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DEVELOPMENT

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GROWTH OF INVENTORY IN NEW CONDO PIPELINE RAISES CONCERNS
DEVELOPMENT66

Danish starchitect Bjarke Ingel’s first major New York City project at 625 West 57th Street is a pyramid-like structure.

 

From Harlem to the Financial District, a wave of new development is changing the skyline and stirring up questions.

The rapid inventory build-up, chiefly consisting of luxury housing, is likely to continue into 2015, when a large number of new developments is expected to hit the market. In response, the industry is questioning whether demand will keep up. While property investors, especially from overseas, continue to show a hunger for New York City real estate, tightening credit and a stronger dollar could put the buying spree in check.

Manhattan’s new condo offerings will double to 6,287 this year from 3,112 in 2014, according to Corcoran Sunshine. The figure was 2,269 units in 2013. “We are looking at a steady market (in 2015),” said Tamir Shemesh of Corcoran, who is representing a new development at 301 East 61st Street. “Developers will have to listen to the pulse very carefully and very thoroughly.”

Luxury homes, with a price tag of at least $3 million, are the main driving force for Manhattan’s development boom. Developers say that with today’s high land prices and rising construction costs, luxury condos are their only option for a viable investment. Along the 57th Street corridor, now known as Billionaire’s Row, and across Downtown, a slew of high- end projects are proof of that theory. Yet concerns are growing that the very top end of the market, where an average apartment sells for more than $10 million, could be reaching a saturation point.

Corcoran’s Shemesh pointed to the existing pool of luxury buyers. “There are a limited number of people who can spend 20, 30 or 50 million dollars,” he said.

As a result, many developers are shifting their focus to the lower end of the luxury market, an area that has been underserved. Data from Corcoran Sunshine shows about half of Manhattan’s new condos set to hit the market in 2015, or 3,322 units, will fall into what analysts see as the “mid-market luxury” category, where prices run between $1,700 and $2,300 per square foot.

“We are going to see a lot more developers trying to figure out how to make products accessible to a larger group of people,” said appraiser Jonathan Miller of Miller Samuel.

The shift toward “mass” luxury could put the brakes on rapidly escalating home prices. The average sales price of residential properties in Manhattan surged to $1.74 million in the fourth quarter of last year, a 13.1 percent jump from a year earlier, according to Miller Samuel.

While inventory is still low, it is growing at a faster pace, making some developers more cautious in setting prices. Miller Samuel data shows that listing inventory in Manhattan jumped 20 percent in the fourth quarter compared to the year before. “I anticipate (home) prices in 2015 to begin leveling off,” said broker Frances Katzen of Douglas Elliman.

By neighborhood, Harlem is leading the new development binge. The area reported 2,368 condo units in the works. That’s followed by the East Village (1,620), Upper East Side (1,452) and Midtown (1,400).

While interest rates have been historically low, a potential increase in the middle of this year could be another game changer. Higher cost of capital may dampen housing demand and hit first-time homebuyers of entry-level housing the hardest. Rental projects, like the Durst Organization’s 43-story tower at 625 West 57th Street, may stand to benefit most if potential buyers decide to rent instead.

Another looming concern for developers is the stronger dollar, which at the end of 2014 rose to a near nine-year high on expectations of a rate hike. That could scare away some future foreign buyers, as New York properties become pricier in their local currency. Miller calls a strong greenback “the biggest enemy of new development.”