Residential Market

Despite Talk of a Bust, Development Remains Active

by Debra Wood

From Connecticut through New York City and down to the Jersey shore, multifamily residential development remains active and competitive, even if the sector shows signs of cooling from its recent red -hot pace.

"We still see the market as extremely strong," said Stuart Saft, an attorney who represents developers and chairs the real estate department at Wolf Haldenstein Adler Freeman & Herz of New York. "After the scare stories [on the real estate bust] in the newspapers, people came to realize that's really a national story and has less to do with the tristate area, where there is a tremendous demand for housing."

That demand is particularly strong for condominiums and townhouses. Continued low interest rates, the advantage of mortgage interest tax deductions, steady property appreciation, and a stagnant stock market have all contributed to a preference in the marketplace to own rather than rent.

Most observers agreed that rental multifamily housing, while offering pockets of development opportunity around the region, clearly trails for-sale units in terms of economic attractiveness.

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"In New York City over the last 30 years, prices of co-ops and condominiums have increased 8 percent per year," Saft said. "People need a place to live, and it's a great investment."

Saft added that most New York-area buyers intend to live in the units, unlike the situation in Florida where many purchasers are speculators who plan to flip their properties to others.

Having more buyers who intend to occupy the units translates into a more secure presale phase for developers because the purchasers are more likely to close even in a soft market, said Seth Weinstein, principal with Hannah Real Estate Investors of Stamford, Conn.

Spreading the Wealth in New York

Various New York City neighborhoods have undergone residential revitalizations in recent years, and the trend appears to be continuing, said Steve Goldschmidt, managing director of New York-based Warburg Marketing Group. The firm's realty arm brokers properties throughout the boroughs, including a spate of condominium renovations and new construction in resurgent Harlem.

"There is still demand for housing in the city that outpaces the available supply, and the market is finding new locations to build and develop," Goldschmidt said. "Unless developers start becoming unrealistic in their pricing, properties will continue to move."

As the market downshifts from its frantic pace of recent years, developers must design projects that meet specific buyer desires and wallet sizes, said Jeffrey Levine, president of New York-based Levine Builders and its development affiliate, Douglaston Development.

"The buyers' frenzy has left, and the ordinary course-of-business market, with people looking for the right product at the right price, is prevalent," he added.

The company has projects in the works targeted at different markets. One is a 337-unit condominium building in West Chelsea, which will offer smaller, affordable units. Another is 325 Fifth Avenue, a high-end, 50-story, 250-unit condominium tower diagonally across the street from the Empire State Building that is scheduled for completion this fall.

Levine said the pull for more housing spans the five boroughs. Douglaston will break ground this spring on the Edge, a 1.5-million-sq.-ft. high- and mid-rise condominium project in Williamsburg on the Brooklyn waterfront.

In Queens, meanwhile, CE Flushing LLC of New York, an affiliate of Muss Development, has begun extensive remediation of a 14-acre former industrial site in downtown Flushing. The site, once used by Consolidated Edison, a major New York power utility, will become a $600 million, 3.2-million-sq.-ft., residential and retail complex with 1,000 condominiums.

"With the market becoming much stronger in Flushing, it's well worth our while to take an underutilized site and turn it into something productive and attractive," said Jim Jarosik, project manager for Muss.

Development Steadies in New Jersey

Residential development appears to be returning to a more reasonable pace in New Jersey as well. Developers are wrapping up new projects throughout the state, including several Class-A waterfront condominiums, said José Cruz, senior director of Cushman & Wakefield of New Jersey, a broker.

He said developers would likely be taking an inventory this winter.

"There's not the frenzy there was 18 months ago, where people tried to outbid everybody to get product," he added. "If it starts not to make sense within the projected time period, [developers] may not stretch."

There already are several large projects under development in New Jersey that will come online in phases over the next few years. Westminster Communities of Florham Park, N.J., is building the 50-unit Cranford Crossing in downtown Cranford, near a New Jersey Transit train station. It also is developing the Landings at Harborside, a 2,300-unit waterfront community with 150,000 sq. ft. of retail space on the site of a former industrial complex in Perth Amboy, N.J.

David Minno, a principal with Minno & Wasko Architects and Planners of Lambertville, N.J., said such projects have come about thanks in part to a state growth management plan that encourages redevelopment within cities and towns, where infrastructure is already in place, in a bid to decrease suburban sprawl.

"There's adaptive reuse of sites," Minno said. "We're seeing a lot of industrial or commercial sites being converted to residential. And there's a real trend to develop the land adjacent to public transit stations, especially New Jersey Transit. Anything near a train station takes on a great deal of value now."

Solid Pockets of Growth in Connecticut

"There may be some softening in some less vibrant areas [of Connecticut], but urban center markets are solid," Hannah's Weinstein said. "The one thing that is helping is there is not an enormous amount of supply."

Hannah and Stillwater Investment Management of Greenwich, Conn., are developing Adams Mill River House, a 52-unit condominium project in Stamford, and Hannah has two other condominium projects wrapping up. But while today's market seems strong, Weinstein said he is taking a cautious approach to new starts - condominiums that would come on the market two to three years from now. He said he is not aggressively pursuing projects, citing several factors dampening his enthusiasm - a possible glut of new units, uncertain interest rates, and inflationary pressures.

"I'm not at red; I'm at yellow," Weinstein said. "There's an enormous amount of money-chasing deals, and that can fuel an oversupply."

Overall, the specter of rising interest rates and higher energy prices leave the residential market's near future uncertain across the region. But with most properties in the area at least maintaining their value, the general consensus in the development community is cautiously bullish.

"I see an intelligent, healthy market, but I don't foresee a period of appreciation similar to that which we saw with the falling stock market and falling interest rates," Douglaston Development's Levine said. "The market is not bulletproof. You have to recognize who your buyers are and what they want."