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Developers divide and conquer to reign in cut-throat Manhattan market

In the era of “too big to fail,ˮ panelists at last week’s New York Real Estate Expo discussing New York Past and Present pointed to the trend in jumbo-sized luxury homes as the market antithesis.

“Macklowe is dividing the top floors of 432 Park and that clearly shows there is a limit to how many square feet is the right number of square feet,ˮ said Frederick Peters, president of Warburg.

“Developers over estimated the demand and desire among people who could afford to buy $80 million apartments,” added luxury homes expert, Royce Pinkwater, founder of investment and development company, Pinkwater Select.

“These big units have stopped selling and we have entered a vibrant market for much smaller units which will turn over quickly,ˮ added Pinkwater, who said a glut of jumbo apartments has given the impression that the New York market is slowing down.

Royce Pinkwater
Royce Pinkwater

On the contrary, she predicted, “A building is going up on 53rd Street with one, two and three bedroom choices and the one and two bedrooms are going to sell first. The smaller units always sell first. The developers are now getting back to basics.ˮ

The veteran brokers were among a panel of experts taking part in the Brokers Weekly-sponsored panel that included developer William Zeckendorf, broker Reba Miller, attorney Michael Romer and New York Post columnist Lois Weiss.

While big isnʼt always better, it can still be really good. Zeckendorf, the co-founder of Zeckendorf Development, which built 15 Central Park West — a property considered the most successful apartment building in the world — pointed to his 18 Gramercy Park, where full-floor homes range from just over 4,000 to 8,414 s/f.

Built in the 1920s in one of the most significant historic districts in the city, Zeckendorf converted the building from 181 single rooms into just 17 full floor apartments. All but two of the homes have been sold — apartments 3 and 16, both full floor apartments, priced $15 and $19.15 million respectively.

Quality finishes, move-in ready condition and “tech-forwardˮ amenities, such as automated garages and the ability to “control everything from a smart phone,ˮ are what’s making a difference to the current generation off buyers, agreed the panelists.

William Zeckendorf
William Zeckendorf

And the sweet spot for domestic buyers is the $1 to $4 million range, a slice of the market the panel said both Toll Brothers and Elad have tapped into with a series of properties that have hit the mark in terms of size, finishes and amenities.

Developers ability to meet the demands to today’s buyers is being maneuvered by a bottom line that has been forced up dramatically in recent years as construction costs rise in the booming building market and Manhattan land prices circle the $1,000 per buildable square foot mark.

According to Crain’s, at that price, a 1,000 s/f apartment would need to sell for $3 million or more just to break even.

Developers such as PMG and JDS, which owned the site of the highly successful Walker Tower for several years before developing it , have managed to pro forma bring apartments to the market much less expensively as a result, said Peters.

Zeckendorf paid $400 million for the Mayflower Hotel site where it built 15 CPW at a cost of another $550 million. It sold out within four years grossing $2 billion.

Zeckendorf told the packed audience at the New York Expo that his firm paid $6 million for the site for 520 Park, one of the most highly anticipated new developments in the city right now.

Frederick Peters
Frederick Peters

Peters said he sees the current demand and supply quotient continuing through 2016 and a “highly competitive marketplace for appropriately priced properties.ˮ

He explained, “The aftermath of the recession has created a market of buyers who will not tolerate improper pricing. The co-op market for $15 million and above is as slow as molasses right now and that wont change because buyers wont tolerate those prices … it is going to take sellers’ adjustment about the value of those properties to get market movement.ˮ

Zeckendorf said a strong national economy and job growth would continue support the current market. “We developers are an optimistic lot, but the market feels good to me right now across the board. We are seeing good absorption — 60 percent sold on completion — these are good numbers.ˮ

What he called “artificially low mortgage ratesˮ couldnʼt hurt either, said Michael J. Romer, managing partner of the boutique law firm, Romer Debbas.

“As long as money is cheap, why not? If you can buy with a 50-60 percent mortgage, go for it,ˮ said Romer, noting, “That canʼt last forever, though.ˮ

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