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New York City Real Estate is Booming

Tuesday, September 15, 2015
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New luxury buildings are opening that offer the best of the best


Participants photographed in slideshow, by Christopher Patrick Ernst


Participants

Edward Baquero

President of Corigin Real Estate Group

Marty Burger

Chief Executive Officer, Silverstein Properties

Ziel Feldman

Chairman and Founder, HFZ Capital Group

Steven C. Witkoff

Chairman and Chief Executive Officer, and Founder of Witkoff

William Lie Zeckendorf

Cofounder, and Cochairman, Zeckendorf Realty; Owner and Cochairman, Terra Holdings, parent company of Brown Harris Stevens and Halstead Property, LLC


AVENUE: Do you feel the current financial crisis in Greece and Puerto Rico will affect the New York real estate market? 


Burger: The United States has been a safe harbor for foreign capital, and it continues to be so. I don’t think that Greece or Puerto Rico will put a damper on what is coming to New York. In some cases, turmoil even helps you, because, again, it’s a safe harbor.


Baquero: I see crisis as a good for New York City—as long as it is not taking place in New York City. We see a lot of flight capital coming in from many different parts of the world. Whenever there is economic crisis, we see money looking for a safe haven, which

often means investing in hard real estate assets in the U.S. or depositing funds in U.S. banks. When things are shaken up, foreign (and even domestic) investors start looking elsewhere and New York City is one of the great cities of the world.


Feldman: Keep in mind that less than 25 percent of all buyers in New York are foreigners. You do have some buildings that are foreign-centric, but overall the impact is still de minimis. Our local buyers are nationals moving to New York or suburbanites moving back; it has nothing to do with what’s happening in Greece or on the currency exchange.


Zeckendorf: I’ve always worried much more about the U.S. economy than the New York City economy. I agree with everyone else—I think that what’s happening overseas can either be neutral or a benefit for New York City.


Burger: The downside is the dollar is stronger, and so it’s more expensive for foreigners to invest here.


Baquero: That said, it does typically cause a speed bump, because it’s like, “Let’s see if I can wait a little longer to see if the dollar weakens, then I’ll go into the market.” But even despite a strengthening dollar, investment typically remains strong in New York. Ultimately, if the U.S. dollar is strengthening, there’s a global economic reason for it. Generally, that is the weakening of non-U.S. economies. If you want to protect your money from devaluation, you either convert to U.S dollars and deposit in U.S. accounts or you invest in U.S. durable goods like real estate. And while a strong dollar often hits valuations for U.S. companies doing a significant amount of business abroad, we don’t see the same impact to value in real estate.


Witkoff: When sales numbers slow down in the market place we get calls from lenders and private equity funds asking, “What are your sales like? Do you think that’s the end of the condo market?” We have our finger on the pulse because we’re selling every day.

We opened 111 Murray three weeks ago and already have 78 contracts out, most of which have been signed. The last few months, I’ve repeatedly been asked, “Are we in the fifth inning or the seventh? Is it the ninth inning?” As if it’s a baseball game. I almost find that kind of talk amusing.


Feldman: Things can change very quickly. This market can become fickle if capital starts to hesitate. It’s like the herd mentality in the stock market.


Witkoff: If you go to any credible construction lender and ask them what city they want to lend in, it’s always New York because of the pricing power.


AVENUE: What is your particular niche in the market, and what significant projects do you have in the works or in the pipeline? 


Baquero: We’re doing a beautiful project on East End Avenue—it’s called 20 East End—it’s a highly nuanced, highly detailed, very sophisticated project. It’s a Robert A.M. Stern–designed project through and through. As a whole, for developers like Corigin, projects have become a little bit smaller than they were in ‘07. The 200-, 300-unit buildings are not as prevalent in the market as they once were. We’ve moved into highly designed, boutique buildings. New York City has unique fundamentals that other U.S. cities don’t possess. It is typically the last city into recession, and the first city out; it has the most dynamic employment market of any city in the U.S; and it has a substantial amount of direct foreign investment. From a pure real estate perspective, as an island it’s a limited resource, coupled with a true scarcity of “A” locations; and in addition highly regulated from a zoning perspective.


