What’s really in the pipeline?

Crunching the numbers on NYC's future new condo units

The real estate market may be cyclical, but a look at the future of new development in New York suggests that the city isn’t in for a second condo boom — at least not yet.

Recent headlines give the impression that the city is being hit by a wave of pricey new mega-condo projects. Here’s a sampling: “Penthouses at Extell’s One 57 ask $98.5 million”; “CIM to begin work at Drake Hotel site”; “Nouvel’s MoMA tower is back before city”; and “Two St. Vincent’s sites enter public review.”

But many of the headline-worthy projects in the so-called pipeline are still several years off. And while there are projects in the more immediate pipeline, there are far fewer than there were even last year at this time.

One 57 is indeed already rising and set to open for sales in the fall, but the 78-story, Jean Nouvel-designed Torre Verre, which is adjacent to the Museum of Modern Art and is slated to have 480,000 square feet of residential development space, isn’t scheduled to break ground until at least 2013 — maybe as late as 2015 — as the arts blog CultureGrrl recently reported. And although the CIM Group-Harry Macklowe venture at the former Drake Hotel site has hired architect Rafael Vinoly to design what is likely to be a condo and hotel tower there, financing has not been secured, and there are two properties on the site that the developers have yet to acquire.

The city’s real estate industry will also likely have to wait until at least 2014 before setting eyes on the 450 condos developer Bill Rudin is planning at the former St. Vincent’s Hospital site in Greenwich Village.

Meanwhile, in an interview with The Real Deal this month, Silverstein Properties CEO Larry Silverstein said it’s “premature today” to even mention a construction loan at another much-talked-about hotel and condo project, the Four Seasons at 99 Church Street. It won’t break ground until 2013, and won’t open until sometime in 2015, Silverstein said.

This month, The Real Deal analyzed data from the state Attorney General’s office to get a handle on what is actually on deck for New York City’s immediate new development future.

Although the chatter surrounding major new mega-condos has undoubtedly gotten louder in recent months, the numbers show that for the next 12 to 24 months, new condo product coming online will be very scarce.

Shrinking pipeline

So far in 2011, the AG has received offering plans for 89 proposed new condos containing some 1,903 new units. (That number doesn’t include the 18 condo conversion plans submitted during the first two quarters — see “Condo conversion diversion”). Based on the average rate of submissions by month, that puts the AG on track to receive 133 new condo plans with 2,854 units by the end of the year. That’s down markedly from 2010, when the AG received plans for 229 projects and 4,870 units.

In comparison, developers submitted plans for 444 new condo projects with 12,073 units in 2008, before the bottom dropped out of the market. The number of submitted plans and units had actually been on the decline prior to that. Filings have been shrinking since 2007, when lenders began to pull back on both construction and end loans.

But whatever happened to the common refrain of the past couple of months that construction financing has finally started to open back up?

“There is clearly a lot of hype surrounding new development,” said Jonathan Miller, CEO of the appraisal firm Miller Samuel.

When it comes to lending, “the talk is it’s looser,” said Extell Development Company president Gary Barnett, whose project, One 57, is being developed through a partnership with an Abu Dhabi government fund. “The actuality is, it’s not much looser.”

He added: “Especially with this latest financial mini-crisis, the banks are still being very cautious. … Projects are being underwritten on a very conservative basis, [with] 40 to 50 percent equity in many cases.”

The Wall Street Journal reported in July that Barnett was nearing a deal with a lending group led by Bank of America and Banco Santander for a $700 million construction loan for the $1.4 billion, 1,000-foot-tall tower, which has already risen above 20 stories. At press time, Extell hadn’t yet filed an offering plan for the project with the AG.

Miller agreed that financing for residential lending is not easing. “In fact, over the past six months it’s actually tightened,” he said.

That’s one reason why there are fewer projects in the pipeline now than last year at this time. “Developers and lenders see this, and either can’t get financing or are opting to wait,” Miller said.

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Heather McDonough, a broker at Prudential Douglas Elliman who works frequently with condo developers, offered another possible explanation for the decline in plans from 2010, when credit was also tight. Even if the market is indeed reheating, today’s developers may be “waiting for a more completed product to offer their buyers” before filing their offering plans, she said. In the past, when selling off of floor plans alone was common, they were probably more anxious to get their plans approved early on so that sales could begin, she said.

