New York City’s condominium market may be in even worse shape than the commonly used yardsticks show.
In Manhattan in the first quarter, sales were halved from year-earlier levels even as more apartments flooded onto the market, leaving it choking on an 18.6-month supply of units. Meanwhile, in the recently red-hot neighborhood of Williamsburg in Brooklyn, sales in the period plummeted by 70% as even more units expanded the property glut there.
As bad as those figures look, they may actually overstate the health of the market. Industry experts point to a growing mountain of so-called shadow inventory that is not reflected in the data. This includes units that are held by developers in soon-to-be completed buildings, as well as those kept off the market by banks and by individual owners who are waiting for conditions to improve before they tack up “For Sale” signs.
“We are undercounting the housing stock,” says Jonathan Miller, chief executive of appraisal firm Miller Samuel Inc. “And when you have more inventory than the market can absorb, it places pressure on prices.”
In a report on Manhattan residential real estate this spring, Mr. Miller estimated that in addition to the 10,445 condominiums that showed up in unsold inventory, there were as many as 7,000 shadow units.
An analysis conducted by Crain’s, with help from Mr. Miller and brokerage firm Aptsandlofts.com, shows the scope of the problem in two bellwether neighborhoods: Williamsburg and Manhattan’s financial district.
In the latter, there are currently 410 condominiums for sale. But according to Crain’s research—which involved tabulating all the units in a dozen financial district condo buildings—there are also nearly 1,000 units lurking in the shadows. In Williamsburg, meanwhile, feverish building has helped put 2,820 units on the block this year, according to Aptsandlofts.com. But there are almost as many again not yet accounted for; 2,760 units will come on line next year.
With shadow inventory adding downward pressure to prices, some developers are abandoning hopes of selling their units and are offering them as rentals instead. Rather than collect lump sums at sale, as planned, they will collect monthly rents—and rack up big losses. But at this point, even the rental market is glutted, and the stream of new units shows little sign of slowing.
“More inventory will continue to lower rents,” says Marc Lewis, president of Century 21 NY Metro, who believes that Manhattan vacancy rates are closer to 5% than the 2% reported by most industry players.
Given the dismal market and a lack of financing, few new buildings—if any—will be started in coming months. But scores of properties that were already under construction before the credit crisis of 2007 will hit the market in the next few years.