Industry analysts continue to debate whether the New York City real estate market has recovered, but there’s no question that land prices here have. In some cases, development sites are trading for close to — and even exceeding — the levels they hit just before the 2008 financial crisis.
Eager developers, encouraged by lenders with a newfound willingness to write loans for construction projects, are acquiring development sites across the city, pushing up land prices. According to data compiled for The Real Deal by real estate research firm PropertyShark and the commercial brokerage Massey Knakal, the gains in price and volume are being driven by a flurry of activity in Manhattan and Brooklyn.
In fact, the surge in appetite for land has some developers worried that a bubble is imminent.
“I’m starting to feel that it is going out of control,” said Miki Naftali, CEO of the Naftali Group, which last month closed on a deal to buy an interest in a development site at 33 Beekman Street in the Financial District.
The asking prices for some properties are twice what they were just 12 months ago, noted Naftali, though he declined to reveal what he paid at 33 Beekman.
Closed sales data doesn’t show increases quite that steep, but prices are clearly on the rise.
For Manhattan development deals so far in 2012, the price per buildable square foot is $323.43, up from $308.32 last year, according to data from Massey Knakal Realty; in Brooklyn, it’s grown to $117.71 from $113.24 in 2011.
Activity, too, is on the rise. In the first six months of 2012, there were 275 sales of vacant properties (including parking lots) in New York City, according to PropertyShark. If that energetic sales pace continues as analysts expect, the year will conclude with some 550 land buys, the most since 2008, when the city saw 620.
“The level of activity indicates that people are buying land again, and there’s no question there’s been improvement in pricing,” said Teresa Nygard, a land appraiser for Manhattan-based KTR Real Estate Advisors.
Manhattan deals
The uptick in land sales, experts said, is partly due to the greater availability of construction financing.
“Without a construction loan, land is worth nothing,” said Abraham Hidary, president of Hidrock Realty, which paid $27.9 million, or around $200 per buildable square foot, in March for a vacant lot at 133 Greenwich Street. Along with partner Robert Finvarb Cos., Hidary said his team plans to build a $100 million, 320-room hotel on the site, which is slated to open in 2015.
That deal was one of 27 vacant Manhattan land buys in the first half of this year, according to PropertyShark. If that activity keeps up, 2012 will see more activity than last year, when the borough had a total of 46 deals for vacant land; 2010, when there were 41; 2009, when there were 23; and even 2008, when there were 37.
And that doesn’t include sites with existing structures that will likely be converted to new uses, or razed for new buildings. According to Massey Knakal, which does track those sites, Manhattan has already seen 44 deals for development sites in the first half of the year, worth $809.4 million. That puts the borough on track to far exceed last year’s 54 total transactions. The strong residential market is one of the main forces driving more investors to buy land. The average monthly rent for a Manhattan apartment, for example, hit a record high of around $3,400 this spring, according to data from the brokerage Citi Habitats. Prices for new condos in some areas, meanwhile, are now hovering around $2,000 per square foot, brokers said.
That may explain why the priciest land deals of the year are those that are slated for use as new condominiums. The priciest Manhattan development deal per square foot so far in 2012, according to Massey Knakal, was the sale of a parking lot at 24 Varick Street, also known as 11 North Moore. That deal closed in June for $47.7 million, or $707 per buildable square foot. As The Real Deal has reported, VE Equities, headed by Zach Vella and Justin Ehrlich, is developing a 20-unit condominium there.
And at 105 West 57th Street, JDS Development Group purchased the controlling interest in a lot owned by Starwood Capital Group for $40 million. The price for the site, which can accommodate a skyscraper, comes to $617 per buildable square foot, according to Massey Knakal.
JDS — the developer of the Chelsea condo conversion Walker Tower — plans to build a 100,000-square-foot, 50-story condo on the site, which is already zoned for residential.
Sites like these, which are “shovel-ready,” tend to fetch top-dollar from developers, explained Ofer Cohen, president of the commercial brokerage TerraCRG.
Other development deals that fetch top-dollar are often those with existing structures that are ripe for conversion to residential uses.
