Pros and Cons of New Development

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.

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How are homes priced?

Whenever I meet with prospective sellers, they’re always anxious to get to the big question: “So what do you think we can get?” While location and square footage are obvious factors, similarly-sized apartments in the same area can sell for vastly different prices, and it often comes down to a handful of both physical and intangible factors. Take a look at the top five physical attributes that affect the value of a property:

Part 1: The Physical Space

1.) Layout

Almost as important as overall square footage is how that square footage is distributed within an apartment. Important layout factors that can add or detract from a home’s value include long hallways that eat up space but have no real utility, the number and usability of bedrooms, windows or lack thereof (think lofts that technically have no windows), the ability to convert to higher usage level (i.e. add additional bedrooms).

2.) Windows, Walls, & Floors

No, we’re not talking about the actual windows and floors, but rather views, exposures, light, and ceiling height which affect the overall feel and, therefore, desirability of an apartment. While there is no precise formula, again, it comes down to nuance. Whether an apartment is on the 5th or 6th floor may not matter much, unless the 6th floor clears a neighboring building and has wide open views. The number of exposures is a related but distinct consideration, as multiple exposures usually means more flexibility in layout, greater light, and can make up for challenged views from some rooms. Another major consideration is ceiling height, which can change the entire feel of an apartment, and make up - to some extent - for size/layout challenges.

3.) Condition

Renovations work a little differently in NYC than on TV shows like “Love it or List it” where $20,000 worth of work adds $35,000 in value to the home (not to mention what $20,000 gets you in NYC...). Renovation value is based more on overall condition than specific finishes or features — i.e. what matters most is whether a home is in mint, good, fair or poor (think estate) condition. That said, very specific finishes or style of renovation, even if costly or recently done, will not add the same value as one that appeals to a broad audience.

If a property needs extensive renovation it can still benefit from spiffing up before listing. Even buyers looking for a “project” (like our recent sale in Chelsea) may have trouble seeing the potential of a space that is cluttered, dingy, or dirty. A thorough cleaning, paint job, and some new light fixtures can make a huge difference, not necessarily in value, but in saleability. For our tips on small improvements that can make a big impact, see our previous post here.

4.) Outdoor Space

Not all outdoor space is created equal. A balcony is worth less than a terrace, deck, or yard. Access is also important. A box staircase inside an apartment leading to a roof deck or double doors that open directly from the living room onto an expansive terrace are going to be worth far more than a steep spiral staircase or when access is via a common staircase, elevator, or a bedroom. Also, marginal differences in size of outdoor space matter less than interior square footage; for example, a home with a 1000 sf terrace versus a 1200 square foot terrace is unlikely to command a materially higher price.

5.) Building Age & Period Details

Everyone knows that pre-war charm sells — high ceilings, original woodwork, crown mouldings, wood burning fireplaces are all at the top of many buyers lists — and, there are only so many pre-war buildings. However, not all buyers are in love with pre-war details. Some prefer floor-to-ceiling windows, brand new finishes, high-end amenities, and hi-tech offerings that are typically only available in new buildings.

Part 2: Beyond The Physical

Intangible factors can have a dramatic impact on home values. Here are five additional factors that can increase or impair the resale value of NYC apartments:

1.) Monthlies

There is a broad range for what is considered normal or “acceptable” for the monthly carrying cost on an apartment (common charges, taxes, and/or maintenance). A monthly that is above or below the “acceptable” range can have a massive effect on sale price. Not surprisingly, apartments with very low monthlies generally sell at higher values and are more resilient when market conditions turn sour. By contrast, apartments with very high monthlies -- or a track record of high increases in monthlies -- will often languish on the market before selling at a steep discount compared to similar apartments with more favorable monthlies.

Buyers tend to be highly sensitive to monthly carrying costs, and for good reason: Since most buyers finance the purchase price over 30 years, incremental increases in price have little effect on their bottom line. However, monthly carrying costs are felt directly by buyers, and for the length of ownership. (Ex. An extra $500 per month in carrying costs equates to the additional mortgage payments on a property that is priced about $140,000 more.)

2.) Required Down Payment Amount

A typical down payment for NYC co-ops is 20-25% of the purchase price, but it is not unheard of for some buildings to require a 40-60% down payment. A high minimum down payment will reduce the pool of potential purchasers and might negatively affect sale value, especially in areas where a higher minimum is less common. It could also prolong the amount of time an apartment sits on the market, exposing the seller to the risk that the market could worsen in the meantime.

