Extell Development all but wrote the narrative for Billionaires’ Row when it launched One57 in 2011. Now, as the luxury market slows, brokers say the developer is having a second act by repositioning 38 high-end rentals at the soaring tower as condominiums with mid-market pricing.
The developer said last week it would sell 38 units on floors 32 through 38 as condos starting at $3.45 million, Bloomberg reported. Seven units will ask $10 million or higher.
“The $3 million to $10 million market is a good market to be in. That’s a range that’s transacting now,” said CORE’s Emily Beare, noting that sales above $10 million have been sluggish. “There are many more buyers out there that have the money to spend [compared with] $10 million and above.”
A $3 million pad at One57 – where a penthouse sold for more than $100 million in 2014 – may seem like a bargain to some buyers.
At One57, the average sale price is $6,521 per square foot, according to StreetEasy. While Extell did not disclose prices for all 38 units, it’s possible that a 1,021-square-foot one-bedroom unit, previously asking $13,350 a month as a rental, could fetch $3.45 million, or $3,379 a foot.
“It sounds ‘cheap’ on a relative basis,” said Warburg Realty’s Jason Haber. “These are non-intimidating numbers.”
By pricing condos between $3 million and $10 million, Haber said Extell will appeal to a wide swath of the market. “On the island we live on, those numbers aren’t crazy.”
Mid-level competition?
Although One57’s new batch of condos won’t flood the new development market, Extell may face competition from developers targeting an increasingly popular price point.
There are just over 1,000 new condos for sale asking between $3 million and $10 million, according to StreetEasy. The average new development price was $3.9 million during the first quarter, up nearly 30 percent year-over-year, according to real estate appraisal firm Miller Samuel.
Miller Samuel data show the absorption rate for new condo units was 3.6 months during the first quarter, down a staggering 71.4 percent year-over-year from 12.6 months.
“The strength in the new development space has been on the lower end of the price spectrum,” said Jonathan Miller, of Miller Samuel. “High price points are saturated with supply. So you’re seeing a lot of [developers] re-think what can be absorbed. Right now, the $1 million to $5 million price range is what most developers are focused on.”
According to a recent analysis by The Real Deal, developers are lowering total price expectations for many condo projects.
The combined sellout of Manhattan condos approved during the first quarter was $2.8 billion, a 44 percent drop from the $5 billion worth of new condo inventory approved a year earlier, TRD found. Meanwhile, the number of units being added to the sales pipeline was 839, a 3.5 percent drop from a year earlier.
However, One57’s mid-market units are likely to stand out in a crowded field, according to Warburg’s Haber. He pointed out that they’d fill a unique niche on Billionaires’ Row, where there are few one-bedrooms in development. “They’re probably saying, let’s go where the velocity is,” he said. “The super high-end of the market – let’s call it $10 million and up – it’s very, very slow. Everyone knows.”
Softening of luxury rentals
Given the slowdown in high-end rentals, Extell’s decision is clearly a “reality check,” said Olshan Realty’s Donna Olshan. (The rentals were priced between $13,350 a month for a one-bedroom and $50,336 for a three-bedroom.)
Miller said that the softening market for luxury rentals is – ironically – driven by closings in the luxury condo market. “Whenever you hear the word investor on the purchase side, that’s a rental. They won’t leave it empty,” he said. That includes One57, where buyers have listed units as rentals after closing.
Luxury rentals are also feeling a pinch from the global economy, according to Citi Habitats’ Gary Malin, who said he had no firsthand knowledge of Extell’s decision. But, he said, “The economy isn’t roaring and people are being more deliberate in approach. The high-end will feel that pain first.”
Given that units were not renting, Extell may have figured it may as well clear the units off the books by selling, Haber surmised: “They probably figure there’s a good amount of rental product out there, as well.”