab marble counters, rainfall showers, high-end appliances, solid white oak flooring, and custom cabinets and tiles.
3. Amenities: Standard amenities in new developments include central heat and air, in-unit vented washer/dryers, heated floors, “smart home” features, and premium materials and appliance suites. A larger development might also have a full-scale fitness center (perhaps with a pool), a roof-deck or other shared outdoor space, doormen and concierges, cold storage for grocery deliveries, bike and private storage, resident lounges, business centers, parking, and a host of other amenities for children and pets.
4. No Unknown Renovation Costs or Headaches: Renovating is neither cheap nor easy, and a new development represents the ultimate in a move-in ready product with the home delivered pristine condition all the way down to scuffs on the walls and dings on the floor. A buyer in a new development is paying for finishes so exploring the different options in different projects is a major part of the process, unlike in resale where many buyers focus more on the potential of the space with some updating in mind.
5. That Feeling of Being the First. Most of my clients who have bought in a new development say that the main draw for them was being the first to live in their home. Many new development buyers are repeat offenders who will trade in their home for a brand new model when it’s time to move.
Cons of New Development
1. Higher Closing Costs: Developers almost always seek to shift to the buyer certain closing costs that would ordinarily be paid by the seller in a resale. These “asks” usually include state and local transfer taxes, which come out to 1.825% of the total purchase price for over $500,000, the sponsor’s attorney fees for closing, reimbursement fees, document preparation fees, etc. Even if the buyer does a good job of negotiating who pays closing costs, the buyer will almost certainly have to contribute a couple months of common charges to build up the building’s reserves at the onset -- and possibly even a substantial fee toward a superintendent’s apartment.
2. Higher Monthly Carrying Charges: New development condos, especially in new construction, tend to have substantially higher monthly costs -- both common charges and taxes -- than their resale counterparts. The higher common charges can be attributed to the cost of maintaining amenities, but the taxes are also higher because they are assessed anew, unlike in resale or conversion projects. The taxes can also be unpredictable for those who commit to purchasing in the early stages, when the taxes are mere projections in the offering plan and have not yet been assessed.
3. Unpredictable Timeline: There is always some uncertainty about when a buyer in a new development can finally close on an apartment. And even after closing, there may be further uncertainty about when the amenities and common spaces will be completed and operational. An experienced developer may be able to minimize delays, but much is outside of their control. For example, closings might not begin until a certain number of units have entered contract and the city has completed its many rounds of inspections.
4. New Construction Concerns: While most new development sales come with a guarantee of quality for major systems and the soundness of construction for a certain period of time after completion, it is almost inevitable that there will be some minor issues in the first few years. The building will “settle” (which means, at the very least, cracks in the paint) and there will almost certainly be a leak somewhere. Of course, there are horror stories about major issues -- like pervasive water infiltration -- but these are very rare, especially at certain price points. If possible (i.e. if the building is already built and the unit is ready), we always recommend having an experienced inspector thoroughly go over the property prior to signing the contract.
5. Price: Finally, the most obvious con of buying in a new development is the price premium. Prices for new development tend to run at least 15% higher than older resale inventory, and can be much, much more -- for example, in the last quarter, new development two-bedroom condos in Manhattan traded on average about 43% higher than resale ($2.65M vs. $1.85M). While some of the astronomical price tags have been negotiated (and many quite significantly) down during the slowdown, many new development units (about a quarter) have simply sat unsold as developers have not had to rush to lure buyers in the same way individual sellers have had to do. Developers are in the business of building to make a profit, and also have additional obligations to investors and lenders that limit how negotiable they can be on prices. Ultimately, it is a personal decision whether having a shiny new place is worth the price premium, especially as today’s new construction is tomorrow’s resale.