Launch price and the pre-sale threshold

Two dates every price moves

Most new condominium towers are built with a construction loan, and most construction lenders want a share of the residences under contract before they fund. That share is the pre-sale threshold, and each lender sets its own. Until the building reaches it, construction waits.

The launch price moves two dates at once. A higher price slows the pace of contracts, so the threshold arrives later. It also leaves more residences unsold on the day the building is finished, and an empty residence in a finished building still carries taxes, association fees and interest every month.

An illustration

The sales instrument on our home page runs a simple model: a surge at launch, a steady middle, a lift when the structure tops off and another when it is finished. It uses assumed sales rates, not data from any real building. With a 50 percent threshold, it gives these results:

• Ten percent below comparable buildings: the threshold is met in month 6, and 90 percent of the residences are sold by completion.
• At par: the threshold is met in month 14, with 74 percent sold by completion.
• Ten percent above: the threshold slips to month 26, and only 55 percent are sold by completion.

The shape matters more than the numbers. In this model, ten points of price move the threshold by about a year and change the share left at completion by about twenty points. A real building's sensitivity depends on its market, its buyers and its competition. That is why it should be measured from the first week, not assumed.

Price is not one number

A building is priced line by line and floor by floor, not with a single figure. Starting the lower floors where they will sell, holding back the best lines, and raising prices as each release sells can protect the pace a lender needs without giving value away on the residences buyers want most.

What to watch from launch

• Contracts against the plan, every week.
• The pace at each price step, so the next step is set by evidence.
• Tours and reservations by line, the earliest sign of where price can move.
• The month the threshold will be met if the current pace holds.

These are the figures on the weekly report we send every developer we advise.

An illustration only. The model uses assumed sales rates and describes no real building. Thresholds and loan terms vary by lender and project. This is general information, not financial advice.