In spite of Manhattan’s growing supply of luxury condominiums, there are signs that expensive apartments are starting to lose their appeal with buyers.
According to Douglas Elliman’s third quarter report, the price per square foot in Manhattan hit a new record of $1,497.
The biggest deal during the period was for “Penthouse One” at luxury condo building, The Charles, at 1355 First Avenue, which sold for $38 million.
While the transaction is typical real estate headline fodder, it may stand as the high point for an industry that’s starting to get spooked by ultra-luxury condos that are staying vacant.
“I think in general it’s hard to be across-the-board bullish about new condo development in New York. In fact, I think the opposite is much closer to the truth,” Lauren Hochfelder Silverman, a managing director at Morgan Stanley Real Estate Investing, said during a panel discussion during NYU Schack Institute of Real Estate’s Capital Markets in Real Estate event.
Silverman’s comments align with some recent real estate data. According to research from Douglas Elliman, newly constructed apartments that were sold during the third quarter spent 125 days on the market, up from 88 days during the same period a year before.
The prospect of expensive apartments sitting empty has not totally pushed Silverman’s firm away from the condo market. However, they’ve scaled back their targets, instead going after a more modest section of the luxury sector.
The firm has mostly withdrawn from targeting condo buyers in the $10 million and above price range. Instead, Morgan Stanley is targeting buyers in the lower seven figures in their quest for opportunities that Silverman described as “short and cheap.”
“It’s really more moderate luxury. It’s at a much lower price point, (and) that, I think, is underserved in today’s market. In as much as you have this tremendous supply for super-luxury. There really isn’t as much targeting the two- to- three million dollar market,” she said.
As Silverman’s firm sours on high-end condos, at least one capital source remains optimistic about condo development.
According to John Galiano, a senior managing director at Tishman Speyer, Chinese investors remain bullish on condos.
“A lot of money that been coming out of China, just from a cultural perspective, their view is a lot more shorter-term than your typical investor. They’re doing more strategic acquisition unless it’s condo development, because condo development will turn into capital quickly. I think that’s one of the interesting dynamics when you’re thinking about where capital’s coming from for deals,” he said.
Some of the newest condo projects in town are either being developed or targeted towards the Chinese.
Euro Properties’ 118 East 59th Street, which contains full-floor apartments that start at $5 million, launched sales in October. Meanwhile, Extell Development Corporation plans to launch sales exclusively to Chinese, Malaysian and Singaporean buyers for its new One Manhattan Square development.