Manhattan Luxury Condos Try FHA Backing in `Game Changer'

Bloomberg

 

Whitney Gollinger, marketing chief for a Manhattan condo building with an outdoor movie theater and panoramic city views, is highlighting a different amenity to spur sales: the financial backing of the federal government.

The Federal Housing Administration agreed in March to insure mortgages for apartments at the 98-unit Gramercy Park development, known as Tempo. That enables buyers to make a down payment of as little as 3.5 percent in a building where apartments are listed at $820,000 to $3 million.

“It’s a government seal of approval,” said Gollinger, a director at the Developments Group of New York-based brokerage Prudential Douglas Elliman Real Estate. “We need as many sales tools as we can have these days, and it’s one more tool.”

The FHA, created in 1934 to make homeownership attainable for low- to moderate-income Americans, is now providing a lifeline to new Manhattan luxury condominiums after sales stalled. Buildings featuring pet spas, concierges and rooftop lounges are applying for agency backing to unlock bank financing for purchasers. The FHA guarantees that if a homebuyer defaults on his mortgage, the agency will pay it.

Seeking Approval

At least nine Manhattan condo developments south of 96th Street have sought approval for FHA backing since the agency loosened its financing rules in December, according to a database of applications maintained by the U.S. Department of Housing and Urban Development. The change allows the FHA to insure loans in new projects where only 30 percent of units are in contract, down from at least 50 percent. About 1,900 apartments in New York’s most expensive neighborhoods would be covered by the applications.

The agency also offers insurance to half of all mortgages in a single building after previously setting a limit at 30 percent, according to the new standards, which expire in December. The entire property must be approved for a buyer to get backing. Most of those that applied in Manhattan are buildings converted to condos or built since 2007.

The FHA is filling a void left after mortgage-finance agency Fannie Mae tightened its condo lending standards last year. The Washington-based company won’t back loans made in new buildings where fewer than 51 percent of the units are in contract, sometimes setting a requirement as high as 70 percent.

That in turn makes mortgage lenders hesitant to make loans at developments under those thresholds, said Orest Tomaselli, chief executive officer of White Plains, New York-based National Condo Advisors LLC, which advises condominiums on how to adhere to Fannie Mae and FHA standards.

‘Not an Accident’

“It’s not an accident that the FHA is offering this -- not private lenders,” said Christopher Mayer, senior vice dean at Columbia Business School’s Paul Milstein Center for Real Estate in New York. “An unfilled condominium complex is not the kind of thing that a bank looking to rebuild its balance sheet on real estate is looking to do.”

In New York City, the priciest urban U.S. housing market, the FHA insures loans of as much as $729,750, and permits buyers to borrow up to 96.5 percent of the price.

No buildings in Manhattan applied for FHA recognition between 1998 and 2008 -- though in those years the program didn’t require an entire property be approved and condo buyers could seek FHA-insured loans on their own, Tomaselli said.

New development in Manhattan represented 23 percent of the sales market in the second quarter, compared with 35 percent two years earlier, according to New York appraiser Miller Samuel Inc. About 8,700 new apartments in the borough were empty as of June, partly because of a lack of available financing for buyers, said Jonathan Miller, president of the firm.

‘Ironic’ Move

“Something has to happen for this product to be marketable,” Miller said. “I just find the whole thing ironic that FHA is providing financing for luxury housing.”

The FHA loosened the condo rules because of “market conditions,” according to Lemar Wooley, an agency spokesman.

“We are certainly cognizant of falling sales prices, limited availability of liquidity, etc., so we wanted to be flexible,” Wooley wrote in an e-mail. “The risk was considered before issuance of the temporary guidance.”

The new rules are a “game changer,” said Ryan Serhant, vice president at Nest Seekers International, a brokerage with offices in New York and Florida. He’s marketing 99 John Deco Lofts, a 442-unit conversion project in downtown Manhattan that features a “zen” flower garden and Brooklyn Bridge views.

Regaining Support

The development, where sales began more than two years ago, had 10 units go into contract with FHA backing since approval in March. The FHA suspended its support for the building Aug. 3, according to the agency website. The property is working to have it reinstated, Serhant said.

Angela Ferrara, who markets the Sheffield condos on West 57th Street, checks every day whether the 597-unit property, which applied to the FHA in May, has won approval. Ferrara, vice president of sales for New York-based the Marketing Directors Inc., says she is eager to start touting the FHA backing to potential buyers. That’s a reversal from the past, when government loan programs weren’t necessary -- or advertised.

