The Real Deal New York

Top developers at TRD panel: No immediate let up in surging condo prices

Steve Witkoff says some units at 50% over pro forma estimates, others see some warning signs

May 15, 2014 03:52PM
By David Jones

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From left: Steven Witkoff, Jonathan Miller, Miki Naftali and Michael Stern

A panel of leading developers said that prices for new condominiums will remain strong in the near term, spurred on by robust job growth in the technology sector, high demand from foreign buyers and constrained supply in the city’s top neighborhoods.

Speaking at the The Real Deal and Luxury Listings NYC’s New Development Showcase, Steve Witkoff, chairman of the Witkoff Group, said he recently finished condominium projects at 150 Charles Street, a 98-unit luxury in the West Village and 10 Madison Square Park West, where he is selling at prices more than 50-60 percent above the pro forma estimates.

“Rents [prices] are high,” said Witkoff. “People want to be in Manhattan for all the right reasons.”

He said at 150 Charles, units are selling for about $3,500 a square foot, while the project was underwritten at about $2,200 a square foot. At 10 Madison Square Park West, meanwhile, he is seeing prices just north of $3,000 a square foot, while the project was underwritten at about $1,850 a square foot. Witkoff said that project is about 95 percent sold.

The developer also noted that a lot of the data regarding demand shows that new buyers are coming from the technology sector, which is once again a booming growth industry in New York.

Miki Naftali, chief executive of the Naftali Group, agreed that many in the industry are pleased with the prices they are achieving right now. But he issued a warning that the long-term pricing trend at this rate is unsustainable.

“At the end of the day, if someone thinks that prices tomorrow or six months from now will continue to grow at the same pace, it’s a mistake.”

Naftali is building an 18-story market-rate condominium with 25 ground-up units at 210 West 77th Street, where he expects to see prices at about $3,000 a square foot.

Jonathan Miller, one of the city’s top real estate appraisers, said there are a couple of areas that present potential pitfalls for new development. He noted that in many cases, consumer lending standards are just as tight as they were after the collapse of Lehman Brothers in 2008. Therefore the market is trending heavily towards cash buyers at the high end of the spectrum, which could limit the ability to close deals in certain submarkets or certain types of developments.

He said he is also concerned about the high cost of land in New York, which the panelists said is going for $800 to $1,000 a square foot in some cases.

The high costs of land in many submarkets is making it difficult, if not impossible, to develop new rental properties at a price point that can be underwritten for a construction loan, the panelists agreed.

Michael Stern, managing partner of JDS Development, said buyers are not just looking at prices when they make purchasing decisions, but they are exploring new neighborhoods. He sees Brooklyn as a market ripe with opportunity for new development, because there are neighborhoods that are open for growth, and land is less expensive than in many of the more mature neighborhoods in Manhattan.

JDS has acquired development sites or existing properties in several Brooklyn submarkets, including a $6 million deal last month at on Baltic Street and Fourth Avenue in Park Slope.

A group of union members from Local Union No. 3 of the International Brotherhood of Electrical Workers staged a protest in front of the site of the conference during the crowded panel, demanding that non-unionized workers not be hired for work on Stern’s real estate projects.

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