(Check out all the stories in TRD’s special 10th-anniversary package: “Through the years,” “The shifting skyline: TRD’s 10 most notable buildings of the decade” and “TRD looks at the highs and lows of the market’s past 10 years.”)
The New York City real estate market has been a developing story since The Real Deal launched in 2003. When the magazine first began publishing, New York was still recovering (emotionally and economically) from the 2001 World Trade Center attacks. In fact, the country had gone to war in Iraq less than a month before TRD’s first issue hit the presses.
A lot has happened since then — from an unprecedented economic boom (marked by close-to-free credit and high-flying condos) to the worst economic downturn in 80 years.
Meanwhile, the first African-American president was elected, and the Internet took off in an unimagined way, with Twitter and Facebook becoming important business tools — all while hundreds of new buildings rose on the New York City skyline. While many of those projects hit major financial hurdles, foreclosures and changes in ownership along the way, most are now back on track as the recovery has gradually taken stronger hold. And today’s luxury market has seen record-high pricing to boot.
Below, TRD follows the evolution of the New York real estate market since the magazine’s inception.
An upward trajectory
In late 2003, things were looking rosy after a brief economic downturn before the Iraq War. The numbers, both for commercial and residential real estate, were heading in one direction: up. TRD’s November 2003 issue noted “the average sales price of a Manhattan apartment crossed the $900,000 threshold for the first time ever in the third quarter, reaching $916,000.” The same article noted that the average price per square foot crested $700.
While those figures may seem quaint now, looking back, it’s clear that they were shepherding in a new era. (Indeed, the average Manhattan apartment price cleared the $1 million marker in 2004, and at the start of 2013 was $1.46 million, according to appraisal firm Miller Samuel.)
On the commercial side, 10 years ago real estate prices were beginning to head upward, too.
“Midtown Class A average asking rents got a bit of a bounce to start the year,” TRD reported in March 2004, “climbing 2.9 percent from $52.37 per square foot in December to $53.89 square foot in January.”
Again, as healthy as those numbers seemed at the time, they pale against what was in store. In the spring of 2008, those asking rents reached a record high of more than $99 a square foot, according to commercial firm Cassidy Turley. Today, these Class A Midtown rents average around $75 a foot. (Overall Manhattan asking rents, meanwhile, are just $59 a foot — see accompanying chart).
The post-Sept. 11 economic recovery never ceased to surprise even veteran market-watchers.
“[After Sept. 11], no one thought anyone would even live in a high tower,” said Dottie Herman, CEO and president of Douglas Elliman, the city’s largest brokerage. “And that’s all that’s selling — the higher the towers, the better.”
Building expectations
With billionaire businessman Michael Bloomberg newly minted in City Hall, and with the memory of Sept. 11 fresh, the city was determined to build itself back up.
And that it did. The city’s recovery from the 2000-2001 recession drove the biggest New York construction boom in memory.
This expansion was embodied on the residential side by new (high-end) condos. In 2005 alone, less than four years after the attacks, some 9,000 Manhattan condos were proposed or planned — triple the number in 2003 and nearly seven times the number in 2000, according to a TRD analysis of public filings at the time. And in Brooklyn, a borough that before was not known for large-scale condo development, more than 6,300 were planned for 2004 and 2005.
The commercial side, meanwhile, was characterized by new skyscrapers, in particular the main World Trade Center redevelopment, the new New York Times headquarters at 620 Eighth Avenue and the Goldman Sachs headquarters at 200 West Street.
These developments were spurred in part by government incentives, including Liberty Bonds, an $8 billion Congressional program of below-market financing created in 2002 to assist the redevelopment of Manhattan in the wake of the attacks. Goldman Sachs received around $1.6 billion through the program; the World Trade Center site got about twice as much. But Liberty Bonds proved controversial, especially when used to finance luxury residential towers, like 63 and 90 Wall Street and 2 Gold Street, three buildings where rents run higher than $4,000 a month.
Another controversial public incentive program was the 421-a tax abatement, which the city created in the 1970s to spur residential development, but which took on new significance during the economic recovery that followed Sept. 11.
The program gave developers tax breaks that they could pass on to buyers, in exchange for building in emerging areas and providing affordable housing along with their developments (though not necessarily at the same spot).
The rub was that as the improving economy transformed these previously less-desirable areas, developers suddenly became interested in building condos there and were able to tap into 421-a to subsidize their luxury projects. To prevent luxury developers from over-using the tax breaks, in July 2008 the city limited where 421-a could be used and required affordable housing to be built on-site. Developers scrambled to get projects started before the changes took effect. According to the Real Estate Board of New York, more than 17,000 units got underway in the month before the changes took hold, while barely 2,000 units did the month after.
Also controversial were several mega mixed-use projects. Among them, of course, were Atlantic Yards, the biggest development in modern Brooklyn history, and Hudson Yards on Manhattan’s Far West Side, which is slated to eventually include 25 million square feet of offices and 20,000 residential units.
