Here are 8 real-world mistakes that real estate developers make in NYC.
These examples come from first-hand experience working with buyers in places like Bushwick, Bedstuy, Long Island City, Midtown and the Lower East Side.
- Not getting your offering plan and legal documentation approved so that you can legally start to market the properties. Avoid the inefficiencies of building a building but not being able to market it or the penalties of marketing a building without permission from the State. Marketing of apartments should start as early as possible and can be done with nothing but a floor plan and renderings. State regulations however prohibit the marketing of real estate prior to approval as per The New York Real Estate Syndication Act which was added to The Martin Act in the 1960s and governs new development real estate as a form of security.
From the NY State Real Estate Finance Bureau on soliciting prospective buyers/investors:
A real estate syndicate is a group of investors who collaborate with one another and pool their funds in order to purchase or develop real property. The process begins with at least one person who wants to invest in a real estate venture and who seeks to approach or solicit investors to pool their money together for the investment; this initial person or group would be known as the issuer. Before the issuer of the security can approach or solicit prospective investors, however, he or she must be registered as a dealer and an “offering statement” or a “prospectus” must be filed with and accepted by the Real Estate Finance Bureau of the New York State Office of the Attorney General (“REF”). The offering statement must disclose all material information related to the offering. Only after REF has accepted the offering statement and the issuer has been properly registered would the issuer be permitted to make public offerings to prospective investors. - Not creating a custom website for marketing and SEO. This is how you get the word out about your new development building and how to distinguish your apartments/building from all the other offerings out there.
- Understaffing salespeople. If you have one agent selling your building and that agent is booked all week long, that’s great right? Wrong. You are guaranteed to be missing out on tours. Work with an agent or team of agents that have the ability to ramp up the number of brokers showing the property on any given week. Every request to show must be answered in a timely manner and buyers should not be rushed or frustrated in their attempts to view units and amenities.
- Hiring agents to show the property who don’t know the neighborhood or haven’t done their homework. Showing agents should be able to anticipate questions and be up-to-date on the kinds of things that buyers care about like, the nearest supermarket, good restaurants, parking, transportation options, dry cleaning, etc. They don’t need to live in a neighborhood to sell in it but they should know the answers to common questions about the area and amenities before giving tours or holding open houses.
- Inefficient use of outdoor square footage. Like creating an outdoor space 3 times the size of the indoor space it’s attached to. In a post-covid world, outdoor space is much more in demand than it used to be but there is a diminishing return to the amount of outdoor space that is sold with an apartment. Anytime the square footage of a terrace approaches or exceeds the SF of the interior space, you are essentially wasting valuable outdoor square footage. Imagine a 3,000sf terrace attached to a 1,000sf 2 bedroom apartment. Sounds crazy, right? But it exists in a new development in Long Island City, and the developer left what probably amounts to about $1M on the table.
- Building unusable (extremely impractical) kitchens. Once you get to 2 bedroom new development apartments costing in excess of $1,200,000 your buyers are going to want a kitchen where they can put dishes and cups in a cabinet they can reach. Cabinets over 6 ft up, don’t count. Yes, this happens. And it causes the apartments to sit on the market, unsold.
- Trying to squeeze too many apartments onto one floor. On paper it might make sense to squeeze every 2nd bedroom you can into each floor but what can happen is that In an effort to create efficient floorplans, some developers choose to design apartments with living spaces that are so small that they become unpalatable to buyers. It’s not just about the square footage number, it’s about the efficiency of layout. Is a lot of your square footage in a hallway? Is there enough room for a dining table? If not, maybe reconsider the layout for that floor. Again, the result is that the apartments will sit, sometimes for years, unsold. See the floorplan below. The living room is more like a pass-through between the master bedroom and the kitchen. Try to imagine sitting and eating at that dining table comfortably. In the actual staged unit, there was no dining table because it didn’t fit.
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