Rentals are back — if you’re a Durst

Only longtime landowners able to make rental development work
By Steve Cutler | September 01, 2006 04:07PM

Rental development pencils out in New York in the current market — if you are a member of a real estate dynasty.

Developers say it doesn’t make economic sense to start a project from scratch today, but many rental projects can be found on sites owned for decades by well-established and legendary outfits such as Rose Associates, Silverstein Properties, the Durst Organization and Skyline Developers. The hot rental market, marked by plummeting vacancy rates and higher rents, is putting long-term plans into action.

“The numbers still don’t work for rentals if somebody’s purchasing land at today’s prices,” says Cliff Finn, director of new development marketing for Citi Habitats. Most large-scale rental projects are the domain of “real estate entities, families that have been around a long time and own land at prices from five and 10 years ago.”

At 37 Wall Street, Skyline Developers is undertaking the conversion of the 26-story building to more than 370 studios and one and two-bedroom apartments.

The project made sense because of the low acquisition cost of the property. “We’ve owned that building for about 20 years,” says Orin Wilf, chairman of Skyline Developers.

Garden Homes, Skyline’s parent company based in New Jersey, owns and manages 50,000 apartments across the country and was founded in 1954.

“It was part of the package the stock exchange was going to acquire a few years back. After quite a few years of negotiations, September 11 occurred, and the deal fell through,” says Wilf. The long-term lease JP Morgan had on the property ran out and “we were left with a beautiful building to convert to rentals.”

The building, designed by architect Costas Kondylis, is slated for fall occupancy, and is shooting for high-end finishes, with a Tiffany’s store on the ground floor (see below).

“If you’re trying to pencil out numbers for rentals today,” says Wilf, “you can’t do it. But even if it costs you $500 a square foot to build a rental, won’t you make that up if you own the property for 20 years?”

While rents Downtown trail the rest of the city, which is pushing $65 a square foot in some areas, they’re beating Skyline’s initial projections. “When we started the project a year ago,” says Wilf, “we projected about $40 a square foot. Now it’s at $45 to $48 a foot.”

Farther uptown, World Trade Center leaseholder Larry Silverstein is planning a mammoth rental project scheduled to hit the market in early 2009. His new venture sits next to his River Place I on 42nd Street and 11th Avenue.

“Silverstein owned the property since 1984,” says Finn, “so he didn’t have to spend $800 a square foot for the land and doesn’t have to do high-end condos.”

In the Flatiron District, Roseland Property Company, a major developer based in Short Hills, N.J., is planning its second rental in New York City, at 35-38 West 21st Street. Designed by SLCE, the project includes a 16-story structure and an adjoining eight-story structure. The luxury project will have about 100 rental units, seven of them full-floor two-bedroom apartments, and should be ready by early 2008.

“Rentals are designed very much like condos these days,” says architect Kondylis. “They’re in direct competition with condominiums. If the quality of the rental is inferior, people will buy an apartment.”

The budget for new rental buildings is almost as much as condos, according to Kondylis — within 5 percent. “Rents are so high now, developers have to justify the rent,” he says. “You can’t ask people to pay $5,000 for a two-bedroom and give them a cookie-cutter apartment. You have to have something to show to be able to ask top dollar.”

Kondylis says he now uses more expensive finishes and materials in designing rentals and is allowed a freer hand with the layouts. “We do rentals that look like lofts, with totally open layouts without partitions.”

Kondylis & Partners has designed a slew of rental high-rises coming onto the market. The 20-story Melar at 250 West 93rd Street and Broadway, developed by Friedland Properties, opened for occupancy early last month. Remaining apartments include studios from $2,650, one-bedrooms from $3,835, two-bedrooms from $5,995 and a convertible three-bedroom for $7,800. A two-bedroom with dining room and large wraparound terrace goes for $10,500 a month.

Rose Associates’ 33-story Chelsea Landmark at 55 West 25th Street will be the latest addition to the large collection of new rental buildings along Sixth Avenue in Chelsea. Scheduled for completion in early 2007, the building will have 406 apartments. Also opening in early 2007, Leviev Boymelgreen’s 23-story 88 Leonard Street will have 334 rentals.

Kondylis also designed a 57-story hybrid condo/rental tower for the Moinian Group at 605 West 42nd Street, just east of Moinian’s Atelier condo. The building will have 938 units, with rentals from the base to the midsection.

Designed by FXFowle, with interiors by SLCE, the Epic, at 125 West 31st Street, is a 58-story glass-sheathed tower with 458 rentals and unobstructed views starting from the 12th floor. Developed by a partnership of the Durst and Fetner families, the building is expected to earn a LEED silver rating for its energy saving systems and indoor environmental quality. The Epic should be ready for occupancy by May 2007.

Other new rental buildings include 10 Barclay Street, a 57-story tower with 396 units, developed by Glenwood Management, to open in 2007. Also, Edward J. Minskoff is building a luxury condo project, 101 Warren Street, with a rental component with a separate entrance at 89 Murray Street. The rental side has 163 apartments, 77 of which are affordable housing. The condos, ranging from $1.2 million for a one-bedroom to $16 million for the penthouse duplexes, have been selling strongly, according to brokers. The project will be complete by the end of 2007.

Gary Malin, COO of Citi Habitats, reports some signs that developers who are newer to the game — and who haven’t owned the land they are building on for decades — are beginning to think rental, too.

“I’m hearing of more developers taking a [condo] job in the pipeline and perhaps converting to rentals.” Developers with rental building in their portfolios report that some of their apartments get 20 percent over last month’s rent when they become vacant, he noted. “Acquisition costs of land are leveling out,” adds Malin. “If rentals remain very strong, we’ll probably see more people doing rental jobs.” TRD

New Wall Street project banks on rental future

One of the classiest new residential buildings in the city will be — gasp! — a rental. How classy is it? Its street-level storefront is a Tiffany’s.

The amenities at 37 Wall Street, a conversion of a historic Beaux Arts-style high-rise, match the cream of the new luxury condos opening Downtown: a professionally run gym, basketball court, juice bar, screening room and billiards lounge.

Designed by Costas Kondylis with interiors by McCartan Design, the 26-story building will have 373 studios and one- and two-bedrooms with high ceilings, plus a glass-enclosed penthouse added to the roof.

“Thirty-seven Wall Street will be nicer than half the condominium developments being built in Manhattan now,” says Orin Wilf, chairman of Skyline Developers, the rental’s builder.

Skyline’s most recent project in Manhattan is a luxury condo at 170 East End Avenue, a new tower by architect Peter Marino on the Upper East Side. Why not throw up a condo at 37 Wall for a quick, profitable sellout?

“The future of Manhattan is in rental apartments,” says Wilf.

With 37 Wall Street, he says, he’ll secure “400 apartments in an evolving market down there. It’s changing day by day — more developers are going down there — and we want to be a part of that.”