“People would get the wrong idea, and think it was a different type of government-subsidized product,” Ferrara said. “It was almost regarded as a negative, particularly in the luxury properties.”

Now, she said, “It’s actually became a widely accepted marketing tool.”

Lincoln Center, Tiffany

The Sheffield promotes amenities such as concierge service, a pet spa and massage rooms, according to the project’s website. A neighborhood guide on the site lists chef Thomas Keller’s four-star restaurant Per Se as a nearby attraction, along with Lincoln Center, Carnegie Hall and Tiffany & Co.’s flagship Fifth Avenue store.

The Sheffield’s owner, New York-based Fortress Investment Group LLC, took over the condo conversion project in foreclosure last August after the original developer, Kent Swig, defaulted on a loan. With 56 percent of the converted units sold or in contract, the building has about 230 units left to sell, Ferrara estimates.

FHA is “definitely is a great solution right now,” said Tomaselli of National Condo Advisors, which prepared the FHA applications for Tempo and Sheffield.

“The savvy developers did it first,” Tomaselli said. “But everybody else is catching up.”

Brooklyn Sales

In the borough of Brooklyn, FHA support accounted for half of the 29 units sold at the 111 Monroe condos in Clinton Hill and a quarter of apartments in Williamsburg’s NV building, which is sold out after two years on the market, said David Behin, executive vice president at the Developers Group, a New York brokerage for new buildings.

The FHA’s effectiveness will be limited in Manhattan because apartment prices are higher than in Brooklyn and the insured loan is capped at $729,750, Behin said. The median price of a Manhattan apartment in a new development was $1.4 million in the second quarter, according to Miller Samuel and Prudential Douglas Elliman.

“With apartments over $1 million, FHA isn’t going to help you,” Behin said. “You’d have to put down 30 percent to get the loan of $729,000. And if you have 30 percent to put down, a bank will loan to you without FHA.”

Borrowers backed by FHA are essentially buying mortgage insurance, said Debra Shultz, managing director at Manhattan Mortgage Company Inc. in New York. Buyers pay an upfront premium of 2.25 percent of their loan value, and a monthly fee equal to about 0.5 percent of the loan amount for at least five years, she said.

21% of Mortgages

Nationwide, the FHA insured 21 percent of all mortgages made in the second quarter, or $71.4 billion worth of loans, according to Geremy Bass, publisher of the Inside FHA Lending newsletter. That’s close to the $79.5 billion total value of all FHA-backed loans in 2007.

The agency’s backing of luxury condos “doesn’t look good,” said Andrew Caplin, a professor of economics at New York University who co-wrote a paper titled “Reassessing FHA Risk.”

“Manhattan wealthy people -- is this really who the FHA was set up to support?” he said in an interview.

Caplin testified before Congress in March, arguing that FHA may need a taxpayer bailout because the agency relies on overly optimistic assumptions on unemployment, home prices and loan performance to predict losses.

Rising Defaults

Nine percent of all FHA-insured loans were 90 days or more past due or in the process of foreclosure in the first quarter, compared with 7.4 percent a year earlier, data from the Washington-based Mortgage Bankers Association show.

The agency doesn’t require a minimum credit score for the mortgage insurance, though many lenders who fund the loans insist on a rating of at least 580, said Shultz.

The FHA is considering a minimum required score of 500, according to a notice the agency filed in the Federal Register on July 15. A person with a 500 rating is in the lowest one percentile of credit scores nationally and was likely delinquent on several accounts in the last year, said John Ulzheimer, president of consumer education for Credit.com, a consumer and credit education company based in San Francisco.

Taking on Risk

“The government is taking on more risk,” said Guy Cecala, publisher of Inside Mortgage Finance. “That’s the bottom line. They really can’t say no, because that’s their purpose. It’s to support the housing market when there’s no other funding.”

Until they heard about FHA, Asha Willis and her boyfriend, Cesar Rivera, didn’t think they would buy a place for at least five years -- enough time to save a 20 percent down payment, she said. The couple reasoned that they earned enough to make monthly mortgage payments, and began an apartment search in February, limiting their hunt to buildings with agency backing.

Willis, an attending physician at Maimonides Medical Center in Brooklyn; and Rivera, a sales associate at Chelsea Piers in Manhattan, toured several glass and steel high rises and decided on a one-bedroom at Toll Brothers Inc.’s Two Northside Piers in Williamsburg, Brooklyn. It didn’t have FHA approval at the time, but developers promised it was on its way, Willis said.

