By Brian J Pape, AIA
Back in 2014, Jonathan Miller started to observe a U.S. housing market pattern of wildly overpriced luxury housing listings that rarely sold; he dubbed it “aspirational pricing.” Much has been publicized about the rush to develop high-end apartments in the heady days after the Great Recession broke, producing the tallest residential buildings in our hemisphere, and a new neighborhood district called “Billionaires’ Row” south of Central Park. The super-tall One57 tower there, marketed since 2011 and completed in 2014, remains about 20 percent unsold, and 27 of 132 apartments still held by the developer.
A spectacular high-end condo building along the High Line Park was designed by the late architect Zaha Hadid, but sales have slowed dramatically at the star architect’s project. According to property records for 520 W. 28th St., only 16 of the building’s 39 units had sold by last year, a roughly 40% portion, at the average sale price of $8.3 million. Fourteen of the 16 apartments were sold in 2017, with only two units selling in 2018. The Related Companies, the developer, had been asking nearly $60 million for a combined double penthouse unit. For the deals closed, they amount to roughly $132 million in sales, not enough to pay off the $162 million mortgage that city records indicate Related has on the property. Just one more sale could possibly put the Hadid building in the red, despite the delays.
Hadid’s condo building is just south of Related’s Hudson Yards, where there’s a million square feet of shopping mall, several restaurants, hotel and residential towers, and acres of public space. Related developed the Time Warner Center at Columbus Circle a few years back, among many other others. There are sluggish sales in its residential buildings as well. But before you start feeling sorry for Stephen Ross, founder and chairman of The Related Companies, remember that these large developers have a long-term contingency plan, to absorb and fund short-falls. Loans can be partially paid off as sales come in, reducing the carrying cost. And other, more productive projects can off-set some losses.
Mr. Miller, the president of Miller Samuel Real Estate Appraisers & Consultants, reported that many areas of Manhattan, like Soho and Tribeca, have 30+% of new units unsold. There are also thousands more units being constructed now that have not begun closings but suffer from the same market dynamics.
The listing website StreetEasy analyzed more than 16,200 condo units across 682 new buildings completed in New York City since 2013, and as of a few months ago, one in four remain unsold, or roughly 4,100 apartments—most of them in luxury buildings.
Miller Samuel tried to put it in perspective, reporting that only 4.4% of all sales in 4Q19 were sold at/above $5 million and therefore sales below $5 million accounted for 95.6% of the Manhattan market. Sales above the $5 million threshold fell 37.6% Year-Over-Year and sales below $5 million rose 1.6%. Yet, the top 4.4% of sales accounted for 30% of the total dollar market volume of $4.4 billion this 4Q19 quarter.
Marketing tactics can be used to counteract the slowdown, such as, selling unsold units in bulk to investors, converting condos to rentals suddenly, and “rent-to-own” options for unsold apartments; and condos recently sold can be re-listed as rentals by investors who are reluctant to put them back on the market. As a case in point, 38 percent of condos sold between January 2013 and August 2019 have appeared on StreetEasy as rentals.
Closer to home, 150 Charles opened its 91-unit, 15-story condo in 2015. Designed by COOKFOX Architects for Witkoff Development, the desirable location and intimate, heavily landscape outdoor spaces, right up to the penthouses, compliment the red-brick walls and industrial-type windows, and create a celebrity magnet for those with the means. It sold out before the first person moved in, but as we’ve seen above, many initial sales were to investors for their resale potential.
Prices have definitely come down in recent months, but a few million to a billionaire paying $10-30 million may not be enough of a bargain—who knows?