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A Cautionary Tale For Overeager Developers And Real Estate Speculators

A report from the Wall Street Journal on New York. “Amazon.com Inc.’s announcement that it is ditching plans for a corporate headquarters in New York City stunned real-estate speculators, developers and renters who had rushed into the Long Island City neighborhood to be near the new HQ2. Open houses for Long Island City condos were overflowing. Brokers said customers made offers via text messages on units, site unseen.”

“Now, suddenly, much of the euphoria is evaporating. Ascent Development filed plans this month to build a 20-story condominium project in Long Island City, the company’s managing member Tien Vominh said. ‘The major problem that we had before Amazon came was who is going to absorb all these units,’ he said. ‘When Amazon came, not a single lender asked that question again, and I’m sure it will come up again now that Amazon is leaving.'”

From Business Insider. “Sam Musovic, who owns apartments close to where Amazon had proposed building its headquarters in the Long Island City neighborhood of Queens, said that he and a group of angry Queens residents would be protesting at an Amazon Books store near Herald Square on Friday.”

“Musovic told Business Insider that the news about HQ2 being canceled was ‘devastating.’ ‘I thought I was going to be the happiest guy on the planet,’ he said. Musovic said he took out a loan of more than $1 million from the bank to renovate his apartments in Long Island City and two restaurants he owns on the Upper East Side before Amazon’s November announcement that it would be opening a headquarters in the area.”

“He said he then shifted his focus to investing in the Long Island City locations, putting in new kitchens and bathrooms, thinking he would get the money back when more people move to the area. ‘I am not going to be able to recoup the benefits, Musovic said. ‘It’s a huge loss. We want Amazon back.'”

From CNBC. “Developers and speculators — who bought property on the promise of Amazon‘s planned New York City headquarters — are ‘freaking out,’ now that the e-commerce giant pulled out of the deal due to local opposition, luxury real estate agent Ryan Serhant told CNBC on Friday.”

“‘We put, I think, 15 different apartments into contract, purely speculative, based on the Amazon move,’ he said in a “Squawk Box” interview. ‘All 15 of those buyers called yesterday, freaking out, saying, ‘Should I pull my deposit, can I get it back? Is there an Amazon contingency in my contract?'”

“‘I remember doing deals at $600 a square foot in Long Island City in 2009. And everyone was so angry about it. They’re never going to get their money back,’ he said. ‘I just resold an apartment that I sold for $900,000 in 2009 in October, so before the Amazon announcement, for $1.8 million.”

From Curbed New York. “There will likely be ‘a bit of whiplash’ in the market, according to Nancy Wu, an economist with StreetEasy. While the firm has a similar outlook as other experts—things will go back to ‘normal’ for LIC—they do see this as a cautionary tale for overeager developers and real estate speculators.”

“‘The Amazon reversal highlights the risk inherent in speculative investment in real estate in the city,’ Wu said in a statement. ‘While the city has enjoyed swift economic growth, turning a quick profit remains difficult, particularly in areas dense with new development.'”

From City Lab. “Not everyone believes that Amazon’s non-arrival will mark a huge change in course for Queens. Long Island City ‘is not a neighborhood based on Amazon,’ says Brendan Aguayo, a senior managing director at Halstead Property Development Marking, which sold two units in a Long Island City condo building to Amazon employees within a week of the first HQ2 announcement.”

“Neither he nor Lauren Bennett, a Corcoran broker who sold five units in Long Island City after the news of Amazon’s arrival, would say whether their HQ2-connected clients had expressed any buyer’s remorse. One unit in Bennett’s portfolio—a three-bedroom condo on 51st Avenue that had languished on the market for eight months without an offer—became the object of a bidding war after the mere rumor of Amazon’s move to Queens. The New York Post reported that the winning bid was $300,000 over the initial offer and above the $1.49 million asking price. (Bennett declined to answer questions about the status of this sale or others.)”

“Before Amazon, Queens was marked by a local oversupply of luxury condos and a shortage of affordable housing. In the first quarter of 2018, permits for new housing units were down 44.6 percent in Queens over the same time period a year before—far lower than any other borough.”

From Newsday. “The now-scuttled plans for Amazon to open a sprawling corporate campus in Queens would likely have given an additional boost to the housing market in suburbs such as Manhasset and Roslyn, said Nick Sakalis, a real estate agent with Coldwell Banker Residential Brokerage in Syosset.”