“Our contract had a contingency that if they weren’t FHA approved we could get out of the contract,” said Willis, currently a renter at Manhattan’s Stuyvesant Town.

Prices at the building range from the “high $300,000s” to more than $2 million, according to Adam Gottlieb, project manager for Northside Piers. The property, which began sales in October 2008, received FHA approval in June.

‘Breaking Through’

Shultz, whose Manhattan Mortgage has sourced FHA loans for buyers in Brooklyn, the borough of Queens and on New York’s Long Island, said the last month brought a sudden surge of calls from would-be buyers seeking FHA insurance for Manhattan purchases.

“It’s definitely breaking through to the Manhattan market,” she said.

1 Rector Park, a Battery Park City rental building converted to 174 condos, got FHA backing in July and re-opened its sales office Aug. 5, a year after it was shuttered with no sales recorded, said Tricia Hayes Cole, executive managing director of Corcoran Sunshine Marketing Group. Her agency was hired to sell the units by the project’s lender, IStar Financial Inc., after it took possession of the property in November, she said.

Cutting Prices

In a second try to sell the units, IStar lowered the prices by an average of 30 percent, bringing the range from $290,000 for a 550-square-foot studio to $2.85 million for a three- bedroom unit with views of the Hudson River and Statue of Liberty, according to Cole. Two-thirds of the building is now priced at a point that could be covered by the FHA, she said.

“It didn’t seem unnatural for us to open this up to our buyers,” Cole said of FHA.

At Tempo, which is still under construction, developers are hoping that FHA approval will appeal to buyers of lower-priced units and inch the number of contracts signed to the 51 percent that conventional mortgage lenders require, Gollinger said. About 15 percent of the 98 units are under contract.

The developers plan to tout FHA support in e-mails and other promotions in a sales push next month as the building nears completion, Gollinger said.

“I never even dealt with this,” she said. “All of a sudden it became an absolute must.”

Price Cuts Mount as Condos Linger in Chicago

Chicago Tribune

 

A trio of condo developments — one small, one medium and one large — announced price cuts recently as the market readjusts in a post-tax credit market and lenders show their nervousness about the summer selling season.

Price cuts in Chicago's condo market are nothing new, particularly downtown. Earlier this year, 565 Quincy, 200 North Dearborn, 222 E. Pearson and Metropolitan Tower all trimmed their advertised prices. Other buildings conducted auctions and then set new prices for the remaining units, based on the auctions.

The size and scope of the decreases, at Parkside of Old Town, The Columbian and Wabansia Row, vary. The constant, though, is lenders' efforts to jump-start stalled sales in new buildings."Every development has a different circumstance, depending on if it has a lender that's coming to reality," said @Properties agent George Schultz. "Every development is financed a different way. But the bottom line is the downward pressure on new construction has come to bear."

Developers and their bankers are hoping that as the economy slowly firms up, buyers will see the one-two combination of reduced prices and historically low mortgage interest rates as proof that it's a better time to own than rent or to move up to a bigger, and now more affordable, home.

"The mentality of the buyer walking through my door now is different than a year ago," said Matt Hollman, sales director at The Columbian. "A year ago they were all talking about how bad the market is. Now a third are talking about the bad market and two-thirds are saying it's the right time to buy at the right price. They're going to take the best deal."

Three sets of recently released data aren't likely to calm the nerves in sales centers. The first, from real estate site Trulia.com, calculated the price-to-rent ratio for major cities by comparing the average list price with the average rent on a two-bedroom apartment, condo and townhome. The Chicago area's price-to-rent ratio was 15, meaning it just eked by as being a city where it's less expensive to own a home than to rent. Had the ratio been 16, it would have been a better city for renters, depending on their situation.

Another piece of data, from a Campbell/Inside Mortgage Finance survey, found that nationally, home shopping activity nosedived in May, following the April 30 expiration of when buyers had to have sales contracts signed to qualify for a tax credit. Meanwhile, the U.S. Census Bureau reported that new home sales in May were down 32.7 percent from April and 18.3 percent lower than in May 2009.

Among the developments with recent price cuts is Parkside of Old Town, where prices were cut by up to 30 percent on 75 condos and up to 40 percent on 27 town homes. The development, on the site of the former Cabrini Green public housing complex, is one of the city's Plan for Transformation communities and offers a mix of market-rate, affordable housing and units set aside for returning Chicago Housing Authority residents. It has been beset by slow sales and financing issues.