On the flip side, some buildings have no down payment requirements at all. But in those cases the building’s financial condition may make it impossible or difficult to finance. When pricing such units, the lack of available financing may impact the price by 10-20% which could be a great opportunity for cash buyers who could resell later for great upside when the building’s financial condition has improved.

3.) Service Level

Amenities don't just mean high-end features like a roof deck, pool, or fancy new gym -- equally important are things like doorman service, a live-in super, elevators, a laundry room, storage bins, bike storage, etc. There are certain kinds of amenities, especially elevators and laundry, that matter a great deal to most buyers, and therefore will affect price. While inventory is different in every neighborhood - for example, most buyers looking in Park Slope are not expecting an elevator - keep in mind what the building offers compared to others in the area. If the building is in a neighborhood made up predominantly of doorman/elevator buildings, the absence of these amenities will probably deter some buyers, and ultimately lower demand when it comes time to sell.

4.) Building Policies

Of course, every building is going to have its own policies or rules. But if a building’s policies are especially restrictive or severe, potential buyers may be deterred. For example, restrictions on subletting are quite common, but some co-ops prohibit it completely which can limit the market and reduce value. While many co-op buyers do not go into a purchase with the intent of subletting their apartment, they may feel more comfortable with their purchase if the building permits some subletting in case their circumstances change.

Another area of concern for many buyers is a building’s policies on pets. A strict “no pets” policy might deter even a buyer without a pet since the policy will limit the market for resale since it means any potential buyer is committed to never having a pet.

5.) Building's Financial Health

Buildings with a history of hefty assessments, or sudden large increases in monthly charges, will usually be a red flag to prospective buyers, as they can indicate disorganization or poor budgeting on the part of the management company or Board. A building’s financial health could be indicative of whether or not a buyer can afford the unit in the long term, and is an important factor for any savvy buyer.

Whether you live in your home for 5 or 35 years, these considerations should factor into your bottom line both in terms of your monthly outlay and what to expect when it comes time for resale. Home values depend on much more than what meets the eye, so it’s important to have a complete picture before committing to such a significant investment.

NYC Listings Vocabulary

Most of us have watched enough HGTV to understand what “open kitchen” or “double vanity” means, but other terms or abbreviations used in listing descriptions may not be as familiar or obvious. If you’ve ever wondered what a “Classic 6” or “EIK” is, consider the mystery solved.

Alcove

An alcove is a section of a room that bumps out like the bottom of an “L.” In apartment listings, “alcove” is most frequently used to describe a dining area that is offset from the living room, or, in the case of an “alcove studio,” a sleeping area just off the side of the main area to provide some separation and privacy. Alcoves can often be walled off to create a separate room (see Junior 1 or Junior 4 below…).

"Bring Your Architect" or Estate Condition

Listings that say “bring your architect” or “estate condition” mean the apartment has not been renovated in a long time and is not in move-in condition. These apartments are not simply outdated; they typically require major renovations and the replacement of major systems (electrical, plumbing, etc). The asking price usually takes into account the condition of the apartment, but a proper renovation will likely cost more than the difference in price. These are best for people who want (and are willing to pay for) a customized look in a unit with good bones.

Brownstone

Brownstone (brown sandstone) is a building material used to clad the exterior of many buildings in the 1870s through the 1930s. Brownstone is very durable and has a distinctive look. It is also used colloquially to refer to single-family and small multi-family townhomes of a certain size and height, attached on both sides (think of the townhomes lining the blocks of Park Slope or Harlem).

Casement Windows

Casement windows are windows that have hinges at the side and open outward to the left or to the right, similar to the way that a door would open. Casement windows were once popular, but fell out of favor as double-hung windows became nearly ubiquitous. However, casement windows — especially steel casement windows — are a distinctive aesthetic that appeal to homebuyers seeking period accents and are even being installed in new developments.

Classic 6

Six refers to the number of rooms: a living room and separate dining room, two bedrooms, a kitchen, and a spare room with adjoining small half- or full bath (historically referred to as a “maid’s room” but which can be used for many purposes such as a guest room, nursery, or study). Most Classic 6’s have two other full bathrooms and a foyer or gallery.