The Barclays Center at Atlantic Yards wasn’t the only new sports arena being pitched: Construction on both a new Yankee Stadium in the Bronx and a new stadium for the Mets in Queens got underway in 2006. Both opened in 2009, at a cost of around $1 billion each.
Meanwhile, the 52-story 7 World Trade Center, completed by Silverstein Properties in 2006, was the first of the buildings destroyed on Sept. 11 to get rebuilt — despite the fact that the Downtown market (even before the attacks) was not nearly as desirable as Midtown.
“People said, ‘You’re crazy, no one’s going to want to be there,’” said Janno Lieber, who headed World Trade Center rebuilding for Silverstein. “We not only leased it up by 2011, it was also to a very diverse group of tenants.”
Those tenants included law firm WilmerHale, which relocated from Midtown; advertising firm Omnicom; music giant BMI; and publisher Mansueto Ventures. Seven World Trade eventually commanded the highest office rents Downtown had ever seen — $70-plus a square foot — due in no small part to Silverstein’s insistence that it could rent for higher-than-the-going-rate Downtown.
It wasn’t until several years later, however, that the area’s biggest game-changing office lease got signed. In that deal, which was finalized in 2011, media powerhouse Condé Nast agreed to lease more than 1 million square feet in the Port Authority’s One World Trade Center (see related story, “The shifting skyline: TRD’s 10 most notable buildings of the decade”).
That lease signaled not only the recovery of the Downtown office market, but its metamorphosis over the last decade into something beyond just a Financial District. While still not quite the 24-7 destination that brokers sometimes tout, the area has seen the addition of at least 12,000 residential units, according to the Alliance for Downtown New York, and the population below Chambers Street has more than doubled since 2001 to nearly 60,000.
“Who would have thought after Sept. 11 that [Downtown] would be what it is now?” said Herman of Douglas Elliman.
Selling lifestyle
Other developments have been similarly reflective of the big shifts — geographic and otherwise — of the last decade. Luxury condo projects like the new 15 Central Park West and the conversion of much of the Plaza, both completed in 2008, spawned the priciest condo sales in the city’s history up to that point.
New condos also became more about lavish lifestyles than about basics like a decent laundry room.
The conversion at 20 Pine Street in Downtown was one of the first of this breed. Development firm Leviev Boymelgreen teamed with Giorgio Armani to design the swanky condo interiors, and broker Michael Shvo added flourishes like New York’s first 24-hour sales office in 2006.
“It not only changed real estate marketing, but the full real estate experience,” Shvo, founder of the Shvo Group, told TRD last month. “It reshaped the mind of the consumer, who was no longer interested in buying just four walls, a kitchen and a bathroom. After that, people started seeing themselves as an extension of the brand of the building that they live in.”
And with the new approach to marketing new construction condos, developers began attempting to one-up each other with over-the-top amenities and lavish marketing parties.
On a single night in 2005, for example, John Legend sang at a party for 20 Pine, while further uptown, on Riverside Drive, Seal serenaded at a party for the Aldyn, a then-new rental developed by Gary Barnett’s Extell Development.
At the same time, more prospective buyers were turning to the Internet to search for New York real estate. The Corcoran Group estimates that as many as 90 percent of home searches commence online today, whereas 10 years ago, perhaps 10 percent did.
Moreover, property records became decidedly more transparent because of the Internet. The city launched its popular ACRIS database in 2003, to allow searches of property deeds and taxes, and even introduced an iPhone app in 2009 for the same purposes.
It wasn’t just the condos that shifted New Yorkers’ real estate perceptions. Office buildings developed since 2003 have uniformly striven to be airier, sunnier and environmentally friendlier through LEED certification, a term that hadn’t even entered into the industry lexicon a decade ago.
The Durst Organization’s One Bryant Park, the first skyscraper in the U.S. to be certified Platinum LEED, for instance, has a system that captures rainwater for reuse, and insulation and a glaze that automatically dims the windows during daylight to keep the tower cooler.
Mary Ann Tighe, the Tri-State CEO of the CBRE Group, also noted that new commercial construction — including the World Trade Center towers and Boston Properties’ 38-story 250 West 55th Street — generally favors more open floor plans rather than rows of individual offices off hallways.
Along with the design changes, of course, there’s been a new emphasis on technological infrastructure, according to Tighe. To put it simply, few were thinking much about Wi-Fi in buildings in 2003. Now it’s de rigueur — just as the technology industry itself has become a greater player in the Manhattan office leasing market, especially in Midtown South.
Rezonings and reshapings
It’s impossible to look at the evolution of the city’s real estate industry over the last 10 years without accounting for the massive rezonings that have paved the way for all kinds of new projects — and lucrative building opportunities for developers.
Indeed, Bloomberg’s push to rezone large neighborhoods, while controversial, has opened up many previously off-limits areas to residential development. Indeed, those rezonings have reportedly touched about a fifth of the city.
