Developers, faced with stratospheric land prices, forced to leave renters high and dry

New York City developers made a madcap dash to secure property sites in 2012, and with prices continually inching upwards, had little option but to build luxury condos, thus leaving renters and those needing affordable housing out in the cold, the New York Times reported. 

Property owners sold 158 development sites in Manhattan in 2012, an increase of 51 percent from the previous year, according to brokerage Massey Knakal. The total sales volume of those sites was $3.12 billion, representing a 128 percent increase from the previous year. Moreover, 69 sites worth $1.73 billion sold in the fourth quarter alone. Competition for these sites was cutthroat, with as many as 40 developers battling for the right to purchase a single site, Bob Knakal, Massey Knakal’s chairman, told the Times.

To mitigate the risk of buying at such high prices, brokers told the Times that developers were pushed to build high-end condos, or convert existing properties into them. “The fact is, the way the free market is working today, land is just too valuable, so developers can’t afford to do anything but build super luxury product,” Knakal said.

For example, Macklowe Properties is in the process of converting two Upper East Side prewar rental buildings, 150 East 72nd Street and 737 Park Avenue, into luxury condos. “There are very few remaining rental prewar buildings on Park Avenue,” Richard Wallgren, executive vice president for sales and marketing of Macklowe Properties, told the Times in reference to 737 Park Avenue. “So this opportunity to purchase one of those lone buildings was extremely competitive, and we are delighted to be successful in purchasing it.”

Some real estate insiders worry that this trend will lead to a lopsided housing market recovery. “I worry that if this is all we can develop, how deep is that market?” Jonathan Miller, president of appraisal firm Miller Samuel, told the Times. He added that the proposal to rezone Midtown East would be essential to alleviate the tightness in the property market.

Knakal said that the push to build high-end wouldn’t solve the problem of providing affordable housing to the large percentage of New Yorkers that need it. “There are so many millions of people that keep the city functioning,” he said. “If you earn $40,000 a year, where do you live?” [NYT] —Hiten Samtani