When it comes to getting top dollar for a luxury penthouse, timing is everything. The tricky part for developers is choosing the strategy that will yield those sky-high prices.
Should they dive in or hold back? Wait to unveil the penthouse until the end of the sales cycle in hopes of building excitement and pumping up the price—and risk getting stuck if the market turns—or use it as a benchmark early in the process to establish a base price and leverage units on lower floors?
Experts say there is no right or wrong answer. Determining a launch strategy, they say, involves a variety of factors: the percentage of a building’s sellable square footage the penthouse takes up; current market conditions; the length of the sales cycle; overall economic predictions, and projected occupancy.
And, all experts agreed, getting the best price means a willingness to change strategies if the initial assumptions don’t bear out.
Waiting it out
The traditional approach to selling a penthouse, particularly before the advent of computer-generated imagery and 360-degree panoramic videos, has been to let prospective buyers walk the space, experience the views and absorb the allure of the more immediate occupancies in lower floors, knowing that the penthouse will have a better level of finish, a higher-quality kitchen, more luxurious flooring.
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The idea of holding back, said Charles Snyder, senior design and development analyst at Douglas Elliman Development Marketing in Manhattan, is to create the perception of scarcity, as many buyers want what they can’t have. It also keeps the highest-priced units—which take longer to sell ] than lower-floor apartments—from lingering on the market for hundreds of days. Developers, he said, will use that time to create targeted public relations and ad campaigns surrounding the release, or to start a whisper campaign to select brokers, building excitement for top-notch units that are not yet officially on the market.
But sometimes fast and furious works best
On the other hand, said Daniel de la Vega, president of One Sotheby’s International Realty in Miami, if a building has a dramatic penthouse that takes up a large percentage of the residential space, the agent will likely want to sell as quickly as possible. A unit that represents 5% to 10% of the salable square footage, he said, poses a huge risk for developers who hold out until the end, passing up reasonable offers while waiting for a top-dollar bid that never comes. But when a building has multiple penthouses, and less drastic size discrepancies between the regular units and the penthouse, developers will be more likely to hold off because less risk is involved.
Location, location, location … and timing the market, too
Miami has a pretty cyclical market, according to Mr. de la Vega, with a turnaround time for larger buildings of about three years. That means it is sometimes better to sell at price that may not yield top dollar because a developer who waits can get caught in a down market and wish he or she had sold.
Mr. Snyder agreed. The hold-back strategy, he said, was more prevalent two years ago; these days, most developers would entertain serious offers for a penthouse even from Day 1. "One, two or three penthouse units can represent up to 20% of a project’s projected sellout," Mr. Snyder said, "so to get that amount of projected sellout in contract early on is compelling in today’s market."
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In a bull market, said Ian Marris, Knight Frank’s joint head of residential development in London, developers feel optimistic and are reluctant to sell prime assets. By contrast, in a "normal" market, offloading a penthouse can often be a good strategy at the early stages.
One pitfall in either strategy, Mr. Marris noted: "Some developers get carried away with their view of what size property can be accommodated on top of a building. There are some ambitious top-floor flats that overextended their potential," he said. "Some are priced beyond their threshold, and buyers are not prepared to follow the developer’s ambition."
Testing the market first
One way around this is a new strategy that Mr. Snyder has observed in the New York market. He said he has seen some developers file offering plans with no prices associated with the penthouse. This allows them to quietly test the market and gauge the public’s appetite for various price points. It also gives them the opportunity to split up a penthouse if they’re not getting positive feedback—or, if the feedback is very positive, to combine units to create bigger residences below.
Another strategy, Mr. Snyder said, is to release one unit in the lower tier, another midway up in the same tier and yet another on a higher floor, to give an idea of where the price points are throughout the building, and then adjust the overall release strategy based on that initial phase.
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Whatever route a developer chooses, many experts agreed that the most dangerous approach is to be too rigid, especially at a time of changing market conditions.
"It is a brave developer who turns away a good buyer for a penthouse because it doesn’t match the strategy set on a piece of paper," Mr. Marris said.
Holding back can build desire for a penthouse, but it can also push away a buyer who may be the biggest player in the market. Most purchasers, he said, have short boredom thresholds, and if they’re pushed away, they won’t come back.
The key, he said: "Be fleet of foot and take advantage."
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