Combination Apartment

A combination apartment means that two adjacent units have been purchased and combined to create one single apartment. Apartments can either be combined vertically with the unit above or below, or horizontally with the unit to the left or right. In some cases, a portion of the hallway can also be purchased and made part of the new apartment. Combination apartments may have higher maintenance fees than a comparable apartment that was not a combination. They are usually designated by the combination of both original apartments (e.g. 7FG or 101/102).

EIK or WEIK

While I hate abbreviations, these refer to an eat-in (or windowed eat-in) kitchen characterized by a kitchen with enough space to have a table with chairs of any size.

En Suite Bathroom

“En suite” is french for “in continuation.” An en suite bathroom is a bathroom that is in continuation of the bedroom, meaning that it is attached to/inside the bedroom, and can only be accessed by going through the bedroom. An en suite bathroom can be an asset or a liability. In a home with multiple bathrooms, an en suite creates a master bedroom suite, which is a plus and expected in very high-end listings. If the en suite is the only bathroom, however, it means that guests must go through the host’s bedroom to access the bathroom.

Floor-Thru

A floor-thru apartment occupies the entire floor of a building. Floor-thru apartments are typically found in brownstones and townhouses.

Full Service

Full Service refers to the level of service provided by building staff — namely, a full-time doorman, porters, elevators, and possibly a concierge.

Galley Kitchen

A galley kitchen is a long and narrow kitchen with counters on either side of the central walkway. Many buyers today prefer an open kitchen layout. Some galley kitchens may be opened up into the main living space.

JR-1 or Junior One

A junior one is an alcove studio that has been converted to have a separate room, usually designated for sleeping or as a “bedroom.” The separate area may or may not meet the legal qualifications for a bedroom, but the apartment is often listed as having one bedroom. It is the functional equivalent of a small one-bedroom apartment.

JR-4 or Junior Four

A junior four is a one-bedroom apartment that has a separate alcove area that can be left as an alcove (dining area), or walled off to create a separate space (sleeping area or home office). Most agents list junior four apartments as having two bedrooms if the alcove is walled off, regardless of whether the area meets legal qualifications for a bedroom.

Keyed Elevator

A keyed elevator is a secure elevator that serves as the direct entrance to an apartment. As the name suggests, you need a key to use the elevator and access an apartment; guests are usually “pulled up” by the host calling the elevator to their floor when their guest has entered the elevator. Keyed elevators are often found in lofts and penthouses.

Legal Bedroom

Legal bedroom qualifications vary depending on city and state, but a legal bedroom in NYC must meet the following requirements (subject to some exceptions): be at least 80 SqFt with a minimum width of 8 feet and a minimum ceiling height of 8 feet (if the bedroom is in a basement, ceiling height minimum is 7 feet), have at least one window and at least two means of exit (either windows or doors), and the room cannot be used as a passage to another room. It is a common misconception that a legal bedroom must contain a closet.

Prewar vs. Post War

Pre-war in NYC refers to apartments built before World War II, and have a grandiose aesthetic. Think grand lobbies, hardwood floors, plaster walls, solid wood finishes, crown moulding, high ceilings, and sunken living rooms. Pre-war apartments generally have a minimum ceiling height of 9 feet. Post-war refers to apartments built after World War II which incorporate sleeker, less ornate designs and often use different materials than just plaster and solid wood. Post-war apartments often have more efficient layouts (fewer hallways and foyers), more usable square footage, and lower ceilings (usually 7.5 to 8 feet).

Railroad

A railroad apartment is an apartment where all the rooms lead directly into each other without a hallway, meaning you need to walk through one or more rooms to get to either end of the apartment. Similar to floor-thru apartments, railroad apartments typically run from the front of a building to the back.

Virtual Doorman

A video intercom system in buildings without a doorman or live-in superintendent. If the resident is not home, the system connects to an offsite operator who is able to give access to authorized delivery persons into the common hallway or a dedicated package room. It is a cost-efficient way for many buildings to ensure packages are delivered without hiring dedicated on-site staff.

WBFP

This stands for a wood-burning fireplace, whether currently working or not. Since 2014, there is a ban on wood-burning fireplaces in NYC, but the ban exempts existing fireplaces, so there are a finite number in the city. Non-working fireplaces can often be restored with the cost largely dependent on how many floors separate the fireplace from the chimney (roof).

Are there any other terms that we’ve missed? Please let us know and we’ll update the post… And of course, feel free to reach out with any other questions related to NYC real estate.

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