Over 2014, my firm’s chief economist felt a growing divergence between new development sales and the resales of condos and cooperatives, in terms of new development
sales skewing closing information, both in being averaged into all other sales, and
because of the delays between signed contracts and closings.
Our monthly and quarterly reports now reflect this reality, and perhaps leave a gap between how closing prices and
averages are reported.
As I like to write both about the state of the market in general and my travels through new development properties across Manhattan and Brooklyn, I felt I should break out my thoughts, as well.
Below are my thoughts on two projects and a view on where new development is now,
with velocity slowing at the very high end and acceleration of the middle of that market.
Just before Christmas, I had the pleasure of viewing two new gems:
100 Norfolk, which has only a handful of units remaining, is a terrific example of what’s happening on the Lower East Side and is winding down its sales, while The Boerum, at 265 State Street in Downtown Brooklyn, is at the epicenter of a rapidly changing neighborhood.
100 Norfolk’s Glassy Boxes on the Lower East Side
I bring up 100 Norfolk because many of my new development appointments were pushed to this month and next, due to construction delays.
This gorgeous project has only
20 apartments total, and inserts an architecturally forward-leaning, boxy, all glass, cantilevered building between the tenements and awful Chinatown-creep of faux brick and chrome which also pepper the Lower East Side.
Yes, the upper floors with expansive views are asking $2000 per square foot, but in the context of what is fetching higher numbers, this
is in the category of the reasonable right now.
I was impressed
by the contemporary kitchens, if for no other reason that there seems to be so little of this type of contemporary finish
on offer across the marketplace.
I suspect that
the more contemporary kitchen design actually allows
developers to choose slightly less expensive options, to “value-engineer” things a bit.
The kitchens become the focal point of many projects, certainly when views or location have to be secondary considerations.
Perhaps there will be a point where the quality of kitchens goes down in order to make more “affordable” options possible for buyers.
Investors will likely be okay with this; primary buyers who are desperately trying to stay in Manhattan should be happy with it as well.
Most recently, the average closing prices of new development across New York City
were $1841 per square foot.
Downtown accounted for 34% of these closings, the most of any neighborhood.
In terms of the quality they’re
ultimately delivered, buyers have not yet forgotten completely
the 2004-2008 market.
Not only do they expect a much higher-end product, but many still want to stand inside the apartments they are about to purchase, rather than buy from floorplans only.
Yet, by the time today’s
buildings are finished, many buyers have lost out on new development opportunities. This would position rental conversions to condominium to be particularly successful in this market, as buyers can stand in spaces: even if the units
aren’t finished, buyers can see views and get a sense of the spaces.
So there is some friction between the desires of buyers and the realities of the marketplace.
In terms of new development inventory available for closing today, there is very little left.
Buyers are left looking over the horizon, and from the looks of it, they are happy to bet on a strong housing market in 2016-2017, just not as much on the very high end.
There is no shortage of news stories and announcements of upcoming projects; the pipeline of projects is pretty remarkable across Manhattan and Brooklyn, not even to mention Long Island City, or Queens in general.
Breaking out the very high end of the new development market from the rest, we can see quite a difference on how
it is
being received.
Much was made of the Bloomberg article about the lack of sales at One57, and the developers are eager to close the building out to make way for their upcoming projects.
Yet less than a month later, this building’s closing of the most expensive apartment sale ever sold, at over $100mm, hit the wires.
At prices in the $6000s per square foot, a 59th floor unit and a few others are geared to appear “bargains” compared to units at 520 Park, 432 Park, and others with similar Central Park Views, which will be closing in the coming 1-3 years.
There was another intriguing article about the slowdown in sales at the very high end, including in some buildings which I’ve written about here, 210 West 77th Street and 45 East 22nd Street.
Some buildings, like the Woolworth Penthouses, have been taken off the market and perhaps are seeing some reconsideration of their plans.
There are still many buyers at the very high end of the market, but that velocity has certainly slowed.
Some of these projects simply are
in less-coveted locations.
For instance, the lack of development sites on the Upper West Side make for interesting and successful conversions such as the 344 West 72nd project, 100 West 80th Street and others.
On the other hand, buildings such as 210 West 77th may have simply missed the mark
on what
buyers will pay for, offering
very expensive apartments located on blocks that don’t inspire buyers.
Location still trumps all.
As an aside, there is a misperception
by the public that all of these buyers are foreign, and that oil money from Russia or Chinese capital flight was responsible for all of the high end purchases.
I haven’t seen that to be true.
Domestic buyers should make up 75% of these buildings’ purchasers
in the end, though it is hard to prove this, given the preponderance of LLC’s used
for the purchases.
Success will come down to location and layouts, more than anything, in my view.
The Boerum 265 State Street
More has been made lately about the potential for inventory geared to the middle of the luxury market, and we’re seeing the success of projects which have begun such marketing – many of which
are experiencing
incredible velocity of sales even as the RE market begins to pick up for the year.
265 State Street is one of these, located in Downtown Brooklyn.
Developed as a hybrid project,
its lower 7 floors will be a mid-level hotel, while the upper floors will be a 128-unit condominium.
45-50 units are in contract in less than 6 weeks.
What do I think is the reason behind the velocity here?
First, the developers seems to have delivered a very slick product that approximates much of the more high-end finishes of projects they have done in the West Village and SoHo, but at a $1200 per square foot starting price point.
With a number of one- and two-bedrooms offerings, they also have smaller units, which are in very low supply.
Then, the high-floor, large units are laid out like homes, and again meet a demand that has not been satisfied in the Brooklyn Heights neighborhood.
Buildings like the Pier House are priced 30-40% higher in Brooklyn, while Dumbo properties are at least 20% higher.
With transportation much more convenient, and the Fulton Mall transforming more quickly than anyone could have imagined, it is not a surprise that The Boerum is seeing incredible success so far.
Lots to see and lots to do in the New Year!!
More to come… -S