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Developers Remain Upbeat About New York Region

Developers in the New York-New Jersey-Connecticut region are sensing a more reasonable marketplace that will keep them active but not tax their resources.

Developers in the New York, New Jersey, and Connecticut region say they remain active in pursuit of new projects, but are not keeping up the red hot pace of recent years.

Developers are not chasing any available deal just to grab a piece of the action, signaled in particular by a slower condominium market.

Nevertheless, competition for residential and commercial development opportunities remains tight, especially in New York City, primarily because potential sites are in short supply.

New York City remains the core of activity, says John McIlwain, a senior fellow who studies the region for the Urban Land Institute, a research and education organization focused on development and based in Washington.

“Competition is very intense,” he adds. “The city worked through all of its vacant land and abandoned buildings years ago. Land is definitely at a premium, as much as it has ever been.”

The competition for sites is strong in other parts of the region as well, says Todd Schefler, executive vice president of Tarragon Corp. of New York, which develops residential projects in New Jersey, Connecticut, New York, and Florida.

But developers are less likely to jump into new projects outside of their normal reach, indicating that the market is becoming a bit more rational, says Martin Nussbaum, president of Mosaic Properties, a real estate brokerage house in New York.

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A Measured Development Approach

Residential development continues at a good, though somewhat tempered, pace, except perhaps in Manhattan.

McIlwain calls development of high-end condominiums in Manhattan “very hot,” with unit prices at the upper limits ranging from $10 million to $30 million – well within the range of the Wall Street set that had another high-performing year in 2006.

“Everyone that can find a prime location and get land or find a building to convert is working on that,” McIlwain says. “Wall Street is doing well and bonuses this year will be big. Everyone is expecting that will be true for several years to come.”

New residential projects are still slated to begin in Manhattan, including Two River Place, a 1,300-unit high-rise on 42nd Street that Silverstein Properties of New York is planning to open by 2009. The project will be a rental, which Silverstein views as a market that will be in demand and that matches its preference for long-term ownership, says Janno Lieber, senior vice president of World Trade Center Properties LLC, a Silverstein affiliate.

Beyond Manhattan, the outer boroughs may be softening somewhat, McIlwain says.

“It’s still strong, but it has settled back down to a normal market from being a very hot market,” he adds. “Developers are still buying land and properties, but my guess is they will hold off in developing them until the inventory is spent down.”

The overall residential market is settling into a more tempered mode, Tarragon’s Schefler says.

“The biggest trend is that the for-sale market has slowed down and as a result, there are fewer projects being approved and fewer construction starts,” he adds.

In certain developments, Tarragon has structured its business to tap into both rental and for-sale markets. In Hoboken, N.J., the company is developing three five-story buildings in the Northwest Redevelopment Area with a mix of for-sale and rental units.

Tarragon’s sweet spot is developing sites near train stations or water. Its current projects include One Hudson Park, a $60 million, 16-story, 168-unit condominium project in Edgewater, N.J., on the Hudson River with views of Manhattan; and Trio, a $60 million, 202-unit, three-building complex in Palisades Park, N.J., on a nature preserve, also with views of Manhattan. Both are scheduled for completion around midyear.

In Connecticut, Seth Weinstein, principal of Hannah Real Estate Investors in Stamford, has already shifted gears on one residential project. He is converting the $60 million, 152-unit Glen View House under development in Stamford from a condominium to a rental.

Hannah now has two projects under construction and expects to break ground on three more this winter. All of the projects were originally slated to be for-sale units, but some might become rentals.

“The rental market has become increasingly strong in Stamford,” Weinstein says. “If you do a reasonable projection on rental pro forma, it makes more sense for us and our construction costs to build some of our future projects as rental.”

Hannah, too, tries to locate near transportation centers, focusing on urban cores. Its Adams Mill River House, a $22 million, 60-unit condominium in downtown Stamford, is across from a Metro-North commuter rail station, while Eastside Commons, a $35 million, 110-unit condominium development, is within walking distance of a planned Metro-North station in the same city.

Whether the development is rental or for-sale, it still means business for contractors, says Brad Singer, president and COO of HRH Construction of White Plains, which is bidding or working on 15 to 20 projects in New York and New Jersey.

HRH’s current roster includes 270 Greenwich Street, a $300 million, 32-story retail and residential complex with 228 condominiums that the firm is building in Lower Manhattan for Edward J. Minskoff Equities of New York. In Midtown, HRH is also building the $150 million, 46-story Atelier on West 42nd Street for the Moinian Group of New York, a tower that will have 478 studio, one-, and two-bedroom condominiums and 15,700 sq ft of ground-floor retail space.

“There are a lot of people chasing the work,” Singer adds. “We usually come up against the same group of players in our high-end, high-rise residential type of work.”

Meanwhile, after a few off years, the office development front appears relatively healthy. Lieber says downtown Manhattan has experienced “an unbelievable turnaround,” with plans to build the Freedom Tower, three Silverstein office skyscrapers at the World Trade Center site, and a $2.4 billion, 43-story tower for Goldman Sachs Group across the street.

Overall, Manhattan has 7 percent vacancy rates. By contrast, New Jersey has stayed soft with 15 percent rates, McIlwain says.

“People want to be in Manhattan,” he adds.

Schefler says that while the office sector is not as robust in New Jersey, retail development in the Garden State, which the company also pursues, is trending upward.

A report on the U.S. office development market released in November by Newmark Knight Frank, a global real estate services firm in New York, backs up that assessment, pegging the actual Midtown Manhattan vacancy rate as low as 5 percent and estimating the rate in northern New Jersey at about 13 percent.

Sustainable Development at the Fore   

 In all sectors, developers are showing greater interest in sustainable design, which is growing strong roots in the industry.

“It’s not the majority of development yet, but it’s growing and catching a lot of attention,” McIlwain says. “It makes economic sense with energy prices so volatile.”

Last year, Silverstein completed 7 World Trade Center in Lower Manhattan, achieving gold-level Leadership in Energy and Environmental Design certification – a status that has attracted tenants, Lieber says.

“Silverstein believed the high [European] standards would be adopted globally,” he adds. “There is increasing evidence that there is a linkage between environmental quality and quality of the workplace and productivity.”

Silverstein’s three planned office buildings at the World Trade Center site will all aim for gold LEED standards using measures such as low-sulfur, low-emission fuel for trucks and equipment onsite.

“Downtown has become a green oasis,” Lieber says. “It’s a neighborhood leading the way on green development.”

Sustainable design actually pays for itself in the long term for developers planning to hold onto their properties, Schefler says. Tarragon includes sustainable features in all of its developments, especially on its rental properties, because it expects to recoup the investment with long-term energy savings.

“Incentives continue to increase from the state to build green projects, and the marketplace continues to appreciate it and is more willing to pay for it,” Schefler says.