Manhattan developers discreetly shopping bulk condo deals
Simon Baron and Quadrum Global are offering a 10% discount for the remaining 26 units at the Chamberlain
Jun.June 05, 2020 07:30 AM
By Sylvia Varnham O'Regan
It's hard to sell one luxury apartment these days, but what about 20?
In New York City, some developers are hoping to clear a glut of unsold units by offering bulk deals at discounted prices. It's an uncommon move that comes as the city's weak luxury market is further hobbled by the pandemic.
Developers Simon Baron and Quadrum Global are offering a 10 percent discount on the 26 remaining units at their 38-unit Chamberlain condop on at 269 West 87th Street, according to a marketing document obtained by The Real Deal.
In a pitch, Vickram Jambu's team at Lee & Associates projected the remaining units could fetch between $900 and $1,600 per square foot on resale with a total projected value of $87 million. If a bulk buyer considered renting out the units, the team estimated the Chamberlain's three vacant penthouses — priced between $4.5 million to $5.4 million — could fetch between $35,000 to $37,000 per month, or $108 per square foot.
Representatives for both Simon Baron and Quadrum declined to comment. The development team, which in 2015 signed a $90 million ground lease for the site, was originally aiming for a $205 million sellout.
Jambu declined to comment on the project, but said he had seen an uptick in interest in bulk deals overall.
"Given the turbulence in the market recently, bulk-condo dispositions have become more of a popular topic between some of our clients as of late," he said.
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While some developers would be happy to entertain such a deal if one came their way right now, bulk sales can completely transform a building, particularly if they bring in large numbers of renters. Some investors buy in bulk so they can rent out the units and sell them years later at a higher price. Others opt to hold the units empty to avoid the wear and tear of renting.
Having an investor own a block of units in a building can also pose obstacles for existing owners when they look to sell, because prospective buyers may run into trouble getting loans.
A condo mortgage questionnaire reviewed by TRD asked applicants whether a single entity or individual owned more than 10 percent of units in the building. An affirmative response to this question would pose a red flag, said a banker in the mortgage industry, because lenders prefer the stability of owner-occupied units, and enforce thresholds when considering loans.
Still, because of the state of the luxury market, investor interest in bulk deals has been on the up. Last month, TRD reported that the Douglas Elliman sales team at HFZ Capital's XI condo had discussed bulk-offering opportunities with at least two investors. A bulk-offering document prepared by the Elliman team included 10 units with a blended discount of almost 20 percent, or more than $7 million.
Ankit Duggal, vice president of acquisition and debt investments at RockFarmer Properties, said his firm had scooped up bulk co-op shares after the last financial crisis, and he anticipated the pandemic would generate a similar rush.
"Any time you see a crisis point is usually when you see an opportunity for some kind bulk buying," he said.
Jambu insisted that bulk deals don't necessarily mean a project is in distress — a point disputed by others in the industry.
Finding the right investor, though, can be a challenge, and one developer who spoke on the condition of anonymity said bulk deals in his experience rarely worked.
"In a market where there isn't movement and nothing is sold, most bulk buyers are looking for a significant discount and that sits below the lender's release price," he said. "So unless you have a lender aligned with a bulk sale, they tend not to happen."
And while rental plans are an obvious fallback, they don't always make sense in the high-end market, according to Jambu. That's because developers would have to make huge discounts for investors to achieve any decent rental revenue, and they would be better served finding an investor looking to buy the units and sell them sooner, he said.
"With the general condo inventory in Manhattan that's luxury, that's over $2,000 a square foot, typically, the rental math just doesn't work," he said. "Unless you're discounting at such a heavy level, which is close to 40 to 50 percent."
His advice for investors? "Buy and hold and sell."
Write to Sylvia Varnham O'Regan at [email protected]