Prices rising at the end of the tunnel

Prices rising as long-awaited subway line nears its completion

Second Avenue Subway station rendering
Second Avenue Subway station rendering

In mid-2013, Elaine Diratz, senior managing director of Corcoran Sunshine Marketing Group, noticed that the one-bedroom condos at 515 East 72nd Street, formerly known as Miraval Living, were selling briskly. There were more than 70 closings between summer 2012 and summer 2013 — about half the building’s 142 one-bedrooms.

Diratz, whose firm was handling the marketing of the 329-unit conversion near the East River for developer Acheson Doyle Partners, soon put her finger on the reason behind the quick pace of sales: major milestones in the construction of the Second Avenue Subway, a little more than two blocks away. The milestones included some of the last subterranean blasts for the first phase of the project, from 63rd to 96th streets, which is scheduled to debut by the end of 2016.

Sales were lagging behind until it became clear the subway was really getting closer to completion, Diratz said. “I think the savvy one-bedroom buyers recognize the potential for the appreciation for these one-bedrooms by having that Second Avenue line there.”

The Second Avenue Subway — which will eventually run 8.5 miles from 125th Street to Hanover Square — has been on the drawing board for decades, variously championed by politicians, transit advocates and urban planners. Commuters, tired of crowding onto the overstrained Lexington Avenue line, the only other subway serving the Upper East Side, were among the most vocal in pushing for the new “T” line, as it’s dubbed.

And the real estate industry, of course, has a vested interest in the project coming to fruition. For the first time, developers and brokers are reporting a spike in buyer and investor enthusiasm for developments east of Third Avenue, because of the recent progress on the Second Avenue Subway. They say property values on and around Second Avenue, as well as prices for condos and co-ops, could increase more than 20 percent because of the new line.

Prices on the Upper East Side east of Third Avenue have traditionally lagged those west of the avenue and closer to Central Park. The lack of a subway line hasn’t helped. “The whole problem with Second Avenue traditionally is that it’s been too far away from the subway — that’s why buyers have shied away,” said Richard Steinberg, a broker at Warburg Realty who is doing deals along the corridor.

This dearth of a subway has not only translated into traditional buyer reticence: It’s meant lower condo and co-op prices for the Upper East Side east of Third Avenue. In 2013, the average sales price of an Upper East Side condo from Third eastward was $1.57 million, according to an analysis from Pete Culliney at real estate data provider CityRealty. Meanwhile, for the Upper East Side overall, what Culliney calls “core East Side,” it was $2.34 million.

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The average price differences were just as pronounced for co-ops.

The first phase of the subway will undoubtedly close the gap, brokers and developers say. While it’s unlikely Second Avenue — or avenues even farther east — will ever overtake swanky Fifth and Park in terms of price, they could more rigorously compete with Third and Lexington avenues.

The statistics suggest that the gap is already closing.

The average sales price per square foot for condos on Third Avenue and eastward increased 11.4 percent in 2013 from the previous year, according to CityRealty. That was slightly above the 10.4 percent increase for the whole area, though less than the 14.3 percent rise for core Upper East Side. As for co-ops, the average price per square foot was up 7.7 percent for Third eastward — above both the 5.3 percent jump for the entire area and the 4.4 percent rise for the neighborhood’s core.

Those increases are playing out at places like 230 East 63rd Street, a condo conversion with six floor-through units less than half a block from Second Avenue. A penthouse there went into contract earlier this year asking over $4 million, and after a bidding war that included an outfielder for the New York Yankees, according to Steinberg, the broker representing the developers. The winning bidder, Steinberg said, bought with the subway in mind. So did the recent buyer of 230 East 63rd’s second-floor unit, which went to contract earlier this year for “very close” to its $3.14 million asking price, Steinberg said. “In both cases,” he said, “they felt that the Second Avenue Subway was an untapped resource that they were going to plan on. They think that the property values are really a diamond in the rough there.”

Buyers are not the only ones. Michael D’Alessio, whose firm Michael Paul Enterprises LLC is developing 230 East 63rd, said he picked the early 20th-century building for a condo conversion in part because of the subway. He says sites like his proximate to Second Avenue could go up 20 to 25 percent in value as the subway rumbles to life.

“I think it’s one of the things that’s driving the interest in our condo,” D’Alessio said. Buyers “feel like they’re getting in at the ground floor.”