New residential construction is booming in New York City. Pounding jack-hammers and vibrating power saws provide the backdrop din; monster construction cranes and huge cement trucks crowd the streets; giant lego-like barriers divert pedestrian traffic; billboards on elaborate scaffolding and tall screens broadcast the players of a thriving construction industry.
Experienced developers along with newcomers are taking advantage of steady foreign demand, easing construction lending and pervasive low inventory, which has kept prices high. Nearly all are targeting the high-end buyer – and with good reason. It's simply too costly to build anything else. Increasing land costs, escalating labor and materials and exorbitant insurance premiums – nearly twice what they were only two-three years ago – have driven up construction costs significantly. Today hard costs average a reported $500-600 per square foot.
Only seven years ago, at the peak of the market in 2007, 33,200 units were built at a cost of $5.9 billion – underscoring an astronomical rise in spending of over 400%.
According to Building Congress President Richard Anderson, the addition of 20,000 units is the minimum amount required "to accommodate household growth, replace antiquated buildings and maintain adequate housing options." The increased numbers of condominium units being built today will not flood the market.
With the exception of builders like Barnett and Macklowe at towers like 157 West 57 Street and 432 Park Avenue respectively, where prices have been averaging above $7,400 per square feet for listings in contract, for the most part developers are building boutique structures with 50 units or less – also with good reason.
It's more difficult to assemble larger parcels, easier to secure construction financing for smaller projects and since smaller developments sell out more quickly, they carry less risk.
However while the overall development size has shrunk, individual apartments in these buildings have grown sizably in recent years because larger spaces command more dollars.
Two examples on the Upper East Side illustrate. Brodsky's 19-story condo at 135 East 79th Street offered 29 half-floor apartments averaging 3000 square feet. When sales officially launched in February 2013, 17 units were already in contract. Recently, PH19W sold – it has 5,429 square feet and an asking price of $26.5 million ($4,881 per square foot). Remaining for sale are two other duplex Penthouses: PHE with 3,558 square feet and PHW with 4,476 square feet with price tags of $16.95 million ($4,764 per square foot) and $18.85 million ($4,211 per square foot). Seven blocks north and closer to Park Avenue is 60 East 86th Street, Glenwood's first residential condominium with 15 units which began sales of full floor three-to four-bedroom apartments last March; three units remain for sale each with 3,209 square feet on floors four, five and nine with asking prices of $8.75 million ($2,727 per square foot), $9 million ($2,805 per square foot) and $10.25 million ($3,194 per square foot).
Clearly these developers have made winning bets as buyers continue to purchase apartments from plans for units that won't be ready for another 12-24 months. In fact some purchasers are still rushing to be "first in" before developers raise prices with new amendments to the Attorney General's Office. While most new condo purchase agreements prohibit owners from reselling their apartments until after most sponsor sales have closed – in a non-compete clause of sorts – at least two recent resales are notable though they may be outliers:
• 157 West 57 Street – a three bedroom 4,483-square-foot unit on the 58th floor closed for $30.6 million and then sold again four months after for $34 million – that's an 11% return.
• 135 East 79 Street, Maisonette East, a 3,709-square-foot five bedrooms and five bath unit closed May 2014 at $8,807,862 ($2,375 per square foot) and resold in July at a staggering 50% profit for $13.25M ($3,572 per square foot).
As the market absorbs the latest inventory, new pricing benchmarks are being set. All Q3 2014 reports from the various brokerages agree that luxury market price gains have outpaced the overall market with condos achieving far greater levels than co-ops. Buyer appetite for luxury new development has been steady. There is every reason to believe that for the foreseeable future, the Manhattan condominium market will sustain a high level of activity – particularly as more global buyers seek a safe haven.