A not-so-funny thing happened while developers scratched an itch to build mansions in the sky for the billionaire set during the latest real estate boom in Manhattan: The cost of land and construction ballooned. Now, even as Manhattan real estate continues to break historic sales numbers, top brokers are anxious about a growing crisis in constructing housing for non-billionaires.
"No one is building anything, and if they are building they are going to have to build expensive," Shaun Osher, chief executive of CORE, told me earlier this month. "So your buyer who is going to spend $1 million to $4 million is not going to have many options."
Of course, even as brokers are buzzing about a slowdown, Manhattan prices continue to rise. The island topped $2 million in average sale price in the first quarter of this year, at $2,051,321, up 5 percent from $1,948,221 last year, according to Miller Samuel, the property appraisal firm. For context, that average number has doubled in just 12 years, with 2004 being the last time sales averaged under $1 million in Manhattan in a three-month period.
"It's a scary number," Pamela Liebman, the chief executive of Corcoran, said of the latest record figure. "We want Manhattan to have pricing that is affordable to more people, not less. We have a lot of inventory to absorb, so the more buyers the better."
Liebman was quick to point out that the record number was inflamed by deals that were in the pipeline for a long time in some extraordinarily expensive new developments. Recent closings over $10 million in The Greenwich Lane, 432 Park, and 150 Charles, to name a few, pumped the number up.
"If you took the pipeline deals out of the number it isn't anywhere near that," Liebman said.
That said, it hasn't just been in the new development market where prices have been rising. Resales of properties over $20 million climbed 15 percent in the first quarter compared to last year. Resales of units over $10 million shot up by 29 percent in the same period, according to Corcoran.
"The market is still experiencing incredibly high demand and severe inventory shortages, which creates lots of bidding wars and short sales periods," Liebman said.
In many ways, Manhattan has become a tale of two markets. Properties under $20 million continue to be in short supply, while the uber-luxury end of $20 million and up is softening noticeably and making some developers nervous.
"If you are building for a billionaire in Midtown, we don't feel that market is too deep," Osher said. But "there is definitely a deep market for units priced at under $7.5 million. We have almost nothing left to sell."
At 224 Mulberry Street, for example, CORE sold the remaining units—priced from $11 million to $24 million—over the past six months for an average price of $3,150-per-square-foot, Osher said.
"The feeling last year was, 'If I don't buy it today, it is going to cost more money tomorrow.' Nobody feels that way anymore."
And after launching in December, CORE put half the units at The Flynn—a mid-market development at 155 W. 18th Street, with two and three bedroom apartments priced from $2 million to $8.5 million—into contract in just six weeks. Osher said the development has seven units left to sell.
The uber-luxury market is another matter. The number of unsold condos in new developments on the market for $20 million or more is piling up, and cautious buyers are no longer afraid they will be left out.
"The feeling last year was, 'If I don't buy it today, it is going to cost more money tomorrow," Liebman said. "Nobody feels that way anymore."
Osher calls much of the uber-luxury market "poorly conceived and over-priced." And while some developers have been downsizing (or "right-sizing") huge units to make them more palatable to buyers, others don't seem to be following suit.
The CORE executive called out Aby Rosen's project at 100 E 53rd Street—where the asking price for the duplex penthouse in the Norman Foster-designed tower is $65 million—as more irrational exuberance. "When he thinks of $6,000 or less-per-foot as a bargain price, I don't think that anyone thinks that is a rational thought," Osher said of Rosen.
The slowdown in the uber-luxury sector has come at a sticky time, when the U.S. Treasury Department decided to demand more transparency in real estate sales in Manhattan and Miami. Seeking to thwart money laundering by penetrating the veil of secrecy that has become prevalent in high-end sales—where buyers of condos and townhomes often shield their identities through the use of LLCs and offshore entities—Treasury put in place new rules that took hold last month and will run for six months.
Prominent developers like Gary Barnett, the president of Extell, told me earlier this year that the new rules came at an especially bad time, given the softening super-luxury market for buildings like his One57. But Liebman and Osher expressed less concern this past week. Liebman said an internal survey of Corcoran agents last month showed that only 4 percent of brokers reported buyers saying they would wait until after August to make a purchase—when the Treasury's rules are scheduled to end. (Only 30 percent of Corcoran Manhattan agents responded to the survey, a Corcoran spokeswoman said.)
For Osher, "Only people with something to hide should be concerned."
Instead, real estate executives say they are more concerned about issues like the impact of losing the 421-A tax abatement on the city's efforts to create more affordable housing. The tax break, which expired in January, required developers of rental units in some parts of the city to offer some units at below-market rates.
"Between land costs, construction costs, and now the lack of 421-A to assist developers building rental housing, where are we going to get new housing?" Osher asked. "Where are people going to live?"
"It is not like developers are being greedy. They aren't going to build for charity. It has to be profitable, and it has got to make sense."
The real estate executive is hardly alone in expressing alarm and a sense of urgency. Mayor Bill de Blasio has made easing the housing shortage through the creation of 80,000 more affordable housing units a centerpiece of his agenda.
"We are in an official housing crisis, period, in New York City," Alicia Glen, New York's deputy mayor for housing and development, told NPR last month.
De Blasio has been pushing a plan to ease the shortage by requiring developers to build more affordable housing and rezoning some neighborhoods to allow more construction.
But the mayor's plan is encountering opposition in some of the poorest neighborhoods, where residents are worried they will be pushed out as more moderate-income renters are ushered in.
Osher argues the city cannot simply strong-arm developers into building more. Eventually, he predicted, the city is going to have to create incentives for developers to construct new housing. "It is not like developers are being greedy," he said. "They aren't going to build for charity. It has to be profitable, and it has got to make sense."
- Property Lines archives [Curbed]