Land for development: no buyers, no sellers and no financiers

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.