In Bucktown, Wabansia Row has dropped the price by up to $100,000 on 11 new town homes. At The Columbian, a 46-story condo tower that overlooks Grant Park and was taken over earlier this year by Fidelity Investments, prices on 20 of the remaining 60 unsold condos have been cut by an average of 25 percent.

Nevertheless, Hollman said it's no fire sale of the project because the goal is to sell 20 units this year. It may not reassess the pricing structure on the other 40 units until next year.

Home shoppers may see more of that strategy, namely slashing prices on just enough units to pacify a project's investors, as the year goes by. The reason behind it is the other reality of Chicago's condo market. Anyone who wants a newly constructed condo next year is going to find them in short supply — and that will likely firm up prices.

Appraisal Research Counselors predicts that it will be at least two years and maybe more than three years before new development deals begin. In fact, the only project scheduled to deliver condos to the market in 2011 is the ultra-high-end Ritz Carlton Residences.

"This is a strategy that developers contemplate," said Gail Lissner, a vice president at Appraisal Research Counselors. "They fully realize that there is going to be no more new product added to the market and next year we'll have fewer units that are in competition."

Adds Schultz of @Properties: "Everyone wants to hold out as long as they can."

Manhattan Condos Overpriced for Sale May Be Recycled as Rental Apartments

Bloomberg News

 

When Richard J. Bailes and his family paid $4.1 million in March for a four-bedroom apartment in the glass and steel Georgica on Manhattan’s Upper East Side, just eight of the building’s 58 units were occupied, he said.

Bailes and his family had plenty of places to choose from. About 8,700 new condos sit empty in Manhattan, with 75 percent not even listed for sale yet, said appraiser Miller Samuel Inc. Priced at levels the market no longer supports, they’re selling so slowly it would take as long as seven years to find buyers for them all, said Jonathan Miller, president of Miller Samuel.

Miller teamed up with Westwood Capital LLC and developer Gerald Guterman to raise as much as $1 billion to buy empty condos and manage them as rentals. Guterman made his name in the 1980s doing just the opposite.

“Things are going to run out of steam at pretty predictable times,” said Daniel Alpert, managing partner of New York-based Westwood Capital. “In the case of these condos, it’s when the reserve funds run out.”

Builders can’t afford to cut prices because they borrowed too much at the height of the market, according to Miller. He and his partners are betting that lenders will seek to sell their condo units at a loss rather than foreclose on the building and assume all the developer’s liabilities until the units are sold.

Developers taking out construction loans borrow an additional amount for interest reserves, which is intended to cover the monthly payments on the loan while the project is under construction and until sales begin, Miller said. Alpert estimates that reserves on loans made in 2007 and 2008 will dwindle in the second half of 2010 and early 2011.

12 Unit Sales

The Georgica’s developer started marketing the apartments there in May 2008, and by the time Bailes bought his, 12 had sold, according to StreetEasy.com, a property listing service.

“On one side of the building at nighttime, ours are the only lights on,” Bailes, a director at the Americas division of the architectural firm RMJM who moved to Manhattan with his family from Short Hills, New Jersey, said in April. “You have all the facilities and staff to yourself.”

The pace of sales at the building has subsequently picked up, with 32 apartments closed and nine more under contract, according to Judy Kekesi, a senior sales associate for Corcoran Sunshine Marketing Group, the firm in charge of marketing the 58-unit Georgica. A call to Ascend Group, the developer of the property, wasn’t returned yesterday.

Rent Multiplier

Condominium Recovery LLC, the firm started by Miller, Westwood and Guterman, bases its analysis of the market on Manhattan’s “gross rent multiplier” -- the purchase price of an apartment divided by the annual cost of renting a similar one.

The relationship between home prices and rents typically remains steady within a market, Miller said. In Manhattan, the average apartment, adjusted for inflation, cost 8.1 times annual rent from 1991 to 1997, according to Miller Samuel data. That means that in those years, buyers in Manhattan concluded that the long term benefits of owning an apartment -- tax savings and property appreciation -- were worth an initial investment of eight times the cost of renting.

Then in 1998, Manhattan prices began a decade-long climb, with year-over-year values rising by 10 percent or more in most quarters. By the second quarter of 2008 apartment prices peaked at 22.4 times annual rent, according to Miller Samuel data.

