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Lower East Side: Staying affordable despite the hype

By Melissa Dehncke-McGill

While the real estate market in prime Manhattan neighborhoods softens, prices in the Lower East Side and the East Village have remained even lower. Despite the hype the neighborhood has received, flashy new condos are still few and far between, and it's still largely a neighborhood of rentals, even for new development. Zoning remains an obstacle to erecting new towers in the area, which the city is looking to change — one of the reasons prices have remained fairly low.

In The Real Deal's Q & A this month, brokers said the adjacent neighborhoods are drawing those who want to remain in Manhattan but can't afford prices that other Downtown areas are commanding. They said average price per square foot, at least on the Lower East Side, is the lowest south of 96th Street, which is drawing first-time buyers in particular.

Like many other areas of Manhattan, there is currently a glut of one-bedroom apartments in the Lower East Side and in the East Village. Yet unlike those other areas, one-bedrooms priced under $500,000 or $600,000 are not yet an extinct species there.

Brokers interviewed noted that the East Village is currently leading its sister neighborhood when it comes to new high-end developments.

And, while rents are flattening in some parts of the city, they are still increasing in newer, top-notch buildings, largely because only a few exist.

Several brokers said the weakest parts of the market on the Lower East Side and in the East Village are resale co-ops and apartments further east, at a distance from the subway. They also said inventory is rising in older buildings along the FDR and Grand Street.

Some flagged Alphabet City as a prime site for more future development and said the Delancey area is having trouble hitting the high prices sellers are asking.

For more on which buildings are making waves, what's happening with land prices and how the historic district status in some parts of the Lower East Side is holding back development, we turn to our panel.

Karen Skurka senior vice president, Prudential Douglas Elliman

What is the most positive aspect of the Lower East Side/East Village market right now?

The price per square foot is lower than anywhere else. It's still a value area.

What is the most negative aspect?

I'm starting to see older building inventory [increase] in some places on the FDR Drive and far east on Grand Street.

What kinds of buyers and sellers are most active in the area?

[On the buying side we're seeing] a lot of families, people who want to stay in the city and can't afford a lot of places. They are out there bidding. There are a lot of different sellers. In particular, I have a few sellers that aren't all that serious. They have their property on the market, and if it sells for that price they will take it, but they don't care so much. That doesn't help the market.

What is the most exciting new condo project in the area that you are not involved with?

I'm still in love with the Forward Building at 175 East Broadway. [It's] the old Jewish Daily Forward newspaper building that was a rehab of a landmark building with great lobby spaces, great views, beautiful lofts and the front faces Seward Park. It's a year old and sold out, but it is the most exciting project to hit the Lower East Side in a long time.

What's one telling statistic that illustrates what's happening in the market there right now?

On the Lower East Side the price per square foot is still higher than Harlem, but it's still the lowest South of 96th Street.

What is the most underrated part of the Lower East Side/East Village when it comes to an upside in prices? And where is the best bargain?

South of Delancey there is huge potential, with new shops and new owners investing in the neighborhood. It is one of the coolest parts of town … restaurants aren't so expensive or crowded. The East River co-ops [are a bargain]; the price per square foot is the lowest in town.

What's the overall sales activity and open house attendance like?

I would say sale activity is down about 15 to 20 percent versus a year ago. [Open house attendance] is steady but lower. Last year they were getting 15; this year it's eight or nine.

Glenn Schiller senior vice president, Corcoran

What surprises you most about the Lower East Side/East Village market right now?

On the Lower East Side there's still not that much development or conversions going on, so the stock of available sale properties remains low; whereas in the East Village there is enough development to satisfy people.

What is the most positive aspect of the market in the area right now?

The affordability of what's available. It still sells at a lesser price than all the surrounding Downtown neighborhoods.

What group of buyers is the most active in the area right now?

I find that the typical buyer who now purchases in the East Village already lives in the East Village. Because there was a lack of construction and a lack of larger apartments, people tend to combine them, and over time the neighborhood has matured. It is more family-oriented, the same people who have lived there since they were first-time residents or buyers. Some of the newer conversions that are being built are catering to larger apartments. The market now warrants larger apartments that can accommodate people who are looking to stay in the neighborhood.