“After Amazon announced its plans to open a corporate campus in Long Island City, Edith Yang, a Douglas Elliman real estate agent in Manhasset and Manhattan, said she received a flurry of calls from buyers, including investors based in China who signed contracts on units under construction in the immediate area.”

“Long Island home buyers have endured a lot of bidding wars, and they may be near the limit of what they’re willing and able to pay, Sakalis said. ‘There’s always a breaking point, and right now are we at the peak?’ he said. ‘It’s very possible that we’re at the peak. But we could stay here for another year, or two years, or three years.'”

“The number of listings increased, year over year, by 14.5 percent in Nassau and 3.4 percent in Suffolk. That’s due in part to a slowdown in sales. ‘Things are starting to plateau a little bit,’ Sakalis said. ‘There’s a lot of houses that are hitting the market right now.'”

“Even so, he added, ‘a lot of them are being put on the market just to test the waters, because of the increased values.’ In some cases, he said, the homes are ‘overpriced,’ but sellers are not budging on prices since they don’t absolutely need to sell.”

“The market remains strong for homes priced near the median, but demand gets weaker as prices rise, said Paul Dyckes, an appraiser based in Huntington. But, he said, the new $10,000 limit on federal deductions for state and local taxes is putting a damper on the luxury home market, where annual property tax bills can easily reach $30,000. In the high-end market, Dyckes said, ‘these homes, if they’re not priced right, they’re going to languish.'”

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This Post Has 87 Comments

  1. ‘she received a flurry of calls from buyers, including investors based in China who signed contracts on units under construction in the immediate area.’

    Dumbest money on the planet.

    1. Makes me very happy to know that all these Chinese infestors just lost a ton of speculative money in a matter of weeks! I hope to read much more sad specuvestor stories related to major losses on a stupid gamble

    2. Why are the Chinese, or any foreigners for that matter, allowed to speculate in shelter and drive the cost of living up for struggling Americans? This country has sold out to the highest bidder. It’s disgusting.

      2. I agree and wish we would at least impose a giant tax on purchase for non residents . Didn’t New Zealand finally restrict foreign purchases of RE?

        2. Friends just back, New Zealand restriction$, yepper$ … No $ales to folks 55+ … want only the productive one$ …

  2. ‘Before Amazon, Queens was marked by a local oversupply of luxury condos and a shortage of affordable housing. In the first quarter of 2018, permits for new housing units were down 44.6 percent in Queens over the same time period a year before—far lower than any other borough’

    NYC was already fooked and had been for years. This episode reminds me of the speculative foolishness after the hurricanes in New Orleans and Houston and the fire around Sonoma. It’s like a bubble within a bubble.

    1. “…bubble within a bubble…”

      You’re reminding me of the influx of specuvestors taking foreclosure bus tours to pick the bones of the first wave of housing collapse, in the post-2009 period. The Fed’s housing bubble reflation program ended up making those greater fools look like financial geniuses.

  4. ‘‘We put, I think, 15 different apartments into contract, purely speculative, based on the Amazon move…All 15 of those buyers called yesterday, freaking out, saying, ‘Should I pull my deposit, can I get it back? Is there an Amazon contingency in my contract?’

    ‘I remember doing deals at $600 a square foot in Long Island City in 2009. And everyone was so angry about it. They’re never going to get their money back’

    This guy is a go to for the REIC, but he’s actually a deceptive slime-ball as I’ve documented several times. He really cares though!

  5. he and a group of angry “…Queens residents would be protesting at an Amazon Books store near Herald Square on Friday.”

    Stamp them liddle feet hard!

          1. E-Buggy, that’s cute! My mom leased one of the 500 equally cute MINI E cars back in 2009. I couldn’t stand driving it though.

  7. This couldn’t be better press for AOC and the progressives’ challenge to having Amazon bless their neighborhood with their glorious presence. Not that I’m a huge fan of Google but I do appreciate their recent announcement that they’re planning 24 different sites for new centers. Company tech towns encourage this horrible speculative betting on SHELTER. Lord help our economy if NYC really suffers without Amazon in town!!

    1. Andrew Ross Sorkin|NYTimes

      ” There is a financial literacy epidemic in America.

      Quick lesson: NYC wasn’t handing ca$h to Amazon. It was an incentive program based on job creation, producing tax revenue.

