More building than meets the eye

TRD analysis finds dramatic spike in number of planned construction projects

While any New Yorker can see cranes dotting the Manhattan skyline and recognize that developers are back to building, an analysis by The Real Deal shows that there is a lot more construction coming down the pike than meets the eye.

While market analysts often cite U.S. Census data as the industry standard when talking about upcoming residential construction in New York City, those figures, which show an anemic level of activity, look at the number of residential building permits approved for Manhattan. However, TRD’s analysis — which looked at permit applications and is therefore one step ahead of the Census figures — revealed a surprising (and hidden) surge in planned development.

Indeed, real estate firms filed more new Manhattan building applications last year — as measured in square feet — than at any time since 2007, seeding a wave of development that could continue rolling out for the next couple of years.

When residential brokers, who have been itching for more inventory to sell, find out about the additional planned projects, they will be asking, “Where is this inventory, and when can I sell it?” said Gregory Heym, executive vice president and chief economist for brokerage Terra Holdings, the parent company of Brown Harris Stevens and Halstead Property.

Builders filed plans for more than 12 million square feet of new commercial and residential construction last year — a 55 percent rise from 2011, an analysis of city Department of Buildings data showed. That’s the highest it’s been since the market peaked in 2007 when developers filed plans in Manhattan for more than 19 million square feet.

During 2012, residential builders such as the Related Companies, Extell Development and Dermot Company filed plans to construct more than 4,600 new residential units in Manhattan. Meanwhile, their commercial counterparts filed plans for about 2,000 new hotel rooms. Plans for standard, nonacademic office towers were limited, with the exception of a 1.7 million-square-foot Hudson Yards building by Related.

But sources say the question now is whether these numbers represent the right amount of new construction to sate demand, especially in the residential sector — or whether building this much could create another glut of inventory.

New development firm Corcoran Sunshine Marketing Group estimated that in Manhattan south of 96th Street, an average of 2,234 new condominium units will hit the market annually through the end of 2015. That is below the 11-year average of 2,791 units per year. During the same period, it projected that an average of 3,896 rental units would hit the market each year.

But with the spate of planned projects, developers may begin looking over their shoulders and feel pressure to race against competitors to get their product on the market.

Still, sources say given the mix of residential construction planned, they are not worried about developers going overboard just yet.

“Clearly there has been an uptick, but I think that is somewhat tempered because a lot of the building is going to be heavily weighted on the rental side,” said Jonathan Miller, CEO of appraisal and analysis firm Miller Samuel.

Who’s building?

Most of the developers on TRD’s ranking had just one or two big buildings that put them on the list.

That was the case with Related. While the firm has at least eight major Manhattan projects in various stages of development, many of them residential, its above-mentioned plans for a 1.7 million-square-foot Hudson Yards office building put it at the top of this list.

The 47-story tower at the corner of 30th Street and 10th Avenue — which will be the corporate home base to leather-

goods designer Coach — helped Related shoot to the top of TRD’s ranking, with two DOB applications for a combined 1.9 million square feet of construction.

While TRD’s profile of Extell (see related story: Barnett’s big buildout) found that the development company is currently constructing more than any other developer in terms of number of projects and square footage, our ranking of DOB applications looked only at new building applications filed in 2012. In that category, Extell ranked second behind Related with its application for a 1.2 million-square-foot tower at 225 West 57th Street that will have retailer Nordstrom at its base and cost approximately $2 billion. Initial plans call for 233 residential units, but the firm said the number of apartments has not been finalized.

Gary Barnett, president of Extell, said the building will not impact sales of his One57 condo tower just a block away — because he expects One57 to sell out by the end of this year.

“We see it as sequential, having one build on the success of the other. We won’t sell the new product for at least one or two years,” Barnett said.

Ranking No. 3 on the list is the Midtown-based Dermot Company, led by CEO William Dickey. It filed plans to build a roughly 662,000-square-foot, 616-unit, 43-story rental tower at 21 West End Avenue. The building, which will be co-owned with the AFL-CIO Building Investment Trust, was the largest rental project applied for in 2012.

Other developers among the top 10 included Rudin Management, New York-

Presbyterian Hospital/Weill Cornell Medical Center, Fisher Brothers, the World Wide Group, hotelier Ian Schrager and the Witkoff Group, Glenwood Management and the city’s Department of Housing Preservation and Development.

