By: Trevor Danforth
Time is running out for New York City’s condominium developers.
The conundrum: how to keep funding alive for projects that have ground to a halt due to the onslaughts of the Coronavirus pandemic.
It goes without saying that there has been a major league scramble. New York State began by determining that all construction workers were so-called essential employees. But on March 27 the state changed its mind and called a halt to most construction projects until the end of this month at the very least. In the wake of that decision, only construction project such as hospitals and homeless shelters were deemed to be essential. The rest had to stop.
Condominium projects have not been able to get themselves labeled essential. During the month of April, employees at these construction locations have been “tying down lumber and checking water pumps to prepare for extended closures that could hurt a floundering residential sector,” the New York Times noted.
The market for high-ticket condos was already week before the virus arrived, with both too many upscale units and weak sales to foreign buyers.
“Developers, like many others, find themselves in a state of limbo, with no definitive timeline for a return to normal business. Halting construction has thrown project timelines into disarray, forcing developers to renegotiate maturing loans and source cash to recapitalize their buildings and buy more time. Some worry that more aggressive lenders could wrest control of their projects if the shutdown drags on,” noted the Wall Street Journal. “Veterans say the issues are particularly acute for higher-end buildings selling units in the tens of millions, or those with construction loans coming due in the next few months.”
The problem is widespread. Frances Katzen, one of the most successful brokers of luxury properties in New York City, “had made a brisk start to the year. Then, coronavirus struck,” reported ft.com. “Within weeks, Ms Katzen saw $80m in sales evaporate as the pandemic put the city on lockdown. She has since regained $58m of those, including a $20m deal for a downtown penthouse that closed last week. But most buyers have fled. “The sky has fallen,” said Ms Katzen, a residential broker at real estate agent Douglas Elliman. “We’re there.”
Among the Big Apple’s developers, the site reported, “the dread is that a prolonged pandemic shutdown will not only scare away potential buyers but also prompt those who have already agreed deals — but not yet closed — to walk away. That, in turn, could cause lenders to seek recourse as developers fall behind sales milestones spelt out in their loan agreements.”