What group of sellers is most active?

Sellers want to trade up, so there tends to be more [people selling] small apartments at any given time than selling larger apartments.

How is the Lower East Side/East Village faring in relation to other parts of Manhattan?

Compared to Chelsea, West Chelsea, the High Line [area] — in those areas there is a lot more development. You can't exclude Brooklyn from this conversation … and Long Island City is taking off. The Lower East Side and the East Village are still primarily rental neighborhoods. There are not enough buildings that have been taken down to create these large towers; the zoning never allowed for it. Blue is the only one that comes to mind. It is the only new construction high-rise condo. All of the others were built as rentals or hotels — the Ludlow, the Avalon Chrysties, the Bowery.

What is the most exciting new condo project in the area that you are not involved with?

I personally like 209 2nd Street, a corner building that is an existing conversion to beautiful luxury lofts.

What's the overall level of sales activity like compared to six months, a year or two years ago?

It's a bit longer process because everyone is a little wary of the market, but everything is selling and you still have the ability to capture a one-bed apartment for under $600,000, sometimes under $500,000. The larger apartments in the neighborhood will still trade at a lesser value to the surrounding Downtown area.

Fred Harris senior vice president of development, Avalon Bay

What is the most positive aspect of the Lower East Side/East Village market right now?

Everyone wants to be there, to go to the New Museum, Whole Foods, etc. It has gone from feeling like nowhere to feeling like the middle of everything.

What is the most negative aspect?

It now seems very unlikely that we can find another site in this neighborhood because land prices are so high. As a rental developer, we need pretty large sites — those that can accommodate 200 apartments or more; and sites of that scale are very rare in the East Village and Lower East Side. The four Cooper Square sites that became the Avalon development was one of the last big pieces of undeveloped land.

What's happening with rents in the area?

The Lower East Side, Chelsea and Tribeca are probably the highest rent areas for new buildings right now. Clearly there are more desirable buildings on the Upper East or West Side. No one expected that the rents would be among the very highest in the city, which they are now. Some markets in other parts of the city are flattening, but there is still positive growth on the Lower East Side. There is so little new supply for new rentals. If you want a doorman building, you would have a handful of places to choose from.

Sion Misrahi president, Misrahi Realty Corporation

What group of buyers is the most active in the Lower East Side/East Village market?

Building buyers are very active.

How is that a change from the past?

In the past it was the storekeepers who were buying the buildings to protect their business on the ground floor. But the city has made it impossible for an owner to have one building himself. It is very difficult to manage 16 apartments and two stores, if they only own one building. They have to own eight to 10 buildings to make it a business for the economy of scale. The city's rules, regulations and tax structure has made it impossible for the small building owner to survive.

How is the Lower East Side/East Village faring in relation to other parts of Manhattan?

We are in the same boat. I think we get a little more action as far as rentals and sales go; we have an edge because it is a young person's market, and the prices are lower.

What's the level of condo inventory like overall compared to other parts of Manhattan?

Slim to none; very little available.

Leonard Taub managing partner, Kaish and Taub

What is the most negative aspect of the Lower East Side/East Village market right now?

Dealing with projects on Bowery and Bleecker in historic districts. Because there are a number of areas on the Lower East Side that are considered historic, it makes it very challenging to build.

Have buyers' and sellers' mentalities changed recently?

It's a buyer's market. They shop, depending what you are coming to market with. There is a glut of one-bedrooms on the market, but loft apartments in the range of 1,800 to 2,000 square feet, those are getting good prices. There are fewer of those high-end units on the Lower East Side, but if it has good finishes in a good location, you will get your price.

What is the most exciting new condo project in the Lower East Side/East Village right now that you are not involved with?

52 East 4th Street, off the Bowery. When I drive by the white window wall exterior, that is phenomenal.

What is the most underrated part of the Lower East Side/East Village right now as far as their being an upside in prices? And what is the most overrated?

Alphabet City is a great nook that could see more development with high rents. The Delancey area is overrated [as] new projects try to get high prices. I think they are having trouble achieving those prices.

What's the overall level of sales activity like compared to six months, a year or two years ago?

