The Real Deal New York

The Lower East Side goes upscale: Q&A, part III

February 10, 2016 04:16PM

Josh Caspi, Daniel Hollander and One Manhattan Square

From left: Josh Caspi, Daniel Hollander and a rendering of One Manhattan Square

From the February issue: The Lower East Side is a long gritty neighborhood that’s undergoing a dramatic makeover.  Driving the transformation is the $1.1 billion Essex Crossing mega project, which is set to deliver 1,000 units of housing along with retail, office, and community/cultural uses.

In our third and final web installment, we bring you TRD‘s interviews with Daniel Hollander, managing principal of DHA Capital, and Joshua Caspi, owner of Caspi Development, who weigh in on the condo and rental market and tell us what they think of Gary Barnett’s decision to market Extell’s One Manhattan Square condo project exclusively to Asian buyers.

Daniel Hollander
Managing Principal, DHA Capital

How much have land/development prices in the LES risen over the last few years and how does that compare to the rest of Manhattan?

On a percentage basis, probably more, from around $400 per square foot to $700 per square foot.

How much are condo prices up by in the last few years and how does that compare to other neighborhoods? Also, do you think there’s room for more growth?

Prices jumped quickly on a per-square-foot basis from around $1,300 to, in some cases, more than $2,000. That is a function both of appreciation in values and developers bringing right-sized units into the market.

What do you think about Extell’s decision to market exclusively to Asian buyers? Do you expect other condo developers to follow that strategy?

That is such a large project that I think they would like to say that they are 30 percent sold at their domestic opening announcement. I doubt smaller projects would do that.

How do you see the demographic changing over the next 10 years?

I think it will continue to be a diverse area.  The co-ops and rent-stabilized housing assure that there will continue to be many long-term residents in the area along with newcomers.  I think that’s one of the reasons that buyers like this area — it doesn’t feel homogenized.

What do you see as the biggest challenges to development and investment on the Lower East Side? Do you think the market is too saturated with product right now?

There are a lot of units on the drawing board. It could lead to a slowdown in sales eventually but not in the immediate term.

In terms of condos, what is the composition of buyers? Are you seeing more families? What other neighborhoods are they weighing the LES against?

We are selling smaller units, so most are younger people without children yet. I think that will continue to be the buyer profile for a while, but eventually I think families will adopt the area as well.

Are investors and developers eyeing rental-to-condo conversions in the LES? Or are those seen as risky or challenging?

The better business plan for these buildings is usually mark-to-market rentals. These weren’t great buildings to begin with, so it’s hard to turn them into appealing condo product.

What have been some of the most surprising trends you’ve seen in the LES, in both the retail and residential market? 

The surprise is how ready the market was to adopt luxury, high-end product. The neighborhood turned a corner very quickly.  Luckily we were there at the right moment.

You’re currently marketing a 37-unit luxury condo project at 50 Clinton. How is that going?

We are 65 percent sold in just five months on the market. Great design and efficient layouts are the key.

Joshua Caspi
Owner, Caspi Development

How much have land/development prices in the LES risen over the last few years and how does that compare to the rest of Manhattan?

In 2012, there were 12 development transactions that sold for an average of approximately $294 per buildable square foot. In 2015, there were eight development transactions that sold for an average of approximately $648 per buildable square foot.

How much are prices up or down by on the rental side? And what are we seeing in terms of rental development in the neighborhood?

Pricing on the rental market is up significantly year over year. We estimate this growth at 5 to 7 percent per year. There is a constant pipeline of rental redevelopment of prewar walk-ups and several recent new development projects to hit the market at 331 East Houston Street and 371 Madison.

How much is buying/renting activity up or down by on the LES now compared to the last few years? Is there a serious influx of buyers/renters or has activity started to recede?

Rental demand has been constantly appreciating over the last several years, but the buying activity has increased as a result of the influx of supply. The location is “hip” for millennials as well as a relative “bargain” for younger couples compared to Soho, Flatiron and Noho.

What’s going on with retail rents on the LES? How much are they up or down by in the last year or two?

Retail rents continue to appreciate on the LES, which is a combination of market demand and robust market conditions. Convenience retail (non-bar and restaurant) on the LES has struggled as a result of lack of daytime foot traffic, but in much the same way that the Meatpacking retail is benefiting from the opening of the Whitney Museum, I believe that the LES retail will benefit significantly from Essex Crossing.

What do you think about Extell’s decision to market exclusively to Asian buyers? Do you expect other condo developers to follow that strategy?   

Interesting approach, which I think must have to do primarily with the pioneering location. Foreign buyers are more focused on the new construction elements, amenities, light and views and may perceive the pricing as a “discount” to other projects.

What do you see as the biggest challenges to development and investment on the Lower East Side? Do you think the market is too saturated with product right now?

There are very active and controversial community groups, which are resisting the change and gentrification of the neighborhood. There is definitely not a saturation of rental product on the market; if anything there is a shortage of quality-renovated product at a reasonable price point.

What kind of development or investment opportunities are you looking for in the LES? Any deals you can share with us right now?

We recently purchased 104, 74, and 72 Forsyth Street, which are between Broome and Hester. We plan to roll out units as they get renovated to a first-class standard for the neighborhood. These assets are truly a testament to the momentum in the LES, as we have in the first month of ownership successfully leased eight of the vacant apartments at competitive rents and expanded one of the existing retailers.

To read the other interviews, click here.

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