New York’s new development has historically pushed the envelope with hulking projects that reshape the skyline.
But in recent years, those spindly spires of glass offering hundreds of units have been replaced with squat brick or terracotta buildings that recede into the streetscape, often holding just a handful of meticulously-designed homes.
After the early successes on Billionaires’ Row in the mid-2010s bred copycats around the city, the tide turned on larger projects, with a number of noteworthy busts stemming from lackluster buyer interest, costly construction or, in some cases, fraud.
Developers — and their investors — have taken note, and instead seized on the success of recent boutique projects in commanding prices that used to be reserved for the skyscrapers along 57th Street.
“There is evidence in the market that these buildings can attract tremendous pricing, and people want to take advantage of that,” said BKREA’s Bob Knakal of smaller condo projects.
The downsizing has been driven by a lack of land and capital for large-scale projects, but also a shifting sense of what buyers want from their multimillion-dollar homes.
From 2016 to 2020 in Manhattan, buildings with fewer than 40 units accounted for just 14 percent of the new units coming to the market, according to a The Real Deal analysis of condo offering plans filed with the New York Attorney General’s Office. In the last three years, that number has jumped to 32 percent.
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The shift comes at a time when the city is losing new condo inventory rapidly and big-name developers have turned over to a new, more cautious and analytics-driven guard.
Show me the money
Even for developers who want to go big, the pipeline of money and land to do so has increasingly run dry.
The juiciest slices of land on the island, around the West Village, Tribeca and Chelsea, have all been bought up and, in many cases, are also height-restricted.
“There’s just not a lot of undeveloped land on the island of Manhattan that could bring up a large-scale project,” said Robin Schneiderman, managing director of Brown Harris Stevens Development Marketing Group.
The large projects that are underway have been prohibitively expensive for all but the most flush of risk-takers. At 625 Madison Avenue, Related Companies ponied up roughly $630 million, or over $1,000 per square foot, to buy its former office building, which it plans to tear down for what will likely become a combination of hotel, retail and condos.
Compare that to Michael Stern’s project at 111 West 57th Street on Billionaires’ Row, which was built from an assemblage his firm JDS Development secured for just $130 million, or roughly $400 per square foot.
At the same time, the money that was floating around for these projects has become scarce — or more risk-averse — in recent years.
“There’s plenty of debt to do these kinds of things, but the equity piece of the puzzle is hard to find,” Schneiderman said. “Some of the equity world got into the debt game. They’ve really changed their strategy on where they want to be in the capital stack.”
While the debt play has made sense for many investors as banks pulled back on traditional lending after the pandemic, there is also a greater unease around handing unsecured money over to flashy developers after HFZ — the developer behind notorious projects like XI on the High Line and the Belnord on the Upper East Side — went up in flames and left investors around the city holding the bag.
Other recent high-profile projects, like One Wall Street or 53 West 53rd Street, have gone sideways simply because of an apparent lack of demand.
“When they look at what’s happened in the past, I think that people are cautious,” Schneiderman said.
What buyers want
While developers looking to make their mark on the city’s skyline have foundered, those that have leaned into finding smaller sites around the city have found a pool of buyers willing to spend surprising amounts to live in a converted garage or former retail corner.
A number of high-profile sales this year have happened at projects where there’s no towering view of Central Park or the Empire State Building. The two oft-cited projects are at 140 Jane Street, the 15-unit project where a penthouse asking $88 million went into contract last year, and 125 Perry Street, the seven-unit garage conversion where a buyer secured a penthouse asking $58 million.
Yiannes Einhorn, the managing principal of development firm Grid Group, which is behind a 22-unit condo at 142 West 21st Street called the Myles, said the attention to detail on smaller-scale projects is essentially unmatched.
“There are no lemons in these projects, because every apartment is studied and carefully drawn out,” Einhorn said of boutique developments. “You see these 200 [or] 300 unit projects, there’s always a line that never sells.”
While Grid Group has long focused on smaller projects, others have taken the plunge on deals that they might not have previously.
“Pre-Covid, if you asked me, would you do like a 25,000- to 30,000-square-foot conversion or would you do a 25,000- to 30,000-square-foot ground up, we’re not putting a shovel in the ground,” said Avdoo CEO Shlomi Avdoo. “Today, we definitely see the reward at the end.”
Avdoo just launched sales at 110 Boerum Place in Cobble Hill, which is a fraction of the size of his other recent Brooklyn condos, like the 105-unit Bergen.
Buyers in the wake of the pandemic sought privacy and comfort over views and lavish amenities like bowling alleys and pet spas. Both Avdoo and Einhorn’s buildings provide parking spaces for nearly every owner to purchase, and every unit has some outdoor space.
After years of watching larger buildings sit on the market as their investors rack up carrying costs, some developers are eager for projects where they can see the end in sight before even starting.
“I’d rather be in a position where I have to sell 20 units to pay back the bank, let’s say, then, being a 300-unit project where it takes you 200 units to pay back the bank,” Einhorn said.