Manhattan, especially recently, has been a breeding ground for development, with the most notable developers clamoring at the opportunity to snatch up a prime piece of real estate and build the next “it” tower. In the last eighteen months alone, there have been fifty-five new luxury developments in Manhattan, representing approximately 5,600 units. To give an idea of why developers have pounced on every lot available to the market, the average absorption rate for luxury condos over the past five years has been 7,500 units.
As a direct result of the shortage of high-end condos and the amount of not only domestic but international money flooding into New York City, the prices of condos have risen, whether new or old. Condo prices overall are up 4.8%, but the number that really stands out is the 28% increase in the median price of new developments. Condominium buildings have not only been selling high, but they have been selling fast. Contracts signed are up 15% from last year and time on the market has effectively decreased a hair under 12% from 2012. These numbers are staggering, and it’s driving the prices of not just new condos, but re-sales as well, through the roof.
Berko & Associates principal, Joe Berko, recently advised an international developer on the acquisition and development schematic of a loft building in Greenwich Village. The asset was purchased at approximately $1,000 per foot and needs complete renovation. The building’s units are poised to hit the market in 2014 with residential condominiums marketed above the $2,500 per s/f mark. Understanding this transaction, as well as evaluating many others throughout Manhattan, it seems to me that developers can go into deals feeling comfortable that even in what some would consider to be “off” locations, the local demand with allow them to far surpass the returns necessary for them to dive in headfirst at these elevated prices and break ground.
It is not only developers benefiting from this spike in sales, though. Sellers are asking and receiving incredible premiums on their development sites. Just last month, developer Steven Witkoff, along with his partners, purchased 101 Murray St. for $200 million, which represents approximately $600 per buildable s/f, a number that most analysts did not expect the property to fetch. This just exemplifies the exceptional condo market and how hungry developers are to get on the bus before it’s too late. Let’s see how long this can hold up, and what that next milestone unheard of could possibly be.