TRD forum: Manhattan’s office and resi markets still have plenty of room to grow, developers say

The city is hardly overbuilding office towers, if you compare with Hong Kong and London: Silverstein's Marty Burger

TRD New York /
May.May 14, 2018 04:30 PM

Stuart Elliott, Bentley Zhao, Marty Burger, Ken Horn and Ziel Feldman (Credit: Jhila Farzaneh for The Real Deal)

With more than 2.5 million square feet of office space coming on in Manhattan every year, the question must be asked: Do we need all of this?

Developers insist yes, and ask that you look to rest of the world as evidence.

“If you look at London in the last 20 years, London’s replaced 50 percent of their stock with new office space. If you go to Hong Kong, that number is 80 percent. If you go to New York that number is 7 percent,” said Silverstein Properties’ CEO Marty Burger, speaking on the new development panel at The Real Deal’s 11th Annual New York Showcase and Forum on Monday. Burger, whose company is the developer of the World Trade Center complex, said that for New York City’s markets to remain competitive with other international centers of commerce, its workspaces have to keep up too.

Marty Burger (Credit: Jhila Farzaneh for The Real Deal)

The Monday panelists, which included HFZ Capital founder Ziel Feldman, Alchemy Properties president Ken Horn and developer Bentley Zhao, picked apart the state of development in New York on both the luxury residential and commercial fronts. They largely rejected the idea there is too much supply.

Related: How public brokers are shaking up CRE

Horn, whose company is redeveloping the top floors of the Woolworth building into apartments, said that the much-cited high-end condominium glut is slowly “being eaten away,” making room for new development opportunities. Feldman likewise said that although marketing apartments has become more challenging, the challenge is met by “pric[ing] within your comp set and try[ing] to create an experience that people can’t [find] elsewhere.”

When asked about how things are going with the Woolworth’s aspirationally-priced $110 million penthouse, Horn said that in just the last week the unit is physically accessible to prospective buyers for the first time, which he hopes will increase interest. “We were concerned about safety,” Horn said of the under-renovation, five-floor penthouse.

As for the availability of debt and sources of equity, the developers said they weren’t having trouble getting that either. While EB-5 visa money has slowed down due to immigration wait times, the Israeli bond market has emerged as a reliable source of capital.

Related: Construction pros talk tension
between union, nonunion labor at TRD forum

And non-traditional investors have stepped in as banks have become more conservative with new development lending. Even at high interest rates, panelists said there are advantages to getting loans from single funds as opposed to a consortium of different banks. “It’s very attractive on a large construction job [to just deal with one lender],”said Feldman, who closed on a $1.3 billion construction loan form the Children’s Investment Fund last year for HFZ’s condo development at 76 11th Avenue.

“If you’re dealing with one party like Children’s Investment Fund,” said Berger, “you call one guy and he makes a decision.” Dealing with multiple banks makes the simplest tasks much more difficult during development, he added.

As for Zhao, he cited his company’s ownership of its own construction operation as one way he makes the numbers work in an environment with more expensive debt and high land prices.

Meanwhile, condo inventory loans have helped developers wait out the eventual sales of their units for a return. “As you sell units they get paid off,” Feldman, who received one at the Belnord condo conversion, said. “It’s another way of getting money out the door.”

The Monday panel also touched upon foreign buyers (they aren’t going away), on the potential oversupply of work from celebrity architects Bjarke Ingels and Robert AM Stern (buyers still want it) and tax reform (40 percent of high-end buyers make their income via pass-through entities and are seeing their taxes drop, Feldman said).

Related Articles

Donald Trump with Rep. Emanuel Cleaver II, Rep. Ron Kind and Sen. Cory Booker (Credit: Getty Images, iStock)

Trump’s Opportunity Zone program is under investigation

The agreement was signed today at UBC’s New York Council offices in Manhattan by Nathan Blecharczyk, Airbnb co-founder, Chief Strategy Officer, and Frank Spencer, General Vice President of UBC.

Airbnb hammers out partnership with carpenters’ union

WeWork co-CEOs Sebastian Gunningham and Artie Minson (Credit: Getty Images, iStock, Twitter)

WeWork lease-signing sinks to five-year low in New York

Fotis Dulos (AP Images/ Erik Trautmann)

Connecticut developer Fotis Dulos charged with murder

Pier 40 and Gov. Andrew Cuomo (Credit: Wikipedia and Getty Images)

Cuomo kills Pier 40 redevelopment plan

CW Realty’s Cheskie Weisz  and a rendering of 251 Front Street (Credit: CW Realty and Think Architecture and Design via New York YIMBY)

CW Realty plans luxury rental at controversial Vinegar Hill site

A rendering of Broadway Triangle and an aerial of Broadway Triangle (Credit: Magnusson Architecture via Department of City Planning and Google Maps)

Rabsky, Spencer land $70M refi for Broadway Triangle site

Renderings of 555 West 38th Street and Rockrose Development's Justin Elghanayan (Credit: Rendering by Pelli Clarke Pelli)

Rockrose lands $255M in financing for Hudson Yards project