Why Your Next Place May Cost More
Published: January 14, 2011
Extell Development Company
Last year, through November, the city issued permits for only 10 new residential buildings, for a total of 505 new units. That’s 95 percent fewer apartments, either condo or rental, than for the same period in 2008, when permits were filed for 9,448 units in 147 buildings, according to census data. (The number of units had dropped to 1,203 in 31 buildings in 2009.)
“We tend to go through these cycles where, when you finally come out of a recession, there’s a shortage of inventory,” said Gregory J. Heym, the chief economist for Halstead Property and Brown Harris Stevens. “You usually expect the slowdown to come over a couple years, but this was like slamming on the brakes. So to start up again may take awhile.”
Brokers, developers and market watchers say that barring any significant economic hiccups, real estate values in Manhattan will continue to grow at a measured rate through 2011. But starting in 2012, after most or all the new projects that were stalled or delayed have finally sold out, the supply of new apartments will take a decided dip, and prices for all apartments could start to rise significantly again. “Once we work through the existing inventory and there’s nothing new coming on line,” said Kelly Mack, the president of the Corcoran Sunshine Marketing Group, “there’s going to be a major shift in the market. Prices may start going up significantly in 2012, in anticipation of the shift in inventory.”
Mr. Heym said that since a permit doesn’t always translate into bricks and mortar, many permits from 2008, and even earlier, have yet to turn into buildings that can be sold and occupied. “There’s also the question of how many buildings that were stalled during the downturn are still out there and when they will hit the market,” he said. “So there are a lot of unknowns.”
Gary Barnett, the president of Extell Development and one of the few developers who continued building through the downturn, said the lack of inventory was more pronounced now than in previous recessions. “In the early 1990s,” he said, “there was a big overhang of things that had been built in the late ’80s, but when things stopped this time, it just fell off a cliff.”
The number of building permits “didn’t go from 10,000 to 6,000,” he added, “it went from 10,000 to nothing. So we don’t have the overhang and no big inventory to work through. That’s why the market recovered much more quickly than people expected.”
Brokers and developers agreed that the reason for the sudden falloff in building permits was the lack of construction financing. Apartment hunters have had a hard time in the last two years getting a mortgage, but developers have had an even tougher haul.
“If you look at all the traditional players in the condo market, very few have anything under construction because there’s just no financing available,” said Bruce A. Beal Jr., an executive vice president of the Related Companies, which this year is completing a 60-story tower at 42nd Street and 10th Avenue that will have both rentals and condos.
Both Mr. Beal and Mr. Barnett acknowledged that a few big projects would open this year but said they could not think of any major developments set to open in 2012. Projects that get under way this year will not be ready for sale until 2013 at the earliest, after inventory has been depleted and just as prices have begun to rise.
Last year, Extell started a hotel/condo project on West 57th Street near Carnegie Hall with 136 condo units, which Mr. Barnett said would come to market in 2013.
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