Buy Vs. Rent

At that level, buying rather than renting in Manhattan only makes sense if the purchaser expects prices to continue rising at a meteoric clip, with future sales’ profits justifying ownership costs that also include property taxes, interest and maintenance fees. New York is the No. 1 city in the U.S. where the overall costs of buying are “significantly more expensive than renting,” according to a report released yesterday by property website Trulia.com.

Manhattan’s multiple in the first quarter of 2010 was 19 times rent, even as rental prices fell 6.1 percent from a year earlier, according to data from Miller Samuel.

“That suggests a few things,” Miller said. “One is that prices are poised to slip further.”

The median value of apartments for resale in Manhattan has already fallen 31 percent since 2008, narrowing their spread over rents, Miller said. By comparison, apartments in new developments, which are saddled by debt for construction loans made during the property boom, have fallen by 24 percent -- and much of that drop was due to smaller units being sold rather than significant price reductions by the developer, Miller said.

Pet Spas

New apartments, built with amenities like pet spas and wine vaults, won’t be able to reduce their price tags enough to compete with existing buildings -- and still satisfy their lenders, Miller said.

The hurdle for new developments during the slump stemmed from a lack of financing for would-be buyers. Mortgage-finance company Fannie Mae doesn’t back loans made in new buildings where fewer than 51 percent of the units are in contract. That in turn makes mortgage lenders hesitant to make loans at such properties, said Orest Tomaselli, chief executive officer of National Condo Advisors LLC, a White Plains, New York-based consulting firm that helps developments comply with Fannie Mae and Federal Housing Administration lending requirements.

16% of Sales

New development purchases made up 16 percent of all Manhattan sales in the first quarter, compared with 43 percent of all sales in the first three months of 2009. The newly built apartment units that did close in the first quarter were on the market for 385 days, while resale properties spent 103 days on the market, according to Miller.

Bailes, who didn’t need financing for his purchase at the Georgica, said he was attracted to the building in part because it hadn’t yet secured enough sales to meet Fannie Mae approval. It made the developers more willing to negotiate on price in exchange for a cash offer.

“You get more of a deal,” said Bailes, who purchased the unit at a 17 percent discount off the asking price, according to StreetEasy.com.

“The market is still not back,” he said. “But we’re in it at least three years. We’re not looking to make any money any time soon on where we live.”

At One Rector Park, a Battery Park City rental building converted in to 174 condominiums, the sales office has been shuttered. There have been no sales in the building, according to StreetEasy. Melissa Cohen, sales director at Buttonwood Development LLC didn’t return a call for comment. Neither did a spokesman for the project’s lender, iStar Financial Inc.

‘Shadow Inventory’

The 8,700 unsold new condos in Manhattan exceed all residential sales in the borough in 2009, according to Miller. About 6,500 of those units are “shadow inventory” and have not yet been listed for sale, he said.

“If you flush that all into the market you tank the market,” Westwood’s Alpert said. “So the only way you can effectively push that into the market is to bleed it out very slowly. Well, the lenders don’t really have the option to bleed it out slowly because they can’t hold onto it for six years.”

Condominium Recovery, formed in 2009, is in the process of securing $350 million in equity commitments from private equity firms, Alpert said. The partnership plans to approach lenders of stalled condominium projects in Manhattan and Florida, and offer cash in exchange for bulk increments of 50 to 200 units --enough to take control of the homeowners’ association, cancel the sales plan, and operate the property as a luxury apartment building, Alpert said. They are making bids on Florida properties, and will turn to New York later this year.

Distressed Investing

There are currently 90 U.S.-based private-equity funds with an aggregate $37.9 billion dedicated to investing and acquiring distressed real estate, according to London-based research firm Preqin Ltd.

“Most investors would be happy to buy apartments for operation as rentals, but most sellers and their lenders would not,” said Susan Hewitt, president of Cheshire Group LLC, a New York real estate investment and development firm that bought unsold condos in the last property downturn.

“The original developer isn’t interested in any price below the value of his interest and the lender isn’t interested in writing it down until they’re forced to for regulatory reasons,” she said. “That accounts for the paralysis right now.”

So long as regulators don’t force lenders to write down the value of their condo loans, they won’t, said Alexander Goldfarb, an analyst at Sandler O’Neill & Partners LP in New York.

Big Haircut

“Here’s the challenge,” Goldfarb said in an interview. “At the peak, a for-sale condo in New York cost, let’s say $1,000 a square foot to build. To make it work as a rental -- conceptually you need a pretty big haircut.”

In Washington, Equity Residential, the largest publicly traded apartment company, paid $167 million for a two-tower, 559-unit building that was developed as a condominium, the company announced in April. The property will become a rental building.

