Buy Now, Pay Later

When hedge-fund manager Kit McQuiston bought a condo last October at 425 Fifth Avenue, it was only the building’s fourth sale, and the apartment wasn’t there yet. McQuiston visited nearby offices to check out the views, and inspected the developer’s other projects. He did his homework, he says, and “I had faith.” And faith paid off. Not only is he delighted; in three months, even in last fall’s soft market, the price for similar space at 425 Fifth had risen $40,000.

That developers steadily raise prices after an initial offering is widely known but little discussed. “It’s a sales pitch at its best,” says Barbara Corcoran. “A developer would rather die than not raise his prices.” An early-bird special prompts buyers, jump-starting the cash flow that pays off construction loans. More than that, though, it’s about buzz. “It’s in a developer’s economic self-interest to underprice stuff a little,” says Jed Walentas, who worked with his father, developer David Walentas, on the Clock Tower condos in dumbo. “You want to move product. There’s a psychology to it – you want there to be a perception that stuff is selling.”

Those first buyers, who might otherwise feel like cogs in a hype machine, get a return for the risk (and for their larger down payment: They may have to put down 30 percent, while later buyers can often get away with 10 percent). If they love the place once it’s built, they’ve saved a few bucks; if they hate it, they can sell at a profit. Win-win.

A striking example took place at the Chelsea Mercantile condos on Seventh Avenue. Pediatrician Oscar Chamudes paid $867,000 for a two-bedroom in August 1999, when his apartment was still chalk marks on a floor. Rockrose, the developer, upped prices 25 to 30 percent over the eighteen-month sellout, in fifteen increments. “It was beyond my wildest dreams,” says Chamudes. He’s hoping to sell for $1.3 million – and is seeking another new building to buy in.

Of course, it all hinges on the real-estate boom. (Barbara Corcoran adds that reducing prices, or failing to raise them, “would be a horrific sales tactic.”) Notes Neil Binder, head of Bellmarc Realty, “In a decline, I might get left holding the stick. But I’ve been in business 24 years, and the odds are very much in favor of buying early.”

Buy Now, Pay Later