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Stalled condo projects dot NYC

Alisa Roth Dec 24, 2009

Stalled condo projects dot NYC

Alisa Roth Dec 24, 2009


Kai Ryssdal: You can see the debris left by the collapse of the housing market in cities and towns all over the country. Acres of empty homes in Las Vegas. Foreclosed properties in Chicago and Dallas. And in New York what would have been luxury condominiums.

The city’s construction boom went bust so fast some of the buildings aren’t even finished. There have been some proposals to turn the condos into affordable housing. Buyers or renters would have to meet certain income restrictions and the prices would have to be cheap enough for them to afford.

But Marketplace’s Alisa Roth tells us affordable housing is as much of a tough sell as granite countertops and bamboo floors.

ALISA ROTH: Queensboro Plaza is a just a couple of stops out of Manhattan. I come through on my way to work. The tracks are elevated here, so the platform looks out over the landscape, which is covered with construction sites and new condo buildings.

Places like these popped up all over the city when credit was cheap and real estate was expensive.

When the economy fell apart, so did a lot of these projects. In some cases, the developers couldn’t afford to finish them. And in others, buyers just weren’t interested anymore.

I took a train downtown to meet Rafael Cestero. He’s the commissioner of housing preservation and development in New York. He’s worried that these kinds of open construction sites and empty buildings could bring blight back to New York.

RAFAEL CESTERO: We don’t want vacant buildings, buildings that are unable to sell, unable to rent up. We don’t want those buildings and the fact that they are vacant to further destabilize the markets in those neighborhoods.

What the city does want is more affordable housing. So it came up a plan: a subsidy for anybody who converts a stalled project into affordable housing.

CESTERO: We have had 30 projects that we’ve talked to at length about the program, we’ve had dozens and dozens of other phone calls inquiring about the program.

Ron Moelis made one of those calls. He’s CEO of L and M Development Partners, a company that builds affordable and market-rate housing in the area.

He found a building he thinks would work. He won’t tell me any more about it because he’s still negotiating with the lender. He said there are benefits to taking over a project that’s ready to go.

RON MOELIS: You don’t have the hassle of buying property, building a new property, and taking market risk.

Because there are other risks.

MOELIS: You don’t want to take over the project and then have someone coming after you for either not doing a good job on the construction or the buildings department looking at this and saying the papers weren’t filed.

And for the owners, it might not make financial sense.

Chuck Brass works at Forsyth Partners. It’s a real-estate consulting firm that specializes in affordable housing.

He says in a lot of cases, it cost so much to build these projects the developer just can’t afford to make the switch. And the city subsidy isn’t enough.

I asked him at what point getting some money would be better than getting none.

CHUCK BRASS: That ultimately really depends on whether the market rate that they could sell the property at, even if it’s at a loss, still yields them more money than what they can make through any government program.

He says there are other reasons that sitting tight makes sense. One is that interest rates are very low, so the owners have more money available than they thought.

And the other is the banks are willing to cut developers some slack because they don’t want to have those losses on their books.

Cestero, the housing commissioner, says the banks are still optimistic about New York real estate.

CESTERO: I think lenders see that and they’re not willing to give up yet, if you will, and they want to try to make the deals work. And they’re willing to do concessionary pricing, concessionary rents and all of those things to try to make the projects work.

But nobody knows how long these lenders can hang on. One hundred-forty banks have already failed this year. And the commercial real-estate market isn’t showing any signs of improvement.

In New York, I’m Alisa Roth for Marketplace.

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