New York a ‘Challenging Market’ for Developers
New York is a challenging market for developers who must find a “special sauce” in every deal in order to make money.
That’s the assessment of a group of leading developers who participated in a panel moderated by Berdon partner Maury Golbert, CPA, JD, LL.M., at the recent Massey Knakal Multifamily Real Estate Summit held in the City. The two-day event, November 13-14, 2014, at the McGraw Hill Conference Center attracted more than 850 attendees.
With a vacancy rate of only 1-2% over the year, the developers agreed that there is not enough inventory to meet the demand for residential living in the City. Their challenge is how to buy residential land sites and make money.
Noting that the whole area is under-supplied, Golbert noted that high land prices in Manhattan is driving condo development in Manhattan, where units are selling for $2,500 to $3,000 per square foot, and rental development in the boroughs.
Developers on the panel with Golbert included:
- Oskar Brecher, Director of Development, The Moinian Group;
- Kevin Davis, Chief Investment Officer, Taconic Investment Partners;
- Jeffrey Holmes, Director, Woods Bagot;
- Jonathan Moore, Vice President, Brookfield Properties; and
- Samvir Sidhu, CEO, Megalith Capital.
“Nothing is wrapped in a package,” said Sidhu. “We must work every asset to make money.”
This fact of life for New York developers have led to a variety of developments that affect the City’s real estate landscape, including:
- Increased development in Harlem, where land costs remain lower. “Everyone should go to Harlem and invest a lot,” said Moore. “Harlem can grow and you can make great homes there.”
- Pressure on designers to unlock square footage. “There is little distinction between residential and hospitality,” says Holmes. “We try to create a more social environment.”
- Creative use of space. Kitchens are being built smaller and bathrooms are getting larger, said Brecher. “People are not cooking like they used to; overs are being used for shoe storage! To some extent, people live outside of their apartments.”
- Increased development in Upper Manhattan, Brooklyn, parts of Queens, Jersey City, and Hoboken.
Now, more than ever before, developers are looking to foreign sources for investment purposes:
- “We are spending more time courting foreign investors,” said Sidhu, “because they are willing to take more risk.”
- Chinese investors are the most influential, said Davis, and are willing to take only a 3 to 5% return on their investments, an amount less than domestic investors will accept. “They are looking not to lose money,” he said.
- Chinese investors are looking far beyond New York; Holmes noted that his firm is working with Chinese investors all over the world, including Australia and Africa.