      There isn’t a $3 billion$ pile of money that can now be spent on subways or education. “

      1. There is a financial literacy epidemic in America

        Shouldn’t that be a financial illiteracy epidemic?

          1. If I had an account, I might. I only use that platform to gauge public sentiment on specific topics.

      2. ” There is a financial literacy epidemic in America.”

        Ain’t it da truth. And I am so glad.

        My bread and butter: Lay out some dotted lines that will relegate totally ignorant, throughly dumbed-down moronic pukes to years – decades! – of debt slavery and vast multitudes of these ignorant dumbed-down ignorant pukes will flock into my bank to eagarly sign them.

        Quite amazing! (and, oh, so profitable!)

        Bahahahahahahahahahahahahahahahahaha

  8. Luckily, according to this recent article in a reliable source, the effect of the Amazon ‘pull out’ on local real estate values should be gradual:

    NEW YORK CITY
    Amazon HQ2 Will Have Gradual Effect on Home Values, Experts Say
    But that hasn’t stopped the bidding wars, price hikes and speculation unleashed on Long Island City and Crystal City
    By Beckie Strum
    | Originally Published On November 18, 2018 | Mansion Global
    …

    1. Rather than get caught up in the frenzy, he called for patience. He even had one client pull their listing from the market until next spring despite multiple offers…. Oh Oh! Karma just slapped the seller.

  10. ‘I am not going to be able to recoup the benefits, Musovic said. ‘It’s a huge loss. We want Amazon back.’”

    Not to worry, Sam. There’ll be another Amazon coming along any day now, eager to set up shop in this SJW-infested city.

        1. If by SJW you mean corporate bought shill who pretends to care about social justice to get votes, then sure, i’ll Think next time lol

    2. “There’ll be another Amazon coming along any day now…”

      Phuc business. With MMT they can just print whatever they will need to turn those frowns into smiles!

      1. Phuc crony capitalist business subsidized by a system that privatizes profit, makes risk public and encourages financialist casino economy that produces ‘value’ only in asset bubble wealth for the few, yeah! MMT works well for that too

  11. ‘I thought I was going to be the happiest guy on the planet,’ he said.

    The only thing sadder than unrequited love is crushed speculator dreams.

  12. Musovic said he took out a loan of more than $1 million from the bank to renovate his apartments in Long Island City and two restaurants he owns on the Upper East Side before Amazon’s November announcement that it would be opening a headquarters in the area.”

    Gosh, Mr. Banker, what happens if NYC real estate craters and Sam can’t pay back his million-dollar loan? You would just write it off out of Christian charity, right?

    1. I wouldn’t be too hasty to write off the oligarchs. First, they own every single media outlet of note in the country, and use them to purvey The Narrative that globalism is our friend, open borders give us rich cultural diversity, etc. Second, they are using their control of YouTube, Facebook, etc. to “deplatform” and demonize any truth-tellers who expose the corporate media’s lies and logical fallacies or point out the pernicious role of the oligarchs in hijacking both parties and our institutions of government. Third, thanks to the deliberate dumbing down of the populace and the oligarchy’s subversion of our education system, most of the sheeple are completely incapable of independent or original thought and don’t have an idea in their head that wasn’t put there by the media or their NEA indoctrinators.

      The late, great George Carlin was right: it’s a big club, and you’re not in it.

        1. Yeah, every time JPB asks for money after leaving Patreon I reply and ask for him to do something bigger and create something to allow me to send money to Milo and not just him. All the people getting unpersoned by the system need to band together or they will all get cut out of the system separately.

    2. Ooh yes …. tech billionaires won’t save us they don’t “really” have our interests in mind even with their global-capitalism wrapped up pretty in alleged multi cultural values and acceptance of all people thing to make us kumbaya types dazzled by the ProductRed iPhones and Vuitton bags! This movement is really starting to take off!
      Everybody read one of the cool manifesto books of this change in heart “Winners Take All”?! Good stuff!

      1. And it’s gotten worse since defectors from inside are finally saying screw the non disclosure pacts I’m going to tell what it’s like and pull back the curtain and the next gen of employee is less willing to drink koolaid with their less frequently offered catered lunches

    3. It ain’t got nothin’ to do with red/blue | Capitali$m.$ocialism.Communi$m | repubican/democrapt |

      The word is: Exploitation$

      The real basis of the difficulty is that old hatred$, fear$ and exploitation$ are now being played out in “new circum$tance$”.