One of the biggest, of course, was the 2005 rezoning of the Williamsburg-Greenpoint waterfront, which spanned 175 blocks and paved the way for thousands of condo and rental units, including the 570-unit Edge and the 450-unit Northside Piers.
The deal — which was negotiated for several years with the City Council, and involved incentives for developers to include affordable housing — transformed the north Brooklyn waterfront from an industrial no-man’s-land to a trendy hipster hangout, not to mention a lucrative location for developers.
Since TRD launched, the areas of Brooklyn closest to Manhattan have gone from a residential destination for struggling artists and pioneers to an internationally known culinary and residential mecca.
Yet Manhattan has not been left out. It’s also had its share of rezonings, resulting in a blurring of the lines between previously established neighborhoods.
For example, the rezoning surrounding the one-mile High Line — which runs from Gansevoort to West 30th streets — sparked brisk development in the area. Roughly 30 new developments have been built or are being built along the elevated park, including a new site for the Whitney Museum and high-end condos designed by starchitects like Jean Nouvel and Annabelle Selldorf.
In total, the park spurred more than $2 billion in private development between 2003 and 2011, and residential property values spiked by a stunning 103 percent during that time, the New York Times reported.
“I think it’s actually extraordinary, the extent to which all that planning and rezoning led to new development in places all across the city, despite the recession,” said Vishaan Chakrabarti, director of Columbia’s Center for Urban Real Estate, who headed the Manhattan office of the City Planning Department from 2002 to 2005. “When we started to do the planning for the rezoning around the High Line, I don’t think anyone anticipated the breakneck pace at which development was going to occur.”
Columbia’s 17-acre expansion, approved in 2007, promises to do the same for a largely industrial area of West Harlem. And Atlantic Yards — where the Barclays Center finally opened in late 2012 after years of legal battles — has already boosted retail rents in Downtown Brooklyn, pushing rates from around $50 a square foot annually to more than $100, according to the Brooklyn-based commercial firm CPEX Real Estate.
Bust and Boom II?
As high as the real estate market climbed, the credit crunch brought it crashing back down to Earth.
The subprime mortgage crisis prompted the collapse of financial giants Bear Stearns and Lehman Brothers, which plunged the nation into the so-called Great Recession.
As some buyers attempted to back out of condo contracts, others couldn’t get mortgages because banks put a vise on lending. That, in turn, led to something of a freeze in the New York City residential market.
At the same time, many developers were locked out of loans to buy and construct new buildings.
Harry Macklowe became the poster child of the downturn when, after putting up only $50 million of his own money in the easy-credit boom market, he defaulted on billions in loans he took out to buy seven Manhattan skyscrapers from the Blackstone Group for $7 billion. Macklowe was also forced to sell the GM Building to Boston Properties in 2008, in a deal that valued the tower at $2.8 billion — the most ever paid for a U.S. building (see related story, “TRD looks at the highs and lows of the market’s past 10 years”).
The tighter credit market also contributed to Tishman Speyer losing Stuyvesant Town and Peter Cooper Village, the 110-building apartment complex it acquired with investors in 2006 for $5.4 billion, the biggest real estate deal in modern history. In 2010, Tishman Speyer defaulted on $4.4 billion in financing and entered foreclosure.
On a more micro level, New York home sales dropped in 2009 — there were 1,195 co-op and condo sales in the first quarter of 2009, down starkly from the 2,282 sales in 2008’s first quarter, according to Miller Samuel.
“What I think has really changed is the financing piece of it,” Herman said. “[Before the crisis hit] people really weren’t aware of their credit scores so much.”
While New York real estate has gradually heated up again, it now exists against the backdrop of stricter lending guidelines and more economically savvy buyers.
Real estate soirées, especially the over-the-top events thrown to sell swanky condos, ceased to exist.
“Now the events have been more property-centric,” said Tresa Hall, sales director at Corcoran.
Still, the recovery has been seen on several fronts, perhaps most notably in the rental market, where rents rose even through the downturn. This was due to the softer sales market, coupled with a low inventory of new rentals and the Federal Reserve’s commitment to keep interest rates low through 2014 (thus prompting buyers who might otherwise jump into the sales market to capture the low rates to hold off). The average Manhattan apartment rent hit a record of $3,461 in September 2012, according to brokerage Citi Habitats.
These gains have been made despite some very real and looming economic struggles — including the European debt crisis of the last few years — that have depressed global investment.
More recently, the industry held its collective breath as the White House and Congress tried to stave off the so-called fiscal cliff, a combination of massive spending cuts and tax increases. (Negotiations led to a post-deadline deal that resulted in moderate capital-gains-tax increases pushed by President Barack Obama.)
And yet, New York’s enduring popularity — the city’s population reached an all-time high of 8.34 million this year — continues to bring fresh tenants and owners for both residential and commercial spaces.
“It stayed competitive,” said Herman of New York in the last 10 years. “It got better.”