In April, for example, a 10,446-square-foot factory and garage building at 37 Great Jones Street sold for $7.5 million. According to Massey Knakal, the seller, Great Jones Street Property LLC, paid around $633 per buildable square foot for the site. The landmarked building is being converted to five residential lofts and the project, developed by DIB Management, is currently seeking approval for its plan from the city’s Landmarks Preservation Commission.
Another high-profile Manhattan land deal, which closed in 2011 but also seems to reflect the land-rush trend, is a weedy vacant lot at 208 East 14th Street, which has sat vacant for years with no apparent interest among developers to build on it. It was nicknamed the “mystery lot” by Curbed.
A partnership of New Jersey-based Ironstate Development Company, Abe and Scott Shnay, and CB Developers bought it last year for $33.2 million and is now beginning to build an eight-story, 82-unit condo that is scheduled for completion in 2013.
Brooklyn boom
Brooklyn has seen an even more dramatic spike in activity.
Last year — Brooklyn’s most active since the financial crisis — some 206 vacant properties traded hands in the borough, according to PropertyShark. That’s more than the 195 that traded in 2008.
Naftali is currently constructing a 104-unit apartment building on an empty lot in Park Slope, which he bought seven months ago for around $100 per buildable square foot. Today, with demand rising, he said he believes he could sell the property for $200 per buildable foot.
“The market is moving so fast,” he said.
The borough’s high level of activity can be traced to a sudden uptick in supply: Many development sites that were stalled during the recession and then tied up in litigation are now coming to market.
“A huge vacuum opened,” Cohen said.
Simultaneously, Brooklyn’s popularity has grown throughout the downturn. Cohen estimated that residential rents in Brooklyn have been growing by about 10 percent per year.
Illustrating the new thirst for Brooklyn land is one of the borough’s priciest land deals this year: the sale of a stalled site at 242 Bedford Avenue in Williamsburg, where a Whole Foods will soon be opening, the New York Post reported. Michael Cayre’s Midtown Equities, along with Aurora Capital and developer Alex Adjmi, closed on the purchase from landlord Yahuda Backer in March. According to Massey Knakal, the site traded for $21 million, or around $222 per buildable square foot.
The partners’ 150,000-square-foot development will also include luxury rental apartments, the Post reported.
In another deal with a high price per square foot, an 8,150-square-foot Brooklyn Heights building at 174 Montague Street, formerly the home of Eamonn’s Irish pub, traded hands in May for $12 million, or $240 per buildable square foot, according to Massey Knakal. The Brooklyn Eagle reported that the new owners are Eli Stoll and Charles Dayan, and that the existing two-story structure will be replaced by condos.
Also in May, 313 Gold Street in Downtown Brooklyn traded for $19 million. Since the site can accommodate a skyscraper of up to 40 stories, that works out to only around $81 per buildable square foot, according to TerraCRG.
The vacant lot, at Johnson Street — located next to the now sold-out Oro condominium — was supposed to be the site of Oro’s sister building, but developers appeared to have scrapped those plans when they put the land on the market this year. A group called Brooklyn Princess LLC was the purchaser, according to city records.
And in June, at 61 Park Place in Park Slope, a 5,000-square-foot building owned by the Catholic Church was purchased for $5.75 million, or $357.50 per buildable square foot, the priciest per-square-foot deal this year in Brooklyn. According to filings with the city’s Department of Buildings, a demolition permit for the site has already been issued.
Other boroughs
Outside Manhattan and Brooklyn, however, land sales are still far below their boom-time levels.
In the Bronx and Staten Island, activity tumbled after the financial crisis and has stayed roughly the same since, according to PropertyShark.
In Queens, the number of land trades has decreased every year since 2008. There have been 49 sales of vacant properties this year, on track to finish the year at about 100, less than last year’s total of 126, according to PropertyShark.
PropertyShark’s Calen Onet attributed the sluggishness to lenders’ view that Queens is “the NYC borough with the most foreclosures.”
The one exception was the massive deal in February by Victor Elmaleh’s World-Wide Group, for a 25,000-square-foot lot on 24th Street in Long Island City.
World-Wide bought the lot for $28.9 million from the Criterion Group, according to city property records. Elmaleh’s plans for the site are unclear, though. He did not return a call for comment, nor did Criterion.
