The Real Deal New York

NYC market just as unattractive as Seattle: AvalonBay

CEO cites land prices and construction costs as reasons to be "very cautious"

October 29, 2015 04:55PM
By Rey Mashayekhi

AvalonBay NYC

Timothy Naughton and Avalon Midtown West at 250 West 50th Street

AvalonBay Communities is “very cautious” on the New York City residential market due to concerns over housing supply and both “land pricing and construction costs,” the real estate investment trust said in its third quarter earnings call this week.

Responding to an analyst’s question on which markets the residential real estate investment trust found “relatively unattractive for development,” chairman and CEO Timothy Naughton cited New York, and Manhattan specifically, alongside Northern California and Seattle.

The Virginia-based REIT, which holds a stake in more than 280 apartment communities containing almost 83,000 units across the country, has only one development in Manhattan at the moment – the American Bible Society’s former headquarters at 1865 Broadway in Columbus Circle.

AvalonBay acquired the property for $300 million earlier this year and plans to build a 300,000-square-foot residential tower on the site. The REIT may look to sell a piece of the development such as its retail component, CIO Matthew Birenbaum said, lauding the site’s “very flexible” zoning.

“The project will be 100 percent market-rate,” Birenbaum added, with AvalonBay “not planning on pursuing a 421a [tax abatement] there.”

Executives also offered insight into the company’s existing holdings across the city, with COO Sean Breslin citing Morningside Heights as a “supply-protected pocket” for the REIT. “There’s not much going on there,” he said, noting that the company’s Avalon Morningside Park apartment building “has performed well.”

Breslin noted that the Midtown West area — home to the Avalon Midtown West at 250 West 50th Street — “is getting a fair amount of supply,” with “some expectation for that [area] to be a little bit soft.”

And a continued influx of housing supply in Brooklyn, where the Avalon Willoughby Square project in Downtown Brooklyn is expected to deliver early next year, has prompted the “need to be a little bit careful there,” Breslin said.