Over the past five years, Lower Manhattan has become one of the city’s fastest-growing residential areas. But some observers say that the boom has peaked and that the area might be due for a Wall Street-influenced bear market.
The number of residential units has grown by about 66 percent in the last five years, with an estimated 28,600 expected by the end of 2008. In the past year alone, more than 3,300 units opened up; this year, another 4,500 are scheduled to come to market.
“Lower Manhattan has more [new] projects in the form of rental buildings and condominiums than any other area in the city,” said John Gomes, a vice president at Core Group Marketing, a brokerage and marketing firm active in the area. “What’s happening at this very moment is, they are all starting to open up all of their projects [at the same time].”
Compounding matters is that Wall Streeters — whom a year ago were flying high, but are now facing dark days — are one of the primary groups targeted by many of the new luxury buildings (see related story).
As apartment supply increases Downtown, primarily in the Financial District, residential rents are all over the map. After reporting that rents in the area dropped 5 percent between November and December (compared to 1 percent citywide), the Real Estate Group New York released a report in March showing that rents in the neighborhood appeared to make a “subtle comeback” and that rents at non-doorman buildings increased by 5 percent.
Still, the report noted that a “vast supply of new inventory has been slow to rent over the past few months, chipping away at prices and spurring landlords to offer concessions.” Daniel Baum, the CEO of the Manhattan-based residential brokerage, said: “There’s definitely more supply than there is demand for these apartments on the rental side. How long that’s going to progress is an interesting question.”
On the sales side, “February fell totally flat,” said Lori Huler Glick, vice president at Stribling & Associates. “It was kind of a ghost town out there.”
Wall Street gloom
Brokers and developers are divided over whether the recent slowdown is merely a seasonal lull or a sign of more fundamental problems. Some say the downbeat economic news and fallout from the subprime crisis are putting the brakes on a hot area.
“All I can say with regard [to] the market, in general: It’s asleep,” said Pierre Moran, a Battery Park City-based real estate agent at DJK Residential. “Everyone’s paralyzed by the nasty news. They’re just sort of waiting things out.”
Huler Glick said part of the neighborhood’s problem is that the new luxury developments offer pricey amenities, but the apartments are small.
“I’m hearing a lot of disappointment from people that are looking at them,” she said. “It kind of feels like when you’re on vacation, but you’re stuck in a timeshare.”
Of course there are always bulls. Michael Shvo, whose firm is marketing the W Downtown New York Hotel & Residences, said the “unique product” is “still keeping up very strong and selling at high prices.”
The W is selling for an average of about $2,300 per square foot, he said.
Shvo acknowledged that another high-profile Financial District development he is marketing, 20 Pine Street, was bogged down by construction delays for some time. But apartments finally started closing in late March — two years after sales began.
It’s unclear whether the delays were due to economic problems. Calls to the project developer, Boymelgreen Developers, were not returned.
Meanwhile, construction at Beekman Tower, a 76-story residential Forest City Ratner project at 8 Spruce Street, halted for several months before Ratner was able to secure $680 million in bond financing from a group led by Eurohypo AG, a German real estate lender. The remaining $195 million on the project will include equity from Forest City and its mezzanine lender, the National Electrical Benefit Fund.
The project will also include a publicly financed school and a medical ambulatory care center.
Looking for resiliency
Developer Kent Swig, who owns a 346-unit converted condominium at 25 Broad Street, said that any dip in Downtown prices may be skewed because the Financial District has a smaller inventory of apartments than other more established areas.
“I don’t think it’s anything more than cyclical,” Swig said. “On the sales side, the resale inventory of the whole Lower Manhattan [submarket] is virtually nothing.”
Larry Silverstein, the developer of the World Trade Center, is currently making a huge bet on the strength of Lower Manhattan’s residential community. In January, he announced plans for an 80-floor residential tower at 99 Church Street atop a Four Seasons Hotel. In the speech unveiling the project, Silverstein said he believes that Downtown will defy the “naysayers.”
“The sheer breadth and diversity of the Downtown economy makes it more durable and lasting than at any point in its history,” he said at the time. Silverstein made this statement two months before JPMorgan decided not to relocate its investment banking headquarters to 130 Liberty Street, seven blocks away.
The Downtown Alliance, which promotes Lower Manhattan, estimates that by the end of 2008, Lower Manhattan’s population will have more than doubled, to about 59,000, from 2003.
Elizabeth Berger, president of the Alliance, said the area is attracting “older, more established” residents. “We are not just seeing singles in their first job,” she noted.
After the dot-com collapse of the late 1990s and the destruction of the World Trade Center in 2001, much of Lower Manhattan’s growth stemmed from an effort to transform it into a round-the-clock, mixed-use community.
Residential development between 2001 and 2005 centered mostly on luxury rental apartments, spurred by $1.6 billion in Liberty Bond financing. That program created tax-free financing for developers who renovated or built new multi-family residential projects within a zone south of Canal Street.
The state’s 421-g tax abatement, which provided tax exemptions for office-to-residential conversions, caused a wave of condo conversions to get underway before it expired in 2006.
More than two-thirds of the residential development in Lower Manhattan since 2000 were conversions aided by the 421-g program, including 45 John Street, a former office building converted into 84 one- and two-bedroom lofts. Since opening in September, more than half of the apartments have sold; the remaining apartments are selling for about $1,100 per square foot, the developer said.
“I don’t see a slowdown in the demand or interest, but it’s taking people a little bit longer to execute,” said Stuart Katzoff, the president of Manhattan Capital, which is developing 45 John with RREEF Opportunity Funds Group.
The former JPMorgan Chase building at 75 Wall Street, which is being converted into a hotel-condominium this year, is another 421-g project.
Larry Kruysman, vice president and managing director at Corcoran Sunshine Marketing Group, said recent sales there range from $625,000 for a studio to $1.78 million for a two-bedroom unit measuring 1,411 square feet.
About 190 units are still available.
Gomes of Core Group Marketing said that condos at William Beaver House have become a popular investment for European and Latin American buyers, and overall sales only saw a lull during the winter holidays.
Sales have averaged $1,700 per square foot at the property, and the firm set a Lower Manhattan record of $3,512 per square foot.
“The foreign buyers understand the value of that neighborhood more than New Yorkers,” he said.