Essex Property Trust Inc., another publicly traded apartment rental company, acquired Orange County, California- based Skyline at MacArthur Place condos from a lender for 55 percent of the initial construction costs, according to a March 5 statement. AvalonBay Communities Inc. the second-largest publicly traded apartment owner in the U.S., is in talks with lenders about buying unsuccessful condominium projects in the markets where it operates rentals, Chief Executive Officer Bryce Blair said in an interview last month.

‘Miami ‘08’

“New York is Miami ‘08 right now,” said Peter Zalewski, principal of Condo Vultures LLC., a Bal Harbour, Florida, real estate brokerage and consulting firm specializing in bulk sales.

“If Miami is reflective of what will happen in New York, I would say the only suitable use for those condos that are vacant right now is rental,” Zalewski said.

In downtown Miami, where 23,000 new condo units were built between 2003 and 2010, the paralysis happened in 2006, as new home sales nationally began to decline, Zalewski said. The logjam for investors targeting the oversupply of condos in Miami broke in July 2008, with the bulk purchase of 146 apartments at 50 Biscayne Blvd. by Philadelphia private-equity firm Lubert- Adler Partners LP and the project developer, Related Group of Florida. The firms bought the properties for $36.4 million, or half the cost of the individually sold units, Zalewski said.

All the units were rented out, and as of March, 50 have been resold to individuals at a price more reflective of the market, according to Zalewski.

Bulk Sales

There have been 44 bulk transactions in Miami since July 2008, covering about 3,600 units, according to Zalewski. In many of the transactions, the developer holds on to the best apartments in the building for sale as condos, while selling the lesser ones in bulk to investors.

In New York, Corcoran Sunshine, the new-development sales unit of New York brokerage Corcoran Group, tried spurring sales at some of its properties in March by holding 12 simultaneous open houses and releasing a list of “Top 10 Reasons to Buy New Development.”

“Brand new everything,” was the No. 2 reason on the list, which also cited “intelligently designed” materials and “immediate occupancy.”

Kelly Mack, president of Corcoran Sunshine, said she doesn’t expect any of her new developments to become rental buildings. With no new projects introduced to the market in the fourth quarter, and the development pipeline slowing, there will be an eventual shortage of new apartments to buy, she said.

“In today’s environment, buyers have a unique opportunity,” Mack said. “They have a lot to choose from.”

Buying a Condo: Wait or Jump in?

NY Times

AS the residential real estate market in New York City continues to emerge from its deep freeze, sales at new condominium developments are starting to pick up.

But while there are deals to be had on some new condos, buyers must navigate a tricky balance between getting in early — which often means a better price — and avoiding plunking down a deposit on a building plagued by bad construction or shaky financing.

“It’s a buyers’ market and sponsors are making deals,” said Jan B. Geller, a real estate lawyer with Altschul Goldstein & Geller. “But you have to be careful. What seems like a diamond in the rough may be a rhinestone.”

It is not always easy to know how to tell the difference.

When Alison Archibald and her fiancé, Urosh Perishic, started looking for an apartment to buy last fall, they noticed that some of the buildings they were interested in were eerily dark at night.

“We were driving around looking at buildings, seeing how many lights were on,” Mr. Perishic said. “I don’t want to be the only one living there.”

The building they settled on, the 303-unit Oro Condominium at 306 Gold Street in Brooklyn, is 44 percent sold. They bought a two-bedroom two-bath for $740,000. When sales began in the building in 2007, the asking price for that apartment — on the 33rd floor with views of Manhattan and four bridges — was $1.075 million.

“We were in a position where we could buy,” Ms. Archibald said, “so we realized we should just do it.”

If you decide to do it, too, be sure to do it carefully.

There are two major minefields to keep in mind when entering the world of new developments. The first is financial. What happens to your investment if the building doesn’t sell out? The second is bricks and mortar. How can you avoid buying in a place that was poorly constructed?

“You thought you were buying into this beautiful luxury building that was going to be owned by people of substance, and you wind up in a building owned by a bank or being rented out for extended periods of time,” said Steven R. Wagner, a real estate lawyer with Wagner Davis. “This creates problems with financing, refinancing, buying and selling, but it also creates issues in quality of life.”

In any housing boom, some buildings are thrown up hastily. The reports of leaks and inadequate fire-stopping in new construction are enough to make any buyer nervous. And if you’re considering buying in a building that’s still being built, an even more basic question to ask is: Will it ever be finished?