Probably slower. My partner and I own a few condo units at 154 Attorney Street that are coming up for sale. I suspect that the sales are not going to be the same velocity as when it was built at the end of 2005 to 2006, when we sold 35 units in that building in four months. You can't achieve that kind of volume anymore unless you're going to give it away.

Clifford Finn managing director of new development marketing, Citi Habitats

What surprises you most about the Lower East Side/East Village market right now?

How willing people are to go east, farther away from transportation, but also to better value and an edgier neighborhood. Young people especially get better value from a rental standpoint by going there. There are not a ton of condo projects, but you do see little boutique projects that are popping up.

What group of buyers is the most active right now?

There's definitely a lot of first-time buyers, a mix of singles, couples and young families. We recently finished a condo at Avenue B and East Houston that had 24 condo residences, and it sold out in three-and-a-half months. We found that people weren't concerned with the price per square foot as they were with the price tag. A 630-square-foot one-bedroom recently sold for just under $700,000; that's what they can afford. Nobody wants the $900,000 one-bedroom because they can't afford it.

How is that a change from the past?

A new buying pool is coming to those neighborhoods, and they like to buy condos and newer product. They don't necessarily want to fix up apartments. There are a lot of students and international students because of NYU and some other Downtown universities. Sometimes their family buys apartments for them and they really need to buy condos, not co-ops. Also, there is more rental development on the way. We've already seen it on East Houston, with the Ludlow. And the Avalon has over 1,000 units.

How is the Lower East Side/East Village faring in relation to other parts of Manhattan?

It is holding its own. There is not a lot of product in that market compared to other Downtown neighborhoods. You are looking at enough discount to keep it healthy. Even the Financial District is not as much of a value as it was. [Inventory is] relatively low, especially given the size of the buildings there. Even if you had 20 buildings, it would equal one Upper East Side building, so there is not a lot of inventory.

What is the most exciting new condo project in area that you are not involved with?

On Baxter Street, the Machinery Exchange, which is a conversion of a machine factory. There is a certain richness to the way it's been executed. It only has 13 units, and it's a nice surprise because it's not the typical project. It's what I consider borderline Lower East Side, between Soho and Chinatown. I don't know if it is technically Lower East Side. Another is the A Condo in the East Village.

What's one telling statistic about the Lower East Side/East Village market?

How well certain projects did in those neighborhoods from a [sales] standpoint. The one we did at Avenue B, for example, got an average of $1,200 a square foot in a neighborhood where comparable square-foot prices are not above $950. From a rental standpoint, the Avalon communities or Ludlow as an example of new construction, the average dollar per square foot was in the mid- to high-60s, a strong performance for that part of town. The typical rental price per square foot is in the low-50s.

What sectors of the residential market are faring best and worst?

Condos [are doing best]. Older co-ops are [performing worst].

What geographical parts of the Lower East Side/East Village are doing best and worst?

The neighborhoods most fringe to Soho and the Village proper [are doing best]. Closer to the East River, Grand Street, where the Mitchell Lama housing is being converted to condos [is doing worst]. The farther east you go, the more discounts. It is not one of the neighborhoods that people pay a premium for because it is not convenient and the riverfront is not as desirable as other parts of the city. But for someone who wants to stay in Manhattan, it can be very affordable.

What is the most underrated part of the area right now as far as an upside in prices? And, where are the best bargains?

The area around Tompkins Square Park is [most underrated]. There are a lot people that have the old stigma in their heads. It is a nice park with great energy in that neighborhood. [As for bargains], I see parts of Chinatown being the next area on the verge.

Neal Young senior vice president, Halstead Property

What's the most positive aspect of the Lower East Side/East Village market right now?

Value, especially in the co-op sector. You can still get a good amount of space for your money. So for the first-time buyer or for someone looking to trade up, it remains particularly attractive.

How is the Lower East Side/East Village faring in relation to other parts of Manhattan?

It's holding up well. The value is still there. We are making deals and have about 10 Lower East Side/East Village properties in contract right now. Developments are starting to come south of Delancey with new construction ongoing; the condo market is expanding south of Delancey with more buildings on the way.

What is the most underrated part of the area when it comes to an upside in prices, and where is the best bargain?

Co-op Village is still underrated because of the amount of space for the dollar; apartments range from $600 to $800 per square foot.