The days of massive condos that were a staple of the boom period in New York City condo construction are over, at least for now. An extremely difficult loan market has forced developers to adjust their strategies and abandon earlier efforts to build condos with hundreds of units. The result is a sharp drop in size: according to data compiled by StreetEasy.com, new condo projects in 2005 and 2006 averaged 83 units per building, while so far in 2011 the average is 34 units. Additionally, StreetEasy.com reports that developers built 10 condos of 100 units and over in both 2005 and 2006, but this year there is only one such condo being built.
The crux of the problem is that the money just isn’t there. New York City’s overall real estate market may be healthy – at least in comparison to the rest of the country - but financing large projects is difficult at best. Extell Development Co. president Gary Barnett told the Wall Street Journal that, "It's extremely difficult to finance large condos. Rentals you can get done, you can get small projects done." The residential high rises that define many neighborhoods, such as Midtown Manhattan, have also tapered off severely for similar reasons. In the eyes of the banks the market demand for these kinds of buildings is simply not strong enough to justify their creation. Loans in the ranges of $25million – $75 million are now the norm, a far cry from loans of $500million+ needed to build larger projects.
Further complicating matters is that developers and the unions that are integral to New York’s construction industry are negotiating new contracts, with varying degrees of success. Steven Spinola, president of the Real Estate Board of New York, told Crain’s New York that, “It's clear the current system doesn't work.” As far as the negotiations go, there is still much to be done: the fundamental changes that are needed have not yet been realized.
All of this works in favor of smaller condos. Banks are willing to loan for smaller projects because demand for them remains strong and many are selling at fast rates. Construction is faster and easier, and building sites are available in coveted neighborhoods such as Flatiron and the West Village. Smaller buildings are also much less conspicuous and don’t tend to raise the ire of long-time residents nearly as much. The larger condos built during the boom period of 2005 and 2006 often looked out of place by virtue of their sheer size relative to the buildings around them, whereas smaller condos fit well into their neighborhoods without drastically altering their personalities. Buyers looking for condos should take these changes into account; smaller buildings with limited units won’t stay available for very long.