      The land that is your land & my land & our land that Woody sang about, is now entered into & onto by gate$; some physical, some ca$te in economical qualification$, but most a$$uredly presented as barrier$ with the controls to accessibility in the hand$.of.thee EXPLOITER$.

      (OK, $ermon over!)

      $ee also: (an incomplete list)
      Child labour
      Child sexual exploitation
      Contemporary slavery
      Corporate abuse
      Cost the limit of price
      Criticism of capitalism
      Cruelty to animals
      Debt bondage
      Exploitation of natural resources
      Forced prostitution
      Free trade
      Globalization
      Gulag
      Human trafficking
      Indentured servant
      International child abduction
      Labour, class struggle and false consciousness
      Mutualism
      Neocolonialism
      Overexploitation
      Property income
      Proconsumerism
      Rate of exploitation
      Sharecropping
      Surplus value
      Sweatshop
      Trafficking of children
      Unearned income
      Unequal exchange
      Unfree labour
      Wage slavery

      1. Somehow your comment which is lovely reminded me of a core issue for this blog lol— housing circumstances. I’d been thinking shacks are overpriced and crappy and I can’t even find a layout I like so with some actual savings I was thinking of buying some smallish plot of land around here to build my own shack with At least the layout I want. But the land plots — this was new to me cuz I’d never considered doing this before—had all the stipulations about how big a house I could build. It HAD to be at least 3000sf and They had to approve etc etc and I couldn’t do x and y and on and on. These areas had a house every 5 to 15 acres max with woods between and no actual ‘gates ‘ but still the bougie gate keepers were gonna stop me from the small freedom sigh

          1. Michigan. There’s plenty of land but if i wAnt easy utilities and close to civilization I’m finding subs like this. I recently saw a parcel off a busy road and unwooded advertise “ be free of HOAs and put your RVs and boats on the land lol. It sold pretty quickly.

        2. “I can’t even find a layout I like so with some actual savings I was thinking of buying some smallish plot of land around here to build my own shack with At least the layout I want.”

          There are so many things wrong with the U.S. housing market as it presently operates, but you hit on one that we seldom discuss. The model where the big Wall Street funded builders completely control local construction and build identical cookie-cutter track homes priced “from the $1 millions” completely eliminates consumer choice for an individualized home from the equation.

          1. I would love some change in that model indeed. Lots of new housing being built around here but for each development there are maximum 3 models offered and it’s only whatever the “trends” are in terms of layout. I don’t want a friggin “open kitchen” taking up half my main floor right in the middle of it. And so on with other design features. Even if the builder in question has other options at other locations in the state or country, they’ll only do the 2 or 3 in a given sub. The “consultant” in sales offices look at us like we’ve suggested a pigeon coop be built in our bathroom if we prefer a combo tub/shower to a walk in shower with extra vanity space on the master bath, never mind caring about exposures and window placement and room divisions.

        3. I considered doing this myself here in San Diego but lots are just as overpriced. By the time you buy a lot and build it out in a size comparable to its neighbors, you’ve spent way more than your neighbors’ houses are worth.

          1. City type lots here are near impossible to find and overpriced too, but once in a while you can find a reasonable price on one in a marginal or bad neighborhood. Then there’s overpriced rural land with iffy utilities to consider or HOA subs where you must build giant homes and then get your neighbors approval on the door material, blech. Why can’t there be subs providing utilities and lots and some restrictions for say density and public nuisance protections like no raising hogs or whatever and beyond that you can build what you want?!

      2. It feels like a new era of throwing all conceptualization about cooperation out the window though… that humans cannot stop themselves acting like this do all we can do is line up on a team and there are benefits to the people in power. An (interstellar) alien invasion would be useful about now but even that might not lead to cooperation because greed has been ‘good’ for so long now

        1. “An (interstellar) alien invasion would be useful about now … ”

          Ha!, is “Mars Attacks” on Netflix?

    4. Joel Kotkin is the presidential fellow in urban future$ at Chapman Univer$ity and executive director of the Center for Opportunity Urbani$m. His latest book is The Human City: Urbanism for the Re$t of U$.