The AG’s data tracks the date when plans are initially submitted, rather than when projects are approved for sales or completed. Developers are not allowed to launch sales until their plans are approved, and the AG has 30 days to respond to submissions, though the comments and revisions process can drag things out longer. So the numbers for 2011 are indicative of which new development condos are likely to come online in the next three to six months.

The data shows that there are vastly fewer projects coming to the market in that time frame, and that the projects that will launch are relatively tiny (see related story on boutique projects, “Boutique condos in bloom”). Of the 89 new condo offering plans that had been submitted year-to-date as of mid-August, 60 were for projects containing fewer than 20 units; 42 contained fewer than 10.

Just two plans — Toll Brothers’ 205 Water Street in Dumbo and Elad Group’s 250 West Street — listed 100 units or more. Elad’s project, which started sales in July, has 111 residential units. Toll’s project, which will launch this fall, actually only contains 65 residential units; the 149 units listed in the offering plan include the parking spaces that will be for sale.

“On the condo side, people are looking to do projects that are more manageable — that you can see through in a more reasonable amount of time,” said David Von Spreckelsen, president of Toll Brothers City Living.

Future activity brewing

That’s not to say the construction industry is totally stagnant for large-scale multifamily deals. But many of these projects are either rentals or are not expected to come online for three or four years.

By virtually all accounts, ground-up construction is revving up more briskly for rental buildings than for condos, though reliable data on rental projects is more difficult to come by because they aren’t required to go through the same state-approval process. In many cases, stalled condo sites are set to return from hibernation as rentals. That is what happened at 111 Kent Avenue in Williamsburg, which developer Larry Gluck’s Stellar Management picked up in March. Occupancy at the 62-unit building is slated for the fall.

It was also the story of the former Beach Russ factory site at Williamsburg’s nearby 544 Union Avenue, which was originally supposed to be developed as a six-story condo. After changing hands last year, the new building now under construction there is set to be a 98-unit rental and is expected to launch in late 2012.

Brand-new sites are being planned as rentals, too.

According to new development leasing consultant Nancy Packes’ most recent rental market report, a total of 3,584 new rental units are slated to come online in New York City in 2012 or later, in projects like the Avalon West Chelsea (691 units), the Ten23 (111 units), Gotham West (1,350 units) and 10 East 102nd Street (232 units).

Meanwhile, Packes is forecasting that 2,492 rental units will have hit the market by the end of 2011 (351 units at the Chetrit Group and Stellar Management’s Columbus Square are supposed to come online before the year is up).

There are also some stalled-condo revivals that aren’t represented on the AG’s list of newly submitted plans. For example, Tribeca’s 56 Leonard Street, which has 145 units, is slated to launch this fall after three years of no activity, according to Kelly Kennedy Mack of Corcoran Sunshine Marketing Group.

In addition, Mack said Corcoran Sunshine has a $7 billion pipeline of projects set to come to the market over the next three to four years. That includes 99 Church Street and many other projects that have, for years, been considered stalled.

“The viability of some of those projects was relatively uncertain until everybody got comfortable with where the market was headed,” Mack said. “Many of those projects are now moving forward.”

Mack said her firm is currently tracking around 50 projects in Downtown Manhattan that are scheduled to launch by 2014. Most of them are smaller properties, and some already have construction financing.

In Midtown, where most of the larger future projects are located, Corcoran Sunshine is tracking 13 new projects for that same time frame. Aside from One 57’s expected sales launch this fall, Mack listed Nouvel’s Torre Verre, the Drake Hotel site and Starwood Capital and Tribeca Associates’ Donnell Library site as the major projects to watch in the coming years in the “prime Midtown corridor.”

The initial time line for the Donnell Library site has the developers delivering a new library — and, presumably, the 140,000 square feet of condos planned above it — in mid-2014.

Of course, the timing of all those projects “is really dependent on when construction financing opens up for much larger-scale projects,” Mack said. And despite the volatility of the market over the past few weeks, “everyone thinks it will.”