The Money

The median price paid for a Manhattan apartment in a new development fell to $1.19 million at the end of 2009, from $1.54 million at the end of 2008, a difference of 23 percent, according to Corcoran Sunshine, a brokerage that sells only new developments. There was also a drop in Brooklyn, but it was smaller, down to $585,000 from $630,000, a difference of only 7 percent.

Still, as prices have come down, mortgages remain mind-numbingly difficult to get, especially for people buying in new developments. Banks are requiring much higher down payments and credit scores than in years past, and they’re also evaluating liquidity more strictly in some cases.

“It used to be you could have a 660 credit score and the bank didn’t really care,” said Melissa Cohn, the president of Manhattan Mortgage, a mortgage brokerage. “Now they want it to be well over 700.” She added, “But one of the bigger issues we’re having these days is getting the building approved.”

One qualification lenders are sure to look at is what percentage of the building has sold. As more contracts are signed, a greater variety of mortgages become available to buyers.

When a building is 15 percent sold — sold here means contracts signed — a tower of steel and glass can legally become a condominium, and deals can start to close.

At this stage, few lending institutions will give potential buyers a loan. As a result, many of these early deals are all-cash transactions.

Initial sales can also be made with the help of portfolio lenders — so called because they make loans and hold them in a portfolio rather then selling them off. These mortgages tend to be a bit more expensive than standard conforming loans, with interest rates about half a point or a point higher.

Another source for early deals: private banks, which cater to a wealthy clientele. These rarefied buyers must have millions of dollars in liquid assets after the apartment deal goes through.

When a building is 50 percent sold, getting a mortgage becomes a little easier and a little cheaper, but options still tend to be limited to portfolio lenders, private banks and F.H.A.-insured loans. The building can try to get a special waiver from the Federal National Mortgage Association, or Fannie Mae, which would open it up to standard retail banks, but that is not always an easy task.

Without that waiver, Fannie will guarantee mortgages only in buildings that are at least 70 percent sold. But once the 70 percent mark is reached, the field of financing opens up and just about any bank will lend to the building — assuming the project has sufficient insurance and reserves.

At this point, the screening becomes less about the building and more about the buyer.

“The first 30 or 40 percent of buyers are obviously taking a slightly higher risk than someone buying in a well-developed building,” said Rolan Shnayder, the director of new development lending at Home Owners Mortgage, a direct lender. “So sponsors are willing to offer better deals and concessions to those first buyers. Whereas, someone who’s waiting until the building is almost sold out, is going to pay full market price.”

But not every new building is lowering prices. In some cases it simply can’t. Construction loans dictate the lowest price at which an apartment can be sold, and these prices were set years ago in a very different market. Instead of writing down the asset on their balance sheet, some banks would rather the buildings sat empty. This situation may not be sustainable, but for now, some lenders have dug their heels firmly into the ground.

In the meantime, however, there are deals out there.

A condominium in Williamsburg, Brooklyn, called Warehouse 11, is offering low prices to kick-start sales. But the building has a troubled history. It first came to market in 2007, and then a year later, when about 30 percent of the 120 units had sold and the building was almost finished, the bank pulled the plug. The developer gave back all the deposits.

“We were told the financing wasn’t there to complete the building,” said David Maundrell, the president of aptsandlofts.com, the brokerage handling sales in the building.

This winter, the developer worked out a deal with its bank, Capital One, to keep ownership of the property, and then put the apartments back on the market at a steep discount. Some units start at $450 per square foot, about $300 less than their average contract prices three years ago. In its first two week back on the market this month, Warehouse 11 had 35 signed contracts.

“You start at a reasonable number and move your way up,” Mr. Maundrell said of prices. “You need a certain threshold, not just for financing, but because people need to be comfortable that the building is selling well.”

The longer you wait for a building to sell, the less risk there is that you’ll be at the mercy of the sponsor for years. If the sponsor controls the board, he or she may decide to do upkeep on the cheap. If the sponsor decides to rent out the building’s unsold apartments, that means you’ve suddenly invested in a rental building where turnover is high and apartments often take a beating. Another grim possibility is that the sponsor could default, which might send the building into the arms of a bank and then off to some unknown entity.

The Building

“Two years ago, it was completely different,” said Tom Le, a senior vice president of the Corcoran Group. “Buyers were walking through a building that was not even completed yet — like there were no walls — and there were multiple offers on any unit. These days, most people want to see a complete product.”