Burger: There is an abundance of product on the market, and there’s more coming. Today, it’s really important to differentiate your project. We create projects with great views, great quality design and finishes. We are currently selling 30 Park Place, which is the Four Seasons Luxury Residences downtown with 157 units on top of a Four Seasons Hotel; we have sold 113 of the units. Then there is One West End Avenue, which is at 59th Street, and similar to Steve’s experience, we opened four weeks ago and sold 110 units in four weeks; 82 of those are signed contracts. Most of those buyers are domestic, more so for One West End than the Four Seasons, because the Four Seasons is an international brand, but we’re still about 65 percent domestic and closer to 80 percent for One West End. Both projects feature marquee architects: Robert A.M. Stern for the Four Seasons and Pelli Clarke Pelli Architects for One West End, and Jeffrey Beers handled the interiors.


Feldman: Because I’ve been through many cycles, we set out on a plan to diversify our portfolio in different locations in the city as well as from a price perspective. We cover price per foot ranges from as low as $1,500 a foot to as high as $7,000 a foot. Supply and demand are as strong as ever because developers were developing 12,000 to 15,000 units per year in ’05, ’06 and part of ’07 and now it’s only 6,000 units. We did spend a couple of bucks on a piece of dirt on the West Side Highway. Our current projects include the Halcyon on 51st and Second with a price of $1,900 a foot. On the West Side we expect to be doing smaller apartments in the $4 to $8 million range. We’re selling product on the Upper West Side, and a requirement is buyers want to move in within the year, which is possible when you are renovating an existing building. Although we are seeing price resistance in certain areas, if they’re priced well, they’re flying. Take 53rd and Eighth, a project we did in a postwar building: we’re selling a unit every other day at $1,750 a foot. Three-bedroom apartments that are $2 million. It’s what we call approachable, affordable, luxury living.


Zeckendorf: Starting in 1997, Arthur Zeckendorf’s and my sole focus has been super luxury. One of the advantages of owning a brokerage business—Brown Harris Stevens and Halstead—is brokers would come to us and say, “We need large postwar apartments, but there’s just no stock out there.” So we built 515 Park, which at the time—this is back in 1999, 2000—the average apartment size was 4,000 square feet, which was unheard of for postwar construction. Then we built 15 Central Park West with a similar philosophy. Our most exciting current project is 520 Park Avenue. There are 33 residences in a 900-foot-tall limestone tower, and every apartment is about 4,500 to 5,000 square feet. The architect is Robert A.M. Stern.


Witkoff: The most robust segment in the market is the super-high end. In all of our developments sales are just unbelievable. There’s not much shortage of demand at the high end of the marketplace. Downtown has been outpacing the market, and additionally, there is now a lack of inventory, further fueling pricing. Like many of the people in this room, we live with the fear of failure. That’s why we sold 150 Charles so fast: that’s the business we’re in—build it and sell it!


AVENUE: Are there certain trends happening in certain neighborhoods?


Baquero: Despite the scarcity of true “A” locations, these days, the whole city is nearly fair play now. It used to be very specific pockets but not anymore. Twenty years ago, you wouldn’t have thought of living in certain parts of downtown or uptown. Who would have ever thought that the Lower East Side, the Bowery or Hell’s Kitchen would have gentrified to the extent they have? Now all of these locations are definitely on people’s minds. You have accessible schools, organized retail and new developments all over the city and rezoning’s, like the rezoning of Chelsea, have created amazing neighborhoods. Personally, I see great opportunities in Upper Manhattan. I’ve got friends buying town homes in Harlem,  and they just love it. There is undoubtedly a widespread gentrification growing throughout the city.


Witkoff: New York is a great city. As I was here this weekend, I was able to observe how energetic and vibrant New York is. It’s a fabulous place to live. There’s very little crime. It’s extraordinary, there’s no question. You can walk it, you can navigate it, the weather patterns are great. Mayor Bloomberg’s tech initiative was nothing short of incredible. We’re the second largest generator of tech jobs and we actually have a much more balanced economy than almost any city in the world today. You can actually make a real living here. That’s why people ultimately come and why you get pricing power here.


AVENUE: What trends are you seeing?


Burger: One of the trends we’re seeing is that at an absolute dollar amount, we can’t keep inventory. Anything below $3.5 to $4 million is flying off the shelves. The bigger units are moving but just not as fast.


