Westchester's booming condominium market

Real Estate Weekly, June 26, 1996 by Phil Adler

First time home buyers - those making the transition from a rental or those making a lifestyle choice by moving north out of New York City - are snapping up Westchester homes. Why? Generally speaking, the overbuilding of the 80s was never absorbed in the hung-over 90s. But now, with lower interest rates as one driving force, Westchester is experiencing what can be called the "trickle up" effect: First-time home buyers are purchasing starter homes and condominiums, freeing those owners to trade up to mid-size properties.

Another factor contributing to the surge in first-time home buyers is New York City's and Westchester's high rental rates. Mortgages are increasingly becoming a viable alternative - and in some cases a less expensive option - to renting. Adding momentum to this trend are the lower down payments now accepted by mortgage lenders. In the past, when lenders demanded down payments of 20 percent, those living in high-rent areas had difficulty saving such a large lump sum - even if their incomes could support the mortgage.

By contrast, today's lenders, through a variety of federal, state and other programs, are able to accept substantially lower down payments (some as little as 3 percent), allowing a whole new segment of renters to clear what is often the largest hurdle to home ownership. Lower interest rates, reduced down payments and easier mortgages have set off the "trickle up" effect, and it is expected to continue through the end of the year.

The catharsis that has occurred with area banks has also provided housing opportunities that did not exist 12 to 24 months ago. As banks reached agreements with defaulted borrowers, partially completed housing developments were purchased by developers. The developers who purchased these sites did so with the realistic sales expectations of the 90s. Additionally, these developers found "hidden subsidies" in these projects.

For example, my firm, North American Properties, LP, acquired the balance of Woods III in Westchester County from a New York City money center bank during the fall of 1993. There were 166 condominium townhouses left to be developed and sold in order to complete the job. The bank sold the project to us for $6 million less than the previous developer had borrowed from them, which had been used to develop the site's infrastructure and several sales models. The $6 million loss experienced by the batik translated to a "hidden subsidy" of more than $36,000 per unit, allowing us to develop the balance of the site and sell at today's market prices. Since we opened for sales two and one-half years ago, we have sold more than 150 units, priced from $105,900 to $159,900. (We currently have 12 units and expect to be sold out by Labor Day.) This "hidden subsidy," and its understanding by our lenders at Chemical Community Development (now Chase Community Development), enabled us to provide home ownership opportunities to moderate-income families. At our unit sales prices, nearly every unit was affordable to families earning just 80 percent of Westchester County's median income.

The "trickle up" effect spurred by first-time home buyers has resulted in a substantial absorption of the area's housing inventory. Yet housing prices are expected to remain stable over the next six months, as the market has only recently returned to price levels that make development economically feasible. Increased housing development is possible, but not likely in any great volume. In the current environment, Westchester suffers from a shortage of development financing, and site-plan approval remains difficult. Contributing to price stability is the entrance into the market of condominiums convening from rentals. Developers who purchased these properties at a price point that works for rental projects, have led a number of Westchester real estate firms to buy and convert these rental properties to condominium ownership. Now, as first-time home buyers rush to purchase these condominiums, it would seem that the excesses of the 80s are now turning into the relief of the 90s.

PHIL ADLER Managing Partner North American Properties LP