Rudin, No. 4 on the list, filed plans in September for a residential tower at 1

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Seventh Avenue, on the former grounds of a St. Vincent’s Hospital building. The application is pending.

For its part, New York-Presbyterian Hospital/Weill Cornell Medical Center sought approval for a new 15-story building with operating rooms and a maternity facility at 1283 York Avenue, between 68th and 69th streets. And Fisher Brothers — which purchased 22 Thames Street in Lower Manhattan for $87.5 million from investors Allan Fried and Michael Steinhardt in September — is currently awaiting approval to build a 56-story residential building with 428 units. (The application for that project was actually filed by the sellers of the site.)

Another large project is in the works from World Wide Group, which filed plans for a 57-story residential high-rise at 252 West 57th Street on a stretch that’s experiencing an enormous burst of development. Developers filed plans for five projects on 56th and 57th streets between Second and Eighth avenues (see related story, “Battling skyscrapers on 57th Street”).

Cammeby’s International, led by investor Rubin Schron, filed plans in March to build a controversial residential and hotel project (the largest hotel applied for last year) at 215 Chrystie Street, between Houston and Stanton streets. Schron won the backing of the local community board in September after several contentious meetings where he agreed to a complicated arrangement that included scaling back the project to 25 stories and 376 hotel and apartment units. But in December, he sold the site to hotelier Ian Schrager and developer Steven Witkoff for approximately $50 million, according to news reports.

Residential leads the pack

The vast majority of the new construction applications filed with the DOB in 2012 were, not surprisingly, for residential buildings.

While rentals make up many of the large projects, developers filed condominium plans as well, including Extell’s 225 West 57th Street.

For several years now, it has, of course, been easier for a developer to get a construction loan for a rental project than for a condo. That’s largely because of the hot rental market and the tough mortgage environment for condo buyers. While lending has loosened up for buyers, it’s still easier for a builder to get a development loan for a rental project.

Glenwood Management, which specializes in rental construction and ranked No. 9 on TRD’s list, filed a building application for a 257-unit rental building last year. The project, which won approval from the DOB last month, will rise at 175 West 60th Street in Lincoln Square, and will likely start renting in late 2014.

Gary Jacob, company executive vice president, said while the 2012 building application numbers may show improvement, those 4,600 units applied for last year don’t come close to what developers were building in the 1980s. Available data seems to back that recollection up: For example, in 1985 there were more than 12,000 residential permits issued, Census figures showed.

In terms of inventory, Jacob said he was not concerned about a possible glut, noting that if there were too many rental buildings in the pipeline it would be harder to get construction financing from the federal government. Yet financing remains available for rental construction, Jacob said.

Michael Slattery, senior vice president at the Real Estate Board of New York, agreed.

“I think people are more optimistic about the market, the limited inventory and rising rents,” he said.

Still, he noted: “There are all the kinds of indicators you would like to see [to spur new development] and the permit applications may represent that.”

On the commercial front, hotel developers filed plans for 2,177 hotel rooms in 2012. That’s an uptick from the year before when they filed plans for approximately 1,700 units, TRD’s analysis showed. In addition to the Schrager site, Raber Enterprises filed plans for a 239-unit residential and hotel building designed by architect Peter Poon. (The application was pending as of late last month.)

Excluding Related’s Hudson Yards tower, there were only a handful of new permits sought for offices, including New York-

Presbyterian’s hospital building and a proposed 15-story New York University science building at 435 East 30th Street.

While the DOB applications showed that developers were seeking approval for projects spread around Manhattan, there were some areas that attracted more attention than others.

For example, there were no applications for projects filed between 68th and 96th streets on the West Side. And Rudin’s new building in the West Village was the only new project filed in a large area bounded by Houston and 14th streets west of Broadway to the Hudson River. Likewise, no plans were filed in Gramercy Park.

Other areas attracted a great deal of interest.

For example, the growing Penn Station and NoMad District, from about 23rd to 29th streets between Broadway and Eighth Avenue, drew applications for seven new projects, including the 23-story residential tower at 215 West 28th Street, with 154 units proposed by the American Development Group, based in West Hempstead, L.I.

Still, sources say the number of applications could be even higher if there were more available development sites in Manhattan.

“The issue is, are there enough sites that can [support] large enough buildings to [fill in the lack of supply]?” Heym said. “Any way you look at it, you are still way below where you where before [the collapse] of Lehman Brothers.”