The Gotham Organization broke ground today on the largest new construction project in Manhattan, a $520 million development encompassing nearly the entire city block on Manhattan’s Far West Side at 550 West 45th Street between 10th and 11th avenues. The residential portion of the project, which is slated to be completed in 2014, will create 1,238 new rental apartments with 600 of those units expected to be affordable to low-, moderate- and middle-income New Yorkers.
“The groundbreaking for this development is the latest sign that the Far West Side will soon be Manhattan’s next great neighborhood,” Deputy Mayor Robert Steel, who attended the groundbreaking ceremony, told the crowd. And he’s not the only one with that vision.
Other developers like the Moinian Group are placing their bets on what they’re still calling Manhattan’s last development frontier, the Far West Side, with new rental projects. But with rental inventory already substantial in what some might call an iffy part of town, some brokers are concerned that demand won’t meet supply.
“There’s a major saturation of rental properties on those far west blocks,” said Charlotte Van Doren, a vice president with Stribling & Associates who has various listings further north on West 48th Street. “No doubt it’s a hot time for rentals, but I think there’s still a question of whether all those units [at the Gotham and Moinian projects] will be absorbed. It’s a lot of concentrated units in a not so desirable location. It’s hard for people to get out there. It’s kind of out of the way.”
Moinian’s project, at 605 West 42nd Street, is poised to bring 970 rentals to the Far West Side market and Gotham’s, a project housed in four separate buildings, will bring 1,238 new units.
And Moinian and Gotham aren’t the only companies to have set their sights on the Far West Side lately. With rental projects like Silverstein Properties’ Silver Towers, the Brodsky Organization’s 420 West 42nd Street and the recently opened MiMA by the Related Companies, and condo developments with turnover rental inventory at Extell Development’s Orion and Moinian’s the Atelier, the strip already has substantial inventory, but now rental supply is set to jump even further.
“There’s a critical mass that’s being reached on the Far West Side,” said Oskar Brecher, director of development for Moinian. “It has become completely part of the fabric of New York.”
One fact everyone can agree on: the rental market is strong.
“Right now, it seems like there’s unlimited demand for rentals and it’s all happening when the economy is not even doing so well,” said Gary Barnett, president of Extell, which developed the Orion, which was completed in 2005. “What happens when there’s a boom? We could really see a spike in asking rents… I think [Moinian’s] right to be dusting off plans and seeing if he can get that done.”
A third-quarter rental market report by Prudential Douglas Elliman shows that the average monthly rent for a Manhattan apartment increased 6.9 percent from the third quarter of 2010, to $3,491. The rental price per square foot skyrocketed 13.6 percent in that timeframe to $50.60, according to the report.
“There’s no doubt that there’s a lot of units to be absorbed,” Jeff Jackson, co-founder and chairman of appraisal firm Mitchell, Maxwell & Jackson said of the situation on 42nd Street, “but it’s probably the one part of the city that’s evolving quickly enough that it would work out. It’s one of the last frontiers. The strength of this location is that there’s strong demand from both north and south. It’s bounded by strong markets and as Midtown grows westward and more [Class] A office space comes over there, it becomes even more viable”
As far as the developers are concerned, no one can argue with the cold hard figures and the success of past projects.
MiMA, a 63-story project with 50 floors of luxury rentals at 450 West 42nd Street, is 90 percent rented after leasing began only six months ago, in May, according to Daria Salusbury, senior vice president of Related who leads the company’s residential leasing.
“We hit it out of the park,” she said. “We’re renting at an average of $80 per square foot, which is the highest in the area. Our portfolio is 99 percent occupied and I presume that our competitors and other landlords are seeing something similar. … It’s all about having a cohesive building.” They had options for layouts, she said, and created a unique marketplace and one-stop destination by adding 40,000 square feet of amenities.
Silver Towers, designed by Costas Kondylis at 620 West 42nd Street, leased up faster than expected after opening in 2009, likely in part due to offering two months of free rent to new tenants. Its 935 market-rate apartments are now fully leased.
“It was absorbed in a reasonable amount of time, considering it was further west than people were used to going for a high-end product,” said Cliff Finn, the managing director of new development marketing at Citi Habitats, who headed up leasing at Silver Towers.
The real question for Moinain, a source close to the project said, is how high the firm can push up rents for the units.
“They won’t underwrite the units for anywhere near $90 per square foot. [At one point] they were underwriting the rent in the mid $70s, when the project stalled it dipped into the $60s,” the source said.
Brecher said that the shovel-ready site project will not need to reach for as high rents as MiMA, which is asking $3,625 for a 500-square-foot studio and up to $11,200 for a 1,495-square-foot two-bedroom unit, according to Streeteasy.com.
“MiMA has tried to reach for very high numbers, but we don’t need those kinds of numbers to make the development happen,” he said. At this time, construction costs are reasonable and interest rates are lower than they have been, he noted. “This project will have a major cost advantage from the very start.”
While there’s no guarantee that the project will finish as a Moinian development — the developer put the site on the market last month as a way to find financing for a $750 million, 65-story rental tower — Brecher said the company is hoping it will be there to cash in on its efforts in the area. The project does however, require financing.
“There are a number of options,” he said. “We have spent a great deal of time developing the potential of the site and we would like to be there at the end of the movie,” he said. “That’s a likely possibility.”
One development that has seemingly not been advantaged by the favorable rental market is Moinian’s Atelier, at 635 West 42nd Street, opposite Silver Towers, at which many units were bought up by investors when the project hit the market in 2006 and immediately put on the rental market. The building’s rental inventory has not been absorbed in the same way as neighboring buildings, with 57 out of the building’s 475 sponsor units currently on the market, according to data from Streeteasy.com.
So, do these rentals lingering on the market at the Atelier worry marketing executives looking to rent competing projects?
Not really, said Citi Habitat’s Finn. One reason that the Atelier units are not renting as quickly as others may be the lack of one central marketing hub. Investors place these units on the market individually and sometimes with different brokers so they don’t get the same cohesive advertising push as the rental units at Silver Towers or MiMA.
While Daniel Neiditch, president of River2River Realty which has the listings for most of the units at the Atelier and manages the on-site leasing office at the building, avoided commenting directly on the rental glut at the building, he said the area is still a promising proposition for developers.
“There’s going to be an immediate flooding of rental units [when these projects are completed,]” Neiditch said. “It might be tough, but in the long term it’s definitely the right move. [Developers will] pay off the mortgage, the area is growing and the rents will grow when the area improves.”
The continued development of West 42nd Street will coincide with the completion of Hudson Yards, a major office and residential development hub in the far West 30s. Moinian’s hope is that the blossoming area west of Penn Station will in turn help the West 40s.
“All around the area is slated for redevelopment,” Brecher said. “We believe and share in the vision that New York is going to have a river-to-river Midtown, bolstered by the fact that the city is investing in infrastructure.”
Finn agreed: “Hudson Yards is really going to connect that neighborhood with downtown and the High Line,” he said, “converging in the West 30s and low 40s.”