Property Grunt

Monday, June 12, 2006

Herald Towers: Condos of doom

The New York Times has revealed that the Herald Towers is a complete and utter cluster f**k. I am not surprised since it always had a infamous reputation even before the condo conversion. I figured something was up was when I saw their own blog, which they have now taken down probably because of the litigation.

I could write a freaking dissertation on this abortion of a development because everything that has went wrong did. But I would like to focus on the two parties that got royally screwed which are the buyers and brokers.

"I feel that I am getting ripped off," said David Yoon, a 25-year-old manager in the garment district, a few blocks from Herald Towers. After learning of the price cut, he found himself unable to back out of the contracts he had signed to buy two apartments for his family. Then, he said, when he tried to buy another apartment for himself at the discount price, he was turned down.

But many of the early buyers have been Korean families, familiar with the neighborhood because of the concentration of Korean stores and restaurants nearby, particularly on 32nd Street. The Korean-speaking brokers who represented them say they are still angry and embarrassed by what has happened, though some are afraid to speak out publicly for fear of losing out on future sales.
John Jun, a broker formerly with Citi Habitats and now with the Corcoran Group, said he completed deals for six apartments at Herald Towers: two buyers backed out, and four have already waited a year or more to buy, only to see the prices drop.
"New York City developers have credibility," he said. "But these buyers are angry. People who stayed in and didn't give back their apartments deserve some kind of discount. It really is unfair."

I can only imagine the anger and frustration the buyers are feeling right now especially those like Mr. Yoon that were prevented from buying another unit at a discount. What I do find ironic is that Korea is one of the biggest holder of U.S mortgage debt, yet even they are not immune to what happened to them.

Brokers have also been screwed over because not only for lost commissions but their buyers are probably screaming at them or leaving them venomous voice mails. Their reputations are completely trashed because they couldn’t protect the interests of their buyers.

"It's definitely a thrill," Mr. Montaña said. He said that from the time he graduated from college, he had a passion for New York and wanted to put down roots here, but he believed that buying an apartment in Manhattan was beyond his means. "I thought I would have to wait years before buying anything," he said.

If a judgement is issued against the developers responsible for this debacle Mr. Montaña’s thrill will be short lived because I am sure the developer’s lawyers will figure out a way to pass the cost onto the residents.

And while I am playing Debbie Downer, have we all read the recent issue of the New York Times Magazine covering debt? I found their assessment on mortgages and borrowing in general quite sobering.

The trouble is that the officially stated borrowings of the federal government are only one part of the U.S. debt problem. For it is not only the government's debt that has grown large of late. Ordinary American households have also gone on prodigious borrowing sprees.

In the past five years alone, the value of U.S. home-mortgage debt has increased by nearly $3 trillion. Not all of that borrowing went to pay for real estate, the traditional function of mortgages. In 2004, net mortgage borrowing not used for the purchase of new homes amounted to nearly $600 billion. The International Monetary Fund estimates that this kind of equity extraction has risen from less than 2 percent of household disposable income in the year 2000 to more than 9 percent in the third quarter of last year.

And let's not forget those other debts that families did not formerly run up. Consumer credit in the 1960's and 1970's averaged less than 13 percent of G.D.P. In the past 10 years it has climbed to around 18 percent.

Not only do Americans borrow as never before; they also save remarkably little. The impressive resilience of American consumer spending in the past 15 years has been based partly on a collapse in the personal savings rate from around 7.5 percent of income to below zero. The aggregate national savings rate, which includes the public sector and corporations, averaged 13 percent in the 1960's. Last year it was just 0.8 percent.

Let the foreclosures begin!