Know Thy Sponsor
Back to the Future…
The bell curve of bad developers to good developers is more like a hair pin turn on a NASCAR racetrack. Once the transaction gets going, things can spin out of control and good can turn bad very quickly. Whether it’s the quality of construction, the time table for completion, post closing punch lists, or latent defects, the new construction process is fraught with problems that seem a million miles away from the model apartment and the signing of the purchase agreement. When these issues arise, purchasers often try to exit the transaction, which is not easy to accomplish. Although the financial crisis leveled the playing field for purchasers and unreasonable negotiating postures gave way to more flexible terms and deep discounts on pricing, as the market slowly improves, things seem to be heading back to the dark side again.
As Regis Would Say…
Once the paperwork is signed, buyers often feel “out of control” with the flow of information provided by the developer. Sponsor’s counsel, the transaction gatekeeper, can be monosyllabic in conveying status updates about completion of the apartment, problems with construction or other material issues impacting the sponsor or the development. The mantra is often “read the plan”. The firewall of protection accorded every developer, no matter how big or small or how inexperienced, is puzzling, since so many of these transactions often wind up with problems both before and after closing. Making matters worse, the Attorney General’s real estate division, the co-op and condo cops, is up to their eyeballs in offering documentation and rarely intervenes with run-of-the-mill transactional hassles that drive many buyers to distraction. More than ever, it is essential for the potential buyer to research the sponsor’s background, track record and current status of the development in question before signing on to purchase an apartment. But what to do?
That Internet Thing
Fortunately for buyers, there is a hard drive full of information available through online portals such as streeteasy discussion boards, curbed for development updates and sponsor gossip, the real deal for industry news and trends, Huffington Post New York, for a variety of New York issues, NY1 with Jill Urban, as well as condo blogs and Google searches. Often, there are extensive comments about specific developers and specific projects that shine a very bright light on a variety of topics including pricing, construction status, litigation, and a developer’s success or lack thereof in general. As the expression goes, where there’s smoke, there's usually fire. If there are numerous negative comments about a particular building, the buyer is well advised to proceed with caution and to require explanations of the unflattering commentary before the contract is signed.
When Elvis Leaves the Building
A brand spanking new building should be free of construction issues for many years to come. In many cases, however, that is simply not so. Some sponsors are responsive to issues. Others, not so much. It can be like pulling teeth without Novocain to get a sponsor to complete minor punch list items. When it’s a major issue that impacts the entire building…you get the picture. The goal of the developer is to sell all of the units and to move on to the next deal. Remember, once the sponsor exits, it’s your apartment, and in most cases, your problem.