Edwards: Why the big secret? People are smart. They can handle it.
Kay: A person is smart. People are dumb, panicky dangerous animals and you know it. Fifteen hundred years ago everybody knew the Earth was the center of the universe. Five hundred years ago, everybody knew the Earth was flat, and fifteen minutes ago, you knew that humans were alone on this planet. Imagine what you'll know tomorrow.
Men In Black
The quote from MIB perfectly describes the mentality of the real estate market. Everyone is freaking out and has no idea what is around the corner. How will this shakeout? When will end come?
According to Time Magazine things are getting worse out there.
Housing Woes: Price Reductions Are Proliferating
Which brings me to New York Magazine's article The Billyburg Bust, has made the blogging rounds. And when the Williamsburg condo market is compared to the Miami, well it is definitely s**tastic. However one advantage of Miami is that they have better laws protecting assets.
There are two aspects of this article that are of interest to me. The first is the primary reason why there such a huge boom in Brooklyn.
Like many people in the real-estate industry I spoke to, Maundrell placed blame for this implosion on the city as much as the hubris of developers. The �inclusionary zoning� plan of 2005 was passed largely to foster the revival of the neighborhood’s waterfront, where developers would be allowed build as high as 40 stories�and receive huge tax breaks�so long as they dedicated a portion of their building to low-income housing. But in reality, most new construction ended up inland, where developers could receive the same benefits on smaller buildings without having to set aside affordable units.
Recognizing this design flaw, the city amended its tax-abatement program in June 2008 to require all new buildings, no matter how small, to devote 20 percent of their units to affordable housing. �That 20 percent? It’s a developer’s profits,� Maundrell said as we parked outside a vacant lot on North 10th Street. �What the city did is they forced all these guys to take down the existing building and drive the pile��in other words, to rush construction far enough along that the development would not be subject to the new rules. �Most of them did it with their own money, or they took a hard-money loan at some outrageous interest rate. Well, that was just as the banks stopped lending. It was like Armageddon. You had the city looming, you had to take down your old building, and then�poof!�there was no money.� He sighed. �So here we are, everyone asking the same question: What the hell is going to happen?
Tax-abatements are a huge deal in New York City. Landlords and developers will fight tooth and nail for abatements. However I do not have any sympathy for these developers. In real estate three letters rule all. OPM. Other People's Money. You never use your own cash to finance a development. The property in question is what is held hostage.
If you enter the hard lending fray, you better be willing to be as vicious as hell. I know of one well known real estate developer and landlord who has reputation of being a provider of substandard affordable housing. That is not by accident. Back in the 80's when the market imploded, this developer had nowhere else to go for financing and had no choice but to go to private lenders who charge insane amounts of interests for the privilege of using their money. This developer fought tooth and nail to lower his operating expenses which is why he was so despised by his tenants. The term "hard money" should not be taken lightly because it means one has to look at the possibility of detaching any type of sympathetic emotion in their mind.
So what could have these developers have done? They could have been like this guy.
In the world of real estate, one developer’s misfortune tends to be another’s opportunity. Among those closely following the status of buildings like Warehouse 11 is Jamie Wiseman, a laid-back 33-year-old who is not what most people think of when they think about real-estate developers. A self-described �recovering lawyer� who favors stenciled T-shirts, Wiseman lives with a roommate in a small apartment in Bushwick, where over the past few years he has made a modest living buying up nondescript buildings and turning them into rentals and condos.
In November 2007, he made his first foray into Williamsburg, when, along with his business partner, Jacob Sacks, he purchased an abandoned factory at 44 Berry Street for $12.7 million. During the height of the market, the building would have been far out of his price range; in fact, it was in the process of being sold for $15 million to a California-based conglomerate called Atherton-Newport Investments, which planned a luxury-condo conversion. That deal fell apart last January, when Atherton filed for bankruptcy.
�They’d already put down a nonrefundable deposit of a million dollars, so the owner was willing to cut us a deal,� Wiseman told me on a recent afternoon, as we stood outside the building along with the project’s development manager, a 25-year-old named Ari Heckman. �The biggest difference between us and most of the developers out there is we’re not building apartments based on the fantasy that Williamsburg is where bankers want to live. Basically, what we’re doing is creating places for the people who live here now.
These particular developers had the patience and understanding who understood their market and had the patience to wait for the opportunities that would arise for them.
Awhile back I did an entry on Brooklyn
Gentrification Wars: The Battle of Brooklyn
The word "hipster" is something I find extremely pretentious. I actually met a girl who identified herself as one with a smug arrogance. In my opinion it is akin to calling someone from California a Valley Girl. This population at one point felt like they were being squeezed out of Williamsburg, however with the changes in the market, It hink they will be sticking around for awhile.