Buyers who sign before construction is completed have always taken a risk that the building won’t look quite the way they imagined it. But these days, the biggest hazard of the preoccupancy purchase is that the building will lose its construction financing and then languish unfinished, wrapped in tarps — and wallpapered with your down payment — for an indefinite period of time.

If you are determined to buy in an unfinished building, research the construction lender. Many commercial banks are still on shaky footing. See if there has been any coverage in the media about the bank’s solvency. You can also try looking it up on the Web site of the Federal Deposit Insurance Corporation; go to the Enforcement Decisions and Orders page, look up your state, and see if any actions have been taken against that bank.

But even playing it safe and waiting until a building is completed to put down a deposit is not without its pitfalls.

“There’s always an inherent risk when buying new construction,” said Aaron Shmulewitz, a real estate lawyer at Belkin Burden Wenig & Goldman. “There is no track record for that building.”

The first thing you should do when considering a building is to give a close read to the condominium offering plan, a description of the project filed with the state attorney general’s office. If the brochures and brokers promise amenities that aren’t up and running, make sure the plan explicitly mentions them; if it doesn’t, the finished product does not have to offer them. If the building is complete, walk through it and make sure it delivers on the plan’s promises.

Reading the plan is just a start.

Before you sign a contract, ask the real estate broker if you can bring in an engineer or inspector to look the place over. Many sponsors won’t let your expert poke around on the roof, but you should be able to get one into the apartment you wish to buy.

Other factors that speak to the structural integrity of the building are complaints and litigation. You can look up an address on the Department of Buildings Web site and check for violations. You can also inspect court documents to see if the sponsor has been sued in connection with the project and what the judgment was. This can be done online at court Web sites or through a search engine like LexisNexis, though you might want to ask a lawyer for help to be sure you don’t miss anything.

One of the best ways to find out about any major problems is to ask the building’s residents. Stand outside and talk to people coming and going. Ask what it’s like to live there. If there have been problems, ask how the sponsor handled them.

The Developer

If a building has been standing for a only few months, there’s very little history to judge from, so the reputation of the developer becomes extremely important.

“There are some developers who have excellent reputations, do excellent construction and are well funded — and there are some buildings I wouldn’t buy in if you paid for it,” Mr. Wagner of Wagner Davis said. “So would I buy? Yes. But I would be very careful.”

Wayne Hosang recently bought a three-bedroom apartment at 80 Metropolitan in Williamsburg, Brooklyn. He says he was reassured by the fact that the developer, Steiner NYC, had completed many other projects, even though they have all been commercial.

“In a boom, anyone with two dollars and an idea can build a building,” Mr. Hosang said. “I can do anything to the inside of the apartment. What I can’t fix is what’s on the outside.”

To start researching the developer, take a look at the offering plan. It will tell you the name of the organization as well as the individuals behind it, who are called principals.

Do a litigation search for the principals as well as the organization — some developers create a different corporate entity, often using the building’s address, for each project. Look the developer up in newspapers and on real estate blogs. You might also try the Better Business Bureau to see if anybody has lodged a complaint.

Find out what other buildings he or she has built. Search for lawsuits and violations on those properties.

You might find out if the developer has other buildings on the market — look on his or her Web site, do some Web searches, ask around. Too much inventory for sale may put a developer under a financial strain.

Ultimately, no matter how much research you do, there are some things you just cannot know until you live there and until the last apartment in the building sells.

“The longer you wait, the safer it is,” said Mr. Shmulewitz of Belkin Burden Wenig & Goldman. “And if you wait a really, really long time, it becomes a prewar building.”

Look Before You Leap

BUYING a condominium in a new building these days means balancing the risks and benefits. Here are some things to keep in mind and questions to ask before you sign a contract:

• Be wary of buildings that have big blocks of apartments owned by investors. If a single entity owns, say, 20 percent of the building and cannot pay the common charge, the residents may have to make up the difference.

• If possible, get a mortgage contingency written into the contract. That way, if you can’t get financing, you can get your deposit back. If there is a long lag between the signing of the contract and the closing of the deal, this can be difficult to get. If the building is in move-in condition and ready to close, you might have better luck.

• If construction halted as the building was going up, it’s important to ask when and why. The building might have sat open, exposed to the elements for months.

•Before you close, walk through the apartment, ideally with an engineer or home inspector, and make sure everything is in good working order. Try out all the faucets and the appliances, open and close all doors and windows. If there’s a fireplace, test it to make sure it vents.