NYC NEW DEVELOPMENTS ARE BOOMING!
New residential construction is booming in New York City. Pounding jack-hammers and vibrating power saws provide the backdrop din; monster construction cranes and huge cement trucks crowd the streets; giant lego-like barriers divert pedestrian traffic; billboards on elaborate scaffolding and tall screens broadcast the players of a thriving construction industry. New development building is not only reshaping our residential landscape, but this year contributed to the strongest market since the peak in 2007.
Experienced developers along with newcomers are taking advantage of steady foreign demand, easing construction lending and pervasive low inventory which has kept prices high. Nearly all are targeting the high end buyer—and with good reason. It’s simply too costly to build anything else. Increasing land costs, escalating labor and materials, and exorbitant insurance premiums—nearly twice what they were only 2-3 years ago—have driven up construction costs significantly. Today hard costs average a reported $500-600 per square foot. When you factor in the additional $150 per square foot soft expenses for architects, engineers and marketing with the intangible cost of the time it takes to get approvals, breakeven numbers are astonishing. According to a recent article in The Real Deal, some projects are coming in at $900 per buildable square foot, so owners are upping their starting prices to $2,500—3,000 per square foot.
The Building Congress forecasts 22,500 residential units will be built by the end of 2014 citywide and another 23,250 new units will be built in 2015 and 24,000 more in 2016, compared to 18,400 units in 2013. They predict construction spending will top out this year at $32.9B—17% more than what was spent in 2013—and will increase to $35.3B in 2015 and $35.6B in 2016. Only 7 years ago, at the peak of the market in 2007, 33,200 units were built at a cost of $5.9B—underscoring an astronomical rise in spending of over 400%. According to Building Congress President Richard Anderson, the addition of 20,000 units is the minimum amount required “to accommodate household growth, replace antiquated buildings and maintain adequate housing options.” The increased numbers of condominium units being built today will not flood the market.
With the exception of builders like Barnett and Macklowe at towers like 157 West 57 Street and 432 Park Avenue respectively, where prices have been averaging above $7,400 per square feet for listings in contract, for the most part developers are building boutique structures with 50 units or less—also with good reason. It’s more difficult to assemble larger parcels, easier to secure construction financing for smaller projects, and since smaller developments sell out more quickly, they carry less risk. However while the overall development size has shrunk, individual apartments in these buildings have grown sizably in recent years because larger spaces command more dollars.
Two examples on the Upper East Side illustrate. Brodsky’s 19 story condo at 135 East 79th Street offered 29 half floor apartments averaging 3000 square feet. When sales officially launched in February 2013, 17 units were already in contract. Last month, PH19W sold—it has 5,429 square feet and an asking price of $26.5M ($4,881 ppsf). Remaining for sale are two other duplex Penthouses: PHE with 3,558 square feet and PHW with 4,476 square feet with price tags of $16.95M ($4,764 ppsf) and $18.85M ($4,211 ppsf). Seven blocks north and closer to Park Avenue is 60 East 86th Street, Glenwood’s first residential condominium with 15 units which began sales of full floor 3-4 bedroom apartments last March; 3 units remain for sale each with 3,209 square feet on floors 4, 5 and 9 with asking prices of $8.75M ($2,727 ppsf), $9M ($2,805 ppsf) and $10.25M ($3,194 ppsf).
Clearly these developers have made winning bets as buyers continue to purchase apartments from plans for units that won’t be ready for another 12-24 months. In fact some purchasers are still rushing to be “first in” before developers raise prices with new amendments to the Attorney General’s Office. While most new condo purchase agreements prohibit owners from reselling their apartments until after most sponsor sales have closed—in a non-compete clause of sorts—at least two recent resales are notable though they may be outliers:
- 157 West 57 Street—a 3 bedroom 4,483 square foot unit on the 58th floor closed in May for $30.6M ($6,826 ppsf) and then sold again in September at $34M ($7,584) —that’s an 11% return in less than 4 months.
- 135 East 79 Street, Maisonette East, a 3,709 square foot 5 bedrooms/5 bath unit closed May 2014 at $8,807,862 ($2,375 ppsf) and resold in July at a staggering 50% profit for $13.25M ($3,572 ppsf).
As the market absorbs the latest inventory, new pricing benchmarks are being set. All Q32014 reports from the various brokerages agree that luxury market price gains have outpaced the overall market with condo’s achieving far greater levels than co-ops. Buyer appetite for luxury new development has been steady. There is every reason to believe that for the foreseeable future, the Manhattan condominium market will sustain a high level of activity—particularly as more global buyers seek a safe haven.