      Chapman University is located in “Thee.Oh.$ee” (Orange County, CA)
      Gue$$ what the co$t is to become a $tudent.member.a$$ociate …

      Cheap?, $omewhat cheap? … knot cheap$ @ all

  15. I’ve been wondering who reads more articles, Ben of Professor Bear? Interested in seeing an estimate from each.

    1. I have so much money left after “throwing money away on rent” every month that I don’t know where to throw it.

    1. Impeccable timing, don’t you think? In the run up to the 2020 elections, we have Democrat infighting and the real objectives of the party laid bare, namely open borders, elimination of ICE, and defense of illegals over Americans.

  17. Sakalis said. ‘There’s always a breaking point, and right now are we at the peak?’ he said. ‘It’s very possible that we’re at the peak. But we could stay here for another year, or two years, or three years.’”

    I’m pretty sure this is not the definition of peak.

    1. That is the much more likely explanation! It’s not like we’re hearing about a runner up getting a new infusion are we? I haven’t been keeping up with the world of ridiculous over valued tech stocks…. my good citizen do-as-you’re-told hubs doesn’t let us do any active management of the 401k …but it feels like there’s some worry there right now indeed

    2. Amazon realized that the implosion of Tech Bubble 2.0 is pending and preemptively opted to slash expenditures and brace for impact.

      That was my assumption.

  19. Story time: A friend of mine, a single professional female millennial, is moving to East Bay SF for a new position. She texted me earlier today telling me that she’s secured short-term lodgings and will be “moving in” next Saturday. The wording seemed odd so I asked if it was an AirBNB situation. Her response: “Yes. New start up called bungalow.com. Newly renovated home. So far I don’t know that anyone else has signed a lease.” Thoughts? It sounds a little sketchy to me and I know she is extremely fastidious about her surroundings.

    1. https://www.housingwire.com/articles/46776-co-living-startup-bungalow-launches-with-64-million-in-funding
      Looks like coworking/coliving space in rental homes instead of apartment buildings.. interesting way to deal with SFHs that aren’t going to win a premium on either resale and need renovating anyway so bungalow.com outfits them as nice flophouses for new hires?! Low entry ways for VC to parasite off housing unaffordability, keeping the bubble inflated?

      1. “Then, the company vets and matches renters together to serve as housemates in the fully rented-out house.”

        If demand is high, this shouldn’t be a problem. If not, this could be a nightmare.

        1. I also don’t fully understand the model— do the SFH owners still own the things and this company just organizes the leasing arrangement? Who owns the furnishings and the renovations are paid for by the home owner or bungalow.com ? I just don’t quite understand this co- living scene yet and it feels like 12 new middle men to keep housing artificially expensive in all cases . And the brief in the link seems to indicate that before a home is “set “ there is a lengthy ish process of meeting and vetting roomies because you have to commit to a 12 month lease? I think I like the dorm-room single in a suite model of coliving better lol

          1. My friend said short-term so it’s not 12 months. If the company has carrying costs from the renovations and little demand, the company will throw vetting out the window unless it is concerned about its brand. If the owner has the carrying costs from the renovations, the owner will be hounding the company to rent it out. The idyllic living situation being marketed is unlikely to be the reality.

  20. “Bungalow master-leases houses and small multifamily properties, furnishes them, and sublets rooms to customers willing to share a home with other people. The company also takes care of common spaces, cleaning and WiFi. Most of its properties have three to seven bedrooms, and customers are expected to commit for at least four months.”

    “Founded in early 2017 by Andrew Collins and Uber veteran Justin McCarty, the San Francisco-based company currently manages several hundred apartments and homes.”

    2. Oh great so they take off the rental market “undesirable” SFH housing stock that might otherwise be available to people who would get a home to buy at a better than usual price or be able to rent at a better rate and charge per the room to new hires who will be able to pay a lot for a couple months as they start their high salary tech job, perfect! And there aren’t any zoning or regulations issues with this? I think I read some people complaining about this as keeping rents artificially high for SFHs and prices boosted too. Another nasty way to keep the bubble inflated and people exploited by concentrated capital and debt-driven asset bubbles

          1. Not to mention having to deal with the roommates’ significant others. Irrespective of profitability, how is this sustainable as a business model?!

    3. The company also takes care of common spaces, cleaning and WiFi. Most of its properties have three to seven bedrooms, and customers are expected to commit for at least four months.

      We wondered how the McMansions in the burbs would get used in a major downturn…looks like something like this will be the answer, if they can solve the parking problem.

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