Rising land prices have made putting together large land parcels a more expensive proposition, but the jury is still out on whether they’ve forced a general scaling back during a roaring real estate market.
Some developers say rising land prices have spurred more landowners to put their properties on the market, which may be prompting developers to assemble lots for development.
“When land was worth $100 a foot, landowners were a lot less motivated than now, where land prices are $300 to $400 a foot,” said Christopher Albanese, principal at the Albanese Organization Inc. Also income from buildings today is typically less than what the building would be worth if sold.
“Now, it’s easier to assemble because the value of the building is a lot greater than the income of what exists,” Albanese said.
But Robert Knakal, chairman and founding partner of Massey Knakal Realty Services, said there are at least two obstacles to land assemblage in the current New York City real estate market.
One is that the market encourages developers to begin building as soon as possible, so buying a single parcel is preferable. Land assemblages can take as long as a decade to come to fruition.
“Given that assemblage can take so long, it’s preferential for a developer to buy a site today where he can get into the ground right away,” Knakal said.
Jon McMillan, director of planning at Rockrose Development, agreed that many smaller developers may feel pressure to develop quickly.
“A lot of developers get a piece of property they pay a lot of money for, and that induces them to go into development right away,” he said. “And because they tend to overpay for properties, that means they have to do high-end condominiums.”
Knakal also said building values are catching up to development values, or at least to a building’s value to developers as part of an assemblage. What makes it harder to quantify is that those values are hard to pinpoint, he said.
“If a seller finds out that you own a large piece [of nearby land], and you’re trying to assemble it, he can try to gouge you,” said Elan Padeh, president and CEO of the Developers Group, which consults with property developers.
Some developers avoid problems like that by purchasing air rights from neighboring lots, which can be bought for about half the cost of the land itself, Padeh said.
Yair Levy, principal of Y.L. Real Estate Developers, recently took advantage of that reduced pricing to complete an assemblage on Third Avenue between 23rd and 24th streets, which, instead of developing, he sold. J.D. Carlisle Development was the buyer, and is planning residential with a retail component for the site, according to reports.
Levy purchased the air rights from the U.S. Postal Service and a neighboring building to turn a lot upon which he could have built to 170,000 square feet into a parcel where he could build to 300,000 square feet.
“When you buy air rights, the price per square [foot] is normally much cheaper, so your average [development cost] per square foot comes down,” he said.
But since Levy wasn’t worried about developing the parcel, he simply collected $85 million upon its sale after purchasing the assemblage for a total of $35 million the year before.
“I was lucky,” he said.