Rising rates slow new development sales in Brooklyn, Queens

Manhattan stayed hot, but activity cooled in the outer boroughs, where buyers are more reliant on financing

JDS Development Group’s Michael Stern and 111 West 57th Street; Fortis Property Group’s Jonathan Landau and Olympia Dumbo (Olympia Dumbo, 111 West 57, Fortis Property Group, iStock)
JDS Development Group’s Michael Stern and 111 West 57th Street; Fortis Property Group’s Jonathan Landau and Olympia Dumbo (Olympia Dumbo, 111 West 57, Fortis Property Group, iStock)

The buying frenzy that’s defined New York’s new development scene for the past year is showing signs of calming. But that’s not necessarily good news for all condo hunters.

New developments in the city reported 397 signed contracts for sponsor units in April, a 14 percent dip from March, according to a new report from Marketproof. Most of the decline can be attributed to Brooklyn and Queens, where activity plummeted 26 percent and 24 percent, respectively.

Typically less expensive than those in Manhattan, new developments in the outer boroughs attract a class of buyers more heavily reliant on mortgage financing, and thus more sensitive to rising interest rates. As it’s grown more expensive to borrow in recent months, some buyers have pulled back, while high-rolling Manhattanites who can make all-cash offers aren’t as phased. The new development market has begun to split, with two tiers of buyers separated by interest rate sensitivity.

“We’re right at the beginning of the next phase of New York City real estate,” said Kael Goodman, CEO of Marketproof.

While the market has come down from its apex, contract volume was still up 45 percent in April compared to the same month in 2019, before the pandemic. The nearly 400 listings that went into contract last asked a combined $1.04 billion, down 7 percent from March’s total, but higher in terms of the median asking price and price per square foot.

As usual, Manhattan reported the bulk of new development deals. The borough notched 226 contracts worth a combined $786.7 million, both figures consistent with March. JDS Development’s supertall at 111 West 57th Street had a big month, grabbing the borough’s two largest contracts for units asking around $30 million apiece, as well as the priciest confirmed closing, at $28 million.

Brooklyn took the biggest hit in April, with activity and dollar volume both falling by about 25 percent compared to March. Brooklyn developers reported 145 contracts for homes asking a combined $228 million.

Fortis Property Group’s Olympia Dumbo, which has dominated Brooklyn’s new development market in recent months, secured the borough’s three priciest contracts in April. Each unit was asking between $5.4 million and $7.7 million.

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And then there was Queens. While developers already own much of the up-and-coming borough’s dirt, there’s still a long way to go before its housing stock will be able to compete with Brooklyn and Manhattan. But some developments, like Risland U.S. Holdings’ Skyline Tower in Long Island City, performed well.

Skyline reported two of the borough’s three priciest contracts, for units asking $1.9 million and $1.7 million. Nest Seekers will soon begin selling the building’s penthouse units, and Marketproof projects the development will sell out in under two years.

In all, Queens developers reported 26 contracts, down from March’s 34 deals. Combined, the 26 listings asked $28.3 million — about enough to buy a single unit at 111 West 57th Street —while the median price fell 12 percent from March.

The Rowan, a foliage-filled development by RockFarmer Properties in Astoria, was home to the priciest unit sold, a penthouse last asking $2.2 million.

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With rising interest rates, high construction costs, and an uncertain future for the city’s most popular multifamily development tax break, the new development scene faces headwinds of a magnitude it hasn’t felt for some time. But how they’ll weigh on development remains uncertain.

“These shockwaves are still rolling through the system,” Goodman said, “and how it plays out is TBD.”