Zeckendorf: There were quite a few gut renovations in the buildings we built before 2008. For some apartments, almost everything we installed ended up in the garbage. We don’t see this anymore in our buildings. Since 2008, virtually every buyer is moving in, painting, doing slight decoration, and furnishing. They’re buying new construction and they want to get in quickly; they don’t want to spend a lot of money decorating. They like the job you did and are just moving in. I think it’s really just a different mentality—they don’t want to buy the apartment and then wait two years to move in; they want to buy the apartment and close and move in in three months.


AVENUE: What are people asking for? What are some must-haves?


Witkoff: Amenities. Every one of our projects is more focused on amenities than ever before. Our building, 150 Charles, has probably close to 17,000 square feet of amenities. These have become extensions of the apartments. Our newest project, 111 Murray, has even more extensive amenities. There are two pools, a hammam, a spa, a lounge, a dining room and demonstration kitchen, a theater, kids and teen lounges and even a blow-dry bar. There are outdoor landscape gardens people can walk through. This communal backyard experience resonates with buyers.


Baquero: Good programming of a building is key. In our East End project, instead of doing the majority of units as oversized five- or six-bedroom apartments, we focused on the 3,000-square-foot range, but we programmed the rest of the building and its amenities

to be an extension of your home. So the programming gives you access to building’s features and amenities as if you had a 20-room apartment that included these amenities. For example, we have a library finished at a very high level of residential detailing–silk rugs and “found” and custom pieces of furniture; a billiards room with a private bar, including privately assigned lockers where you can store your cordials; and a wine cellar, with private wine lockers, which includes a spectacular dining room. We have taken amenities to another level and expect them to be used frequently by residents for both day-to-day living and also for hosting private social events.


Burger: The buyers have become more sophisticated and they’re looking for views and for ceiling height; they’re looking for multiple zones in the HVAC package and they’re looking for great finishes.


Zeckendorf: The brokers have become more educated, the clients have become more educated—there’s more choice.


AVENUE: Do you create events within the buildings to make sure this amenity space gets used?


Zeckendorf: For us, the health club operators typically do classes and the like. When we built the restaurant at 15 Central Park West I was positive that it wasn’t going to last six months. In the history of New York City, there have been three restaurants in buildings, and all three were rarely used. Then we built the 15 Central Park West restaurant, and when we closed it down for two weeks in the summer, residents complained, and now it’s running year-round. That’s another great focal point to create events in the building. They have lunches, dinners, speaker events.


Burger: Our 30 Park Place residents will have the ability to participate in everything that’s happening at the Four Seasons Hotel.


Baquero: People are willing to pay for luxury but you have to deliver. That’s what leads to use by the residents. Luxury is an ever-evolving and moving concept. What was luxury 20 years ago is perhaps considered a standard today. It’s this captivating

concept that we, as developers, are consistently chasing in an effort to either meet or exceed the market expectations of what luxury is at that moment in time. Developers perpetuate the existing trends, but are continually challenged by them.


AVENUE: Is there more sensitivity to price now than before? Or has this always been the case?


Feldman: In the super-luxury market, there doesn’t appear to be, but in your sub-$3,500-a-foot market, I think there is total dollar

sensitivity.


Burger: The issue is there’s more available today, so a buyer doesn’t feel pressure to make a decision to buy because there’s not going to be anything else. There’s always going to be another project that’s going to be available. There might not be another project that has Central Park views, but there’s going to be another project that has big windows, certain views, all the amenities and finishes. There doesn’t seem to be as much of a sense of urgency with the buyers, which means you really have to deliver on the product.


AVENUE: What does the future hold?


Witkoff: We are cognizant of the low interest rate environment, but that notwithstanding, we continue to find opportunities in the market. Due to four key factors, the United States is an attractive region to invest in. Those factors are 1) strong labor markets, 2) thriving tech sector, 3) energy self-sufficiency and 4) developed capital markets systems. Comparatively, Europe does not meet any of these criteria. That’s why people come here—this is where the investment opportunity is.


Baquero:  I believe the immediate future for New York City is a bright one. But, we have to stay focused on being steadfast ambassadors of New York City and ensure that we are  vigilant in illustrating the potential shortfalls and instability of investing in other markets. By and large, investing in New York City is investing in blue chip real estate. People who are investing here understand that real estate is a true asset class that is critical to include as part of their balanced and diversified portfolios.


Andrea Doyle is a freelance journalist and president of A Doyle Communications.  





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