Land for development: no buyers, no sellers and no financiers
July 07, 2009 12:30PM By Michael Stoler
I still remember a day that seems so long ago (it was only 18 months ago) when every piece of developable land for a residential condominium or rental, hotel or office building was selling for prices as high as $500 per square foot. Parking lots, industrial warehouses, former gas stations and odds and ends throughout the five boroughs were priceless possessions, only available to the most successful or financeable developers. Then was then and this is now: there is limited availability, and little or no financing available for land or developments.
In addition, there is uncertainty about how much money is actually out there.
"No one really knows what the actual reduction in dollars for land value is today," said Robert Knakal, chairman of Massey Knakal Realty Services. "Since Sept. 15, 2008, there have been only five land sales of which four were to owner-users and the other sale was for a mere 2,500 square feet of developable land."
Alan Miller, the senior director and principal at Eastern Consolidated, concurs when he says, "The last couple of land transactions which we closed on were sold to users. They included 1133 York Avenue to Memorial Sloan Kettering in December 2008, for a sales price of approximately $300 per buildable foot. The same land today would be hard to realize an amount of even 50 percent of that price, due to lack of debt and construction financing available."
He noted another deal the firm closed, a parcel on East 32nd Street between Park and Lexington avenues sold to the Korean government, which plans to build a cultural center.
"The land, which traded for approximately $366 per buildable foot, was sold to a user who does not require financing," Miller said. "Today, we would be very lucky to sell the land for about $150 per buildable foot."
Due to the lack of financing for residential development at any price, few developers are looking to acquire land. The combination of limited financing, elimination of most of the tax abatements through the 421-a program, and the general attitude that the price of land will continue to decrease is resulting in the lack of a market for this asset.
"Theoretically, a residential rental site which might fetch in the height of the market a price of $400 to $450 per buildable foot, could be worth $150 to $175. This is an amount certain developers have said they might pay, but there have been no transactions to support this pricing," Massey Knakal's Knakal said.
Michael Stoler is a columnist for The Real Deal and host of real estate programs "The Stoler Report" and "Building New York" on CUNY TV and on WEGTV in East Hampton. His radio show, "The Michael Stoler Real Estate Report," airs on 1010 WINS on Saturdays and Sundays. Stoler is a director at Madison Realty Capital as well as an adjunct professor at NYU Real Estate Institute, and a former contributing editor and columnist for the New York Sun.
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Comments
Anonymous
Great article Mike! If prices in the outer-boroughs peaked at $150-$200 PBSF, I wonder if they can even get $50 PBSF nowadays?!
Comment #1 Posted By: Anonymous 07/07/09
Anonymous
you cant get the #'s to work if you acquire land at $100psf..The only play is 80-20 rental, owning the land at $50psf where you can get rents in the $50's....Try to find that combo in NYC...You still have to put up plenty of cash equity even if you do have that situation....The real question is Are we in 1990 or 1993...
Comment #2 Posted By: Anonymous 07/07/09
Anonymous
developers typically back into the price of land by subtracting from their projected net sales proceeds the project's 1) hard costs, 2) soft costs, and 3) profit. Given what has happened to residential sales prices you would be hard pressed to pay anything for land right now.
Comment #3 Posted By: Anonymous 07/07/09
Anonymous
Doesn't it make intuitive sense that land, even in Manhattan, has limited value currently? Until we absorb all of the development that has happened and is happening today, no one will be initiating projects that haven't already begun. Therefore, no one but users with a long term view would consider buying land today.
Comment #4 Posted By: Anonymous 07/07/09
Anonymous
However, as prices continue to drop, buying land for long term use may not be such a bad idea. Taxes are much lower than developed RE and there's obviously no maintenance to support a structure.
Comment #5 Posted By: Anonymous 07/07/09
Anonymous
I remember..... when Michael Stoler was a real estate professional
Comment #6 Posted By: Anonymous 07/07/09
Anonymous
What's a "user" with a long-term view? Is there something wrong with investing for the long-term? Must be a "flipper" that got caught holding the bag.
Comment #7 Posted By: Anonymous 07/07/09
Anonymous
#3 don't forget holding costs which can be large in today's market as you would be planing on holding the site for 2-5 years before pouting shovel in ground.
Comment #8 Posted By: Anonymous 07/07/09
Anonymous
true, but in that case they should be paying you to take the land
Comment #9 Posted By: Anonymous 07/07/09
Anonymous
you have to work backwards, from selling price-const cost-soft, etc + the fact that you might hold the finished product for some times. So how do you turn a profit? I don't know. i still have a bunch of new homes in a very good area of queens. So i am on the bench....
Comment #10 Posted By: Anonymous 07/07/09
Anonymous
You have to work backwards. How much money do I want to lose for my investors? How many dollars in fees can I soak the project for? How long can I string out my consultants? These are key development issues that need to be addressed by today's developers. How many Ice buckets might be tossed in my direction, and what size will they be? Development is complex.
Comment #11 Posted By: Anonymous 07/07/09
Anonymous
#12: I am not Yair Levy and you are not Kent Swig (i think...)
Comment #12 Posted By: Anonymous 07/07/09
Anonymous
no issue with the content of this article, but rather the timing. It seems all of his articles are old news- this has been an issue for 9 months
Comment #13 Posted By: Anonymous 07/07/09
Anonymous
what a bunch of broke losers ! Absolutely land in midtown is worthless, no one will ever rent or buy in Mnahattan again, project development is a thing of the past. You all must be Acorn volunteers ! Get a grip on reality.
Comment #14 Posted By: Anonymous 07/26/09
whats the point
who cares?
Comment #15 Posted By: whats the point 09/16/09