Is development slowing?

New York condo building still strong, but not for long

Developers have shown plenty of faith in the Manhattan housing market in 2006, but signs of a slowdown loom.

Nearly 35 percent of all new condominium and co-op plans in the last 32 months — two-and-a-half years — made it to the office of the state attorney general in the first eight months of 2006. More plans got filed in the first three months of 2006 than in any other quarter going back to the start of 2004, according to an analysis by The Real Deal.

It’s an impressive vote of confidence in the prospects for building in Manhattan, but construction and land costs are higher than before, and developers once focused on new condos and co-ops are more amenable to building condo-rental hybrids or hotels now. The numbers of new offering plans remain high, though market analysts say the totals reflect an old, enthusiastic mindset that may owe more to the boom of 2005 than to today’s higher-cost reality. It could presage a condo glut, some say.

Last year, developers submitted plans for 14,159 new condos (which included a handful of new development co-op units as well). The number was 8,072 in 2004. This year’s total, through August, hit 11,265, on pace to beat last year’s mark.

Still, this pace may be slowing. The Real Deal projected that plans for as many as 3,035 units would be submitted for the third quarter of 2006, ending Sept. 30., based on July and August data.

That’s down from 4,301 unit plans submitted in the second quarter, which itself was down from the 4,941 units in the first quarter of 2006. Market analysts blame this nine-month downward trend on rising construction and land costs.

“What you’re seeing, really, is the residue of everything in the pipeline,” said Gary Barnett, president of Extell Development Corporation, which has made big bets on the Manhattan residential market with projects such as the Ariel East and Ariel West condominiums on Broadway between 99th and 100th streets, the Avery and Rushmore near Riverside Drive and 64th Street, and the Stanhope conversion on Fifth Avenue and 81st Street.

Anthony Chiellino, as the owner of insurance firm Prestige Title, has provided title documents for offering plans for two decades.

“We have seen a decrease in title work in Manhattan for the title work specific to the filing of new offering plans,” Chiellino said. “That suggests to me there’s been some concern over the development of the market. I keep hearing a recurrent theme from everybody, and that theme is construction costs.”

Construction costs for new housing in Manhattan increased to over $400 a square foot by the spring of 2006, according to developers, from about $335 a foot a year earlier. With the average sales price of a Manhattan apartment just over $1,000 a square foot now, the economics of new development still make sense, but the profit margin has clearly shrunk.

“We’re definitely going to see less condo construction,” Barnett said. “I’m very happy to see the market is self-correcting.”

That self-correction began in earnest in some Manhattan neighborhoods over the last few months.

Data tracked by The Real Deal looked at when projects were submitted to the attorney general’s office, rather than when they were approved for sales or completed, meaning that a project that’s just finished construction would be included in earlier annual tallies.

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In Chelsea, developers submitted to the state offering plans for 444 new units in the second quarter of 2005 (one project, 555 West 23rd Street, accounted for 336 of those units). That marked the peak of total units for a neighborhood that’s been transformed by high-profile condo projects. New buildings, such as the Heywood on Ninth Avenue and projects planned along the future High Line park, have altered Chelsea’s housing profile, but the pace can’t be sustained. In the second quarter of 2006, developers submitted plans for 151 units in Chelsea, though the numbers look set to rise again for the third quarter.

The Fashion District-Times Square area has seen a precipitous drop in new units. In 2004 the state received plans for 1,391 new units; in 2005, it received 586. This year, zero.

The numbers have declined in other neighborhoods, but not as steeply. For the last six months of 2005 in Harlem, developers filed plans for 1,120 units. For the first six months of 2006, they filed plans for 907. For the same time period on the Upper East Side, the number of units dropped from 985 to 851.

The West Village peaked in the first quarter of 2006, with plans submitted for 560 units; in the second quarter, developers submitted plans for just 57 units.

Some neighborhoods have buoyed the entire Manhattan market. Developers filed plans for 6,457 units in Lower Manhattan from 2004 through August 2006, more than for any other neighborhood. They filed plans for 34 percent of those units in the first eight months of 2006. On the Upper West Side, where developers filed plans for 5,471 units (the second-highest total by neighborhood) since January 2004, plans for more than 1,300 were filed in the first eight months of 2006.

Biggest boroughs a haven for fresh projects

Developers turned their gaze east this year, filing papers that herald a double-digit yearly increase in new housing in Queens and Brooklyn. Since January 2004, developers have submitted to the state attorney general plans for 18,056 new condo units in Brooklyn, according to an analysis from The Real Deal. About 29 percent of those units are derived from plans filed in the first six months of 2006, up from 22 percent from the same period last year

Queens attracted even more attention in 2006. Developers filed offering plans for 5,966 units there since January 2004, and 37 percent of those were in plans submitted in the first six months of 2006, up 14 percent from the same period a year ago.

As director of development for architecture firm Meltzer/Mandl, David Carpenter works in every borough except Staten Island. While he’s seen signs of a slowdown in new development in Manhattan, Carpenter says the pace remains strong in Brooklyn and Queens.

“I think it’s slowed considerably in Manhattan,” Carpenter said, “but [development] is picking up in Brooklyn. And Queens is actually starting to pick up, in particular, Long Island City.”

Things aren’t quite as rosy in the Bronx. But condo and co-op development in that borough have never been that strong, even during the recent housing boom.

Developers filed from January 2004 through this August plans for 1,416 units in the Bronx, mostly in upscale Riverdale, and just 15 percent of those were in plans filed during the first six months of 2006. One-third came from plans filed during the last six months of 2005, and 24 percent from plans filed in the first six months of last year.

Go to graph: New condo units by quarter, 2004 – 2006

Go to map and chart: Manhattan condo units added by quarter