Read this article. It's incredible. I won't say who said it, because many of you probably know he is (one of the most successful real estate developers ever), but this proves the recent statement he gave as very likely to be true:
Some of the worst deals in the history of real estate are being done right now.
http://www.nytimes.com/2006/11/19/realestate/19cover.html?_r=1&ref=realestate&oref=slogin
Changing Course to Avert a Glut
By CHRISTINE HAUGHNEY
Published: November 19, 2006
IN the last few years, renowned architects and enterprising developers have rushed to put their stamp on Manhattan with contemporary condominium buildings that have seemed far more inventive than the staid old co-ops of the Upper East Side. But now, they are looking at the horizon and fearing that there will soon be a glut. They are trying to figure out how to avoid flooding the market they once fought to build in.
There are currently 28,258 new condominium units either under construction or being planned in Manhattan, according to Cushman & Wakefield, the commercial real estate brokerage.
Of these, 14,430 units are in buildings that have already broken ground, and 13,928 units are in buildings that are being planned. If they are all built, the total will approach the boroughâs current stock of 36,000 condo units and will be equivalent to a fifth of Manhattanâs 138,000 co-op units, according to census data supplied by the Real Estate Board of New York.
But with a softer real estate market in New York and a growing inventory of co-ops, condos and houses in the region, real estate experts do not believe that all of these projects will be built, or at least built as condos.
In some cases, developers are trying to sell their lots before they start construction. âIâm getting five calls a week from people who own sites and want to sell them,â says Michael Forrest, a senior associate who works in the New York office of Marcus & Millichap, a real estate investment brokerage based in Encino, Calif. âIâm surprised at how many developers are running for the hills.â
Many other developers are saying that they will go forward with buildings only in the parts of Manhattan that they see as fail-safe, like certain blocks in Midtown and on the Upper East Side and Upper West Side, and at the highest end of the market.
Real estate brokers are advising developers to turn some of these projects into anything other than condominiums: rental apartments, hotels or office buildings. And some major banks that lend to condo developers are cutting back on loans for proposed projects or for land that developers want to buy. Before granting loans, they are requiring developers to put more of their own money into their projects, to lower their prices or to sell more units in advance.
Some condominium projects already on the market have been shifted to other uses. The developers of a condo conversion project at 485 Fifth Avenue (41st Street) returned deposits to prospective buyers and sold the project to the Global Hyatt Corporation, which will convert the office building into a hotel. The Related Companies has turned seven apartments in its new 39-unit building called Astor Place into rental apartments â partly because of a complicated tax structure and not just the state of the condo market.
Still, the inventory of unsold Manhattan condos has jumped by more than 70 percent in the last year. As of Oct. 31, Manhattan had 4,115 condos available for sale, compared with 2,381 a year earlier, according to data from the Miller Samuel appraisal company.
Jonathan J. Miller, its president, pointed out that in many cases these numbers were conservative because developers often release apartments gradually onto the market to limit the perception of oversupply.
âThere are more units that could hit the market,â Mr. Miller said, âbut they will be brought in at a pace that wonât flood the market because itâs not in the developerâs best interest.
National housing and finance experts say while an oversupply of apartments may be good news for condo buyers, they do not believe the oversupply will grow so large that it could actually drag down the overall housing market in New York City. Stephen Blank, a senior fellow at the Urban Land Institute, a nonprofit planning and research group in Washington and a specialist in real estate capital markets, said that while he thinks there may be some overbuilding in Manhattan, it may not be excessive because banks wonât lend to developers the way they did a year ago.
âWhile prices may flatten or even decline slightly, there are other markets that the real estate community thinks are at greater risk for larger price declines,â Mr. Blank said. âMany people point to Miami, Las Vegas and San Diego, where there has been a lot of speculative buying.â
Mr. Blank said that in New York, he wasnât âworried about planned condominiums because itâs going to become increasingly more difficult to finance new construction.â
Academics tracking the national markets donât think that the Manhattan market will ever have the inventory problems that Miami and Las Vegas are currently facing.
Las Vegas has 83,400 condos that are under construction or proposed, and plans for building 12,200 more have been canceled or suspended, according to data collected by Applied Analysis, a Las Vegas research group.
The Miami market now has 82,486 condo units under construction or planned, and plans for 3,246 have been canceled, according to data from the cityâs Planning Department.
John McIlwain, a senior fellow for housing at the Urban Land Institute, predicts that there may be some deals for buyers in the boroughs outside Manhattan and in Manhattan neighborhoods where banks and developers are pulling back â Harlem or the financial district, for example.
VIEWS SELL Miki Naftali plans to turn the office building at 250 West Street into condominiums that cater to buyers willing to pay a premium for Hudson River views.
âIf you wanted to move into Manhattan, this is probably a good time to buy in a second-tier neighborhood,â he said. âThey may not be the top performers. But they are the entry points for a lot of people who want to get into Manhattan or who simply want a bigger space.â
Miki Naftali, the chief executive of El Ad Properties, encourages buyers to jump on deals in these parts of the market now, so they wonât have to compete with Wall Street bankers and their annual bonuses early next year.
For projects that will not be completed for several years, developers say they are becoming much more selective about what and where they will build.
Gary Barnett, the chairman of the Extell Development Company, said that for some of his projects, he was still figuring out how many units he might turn into hotel rooms or rental apartments.
One building that he is planning to construct on Riverside Boulevard between West 62nd and 63rd Streets may have some rental apartments. He is planning to turn the lower half of his project at 135 West 45th Street into a hotel, and part of his project at 151 East 85th Street into rentals.
Jules Demchick, the chairman of the J. D. Carlisle Development Company, who is building 290 apartments at 23rd Street and Third Avenue, said he would decide within the next month what the breakdown would be between rentals and condominiums.
Converting projects to rental apartments is starting to make more sense because this sector has strengthened. The vacancy rate for rental apartments in Manhattan is a very low 0.8 percent, according to Citi Habitats, a Manhattan real estate brokerage. The borough hasnât had such a small percentage of rental vacancies since before Sept. 11, according to Gordon Golub, Citi Habitatsâ senior managing director of Citi Habitats.
But some developers are also persevering with their condo plans.
Earlier this year, Veronica Hackett, the managing partner in the Clarett Group, bought the lot where a supermarket once stood at West End Avenue and 70th Street. Clarett is building nearly 200 condo units there now.
Ms. Hackett said that the deal seemed right because she paid an affordable price â less than $300 a square foot for the land â in a location where buyers will be willing to pay a premium.
The Hypo Real Estate Capital Corporation, which has avoided projects in the financial district, wrote the loan for Ms. Hackettâs deal because it had confidence in the site.
âWe liked the family location,â said Evan Denner, Hypoâs deputy chief executive. âWe liked that it had a long history of being a stable neighborhood. Weâve done no residential development in the financial district. We were concerned because of the lack of services down there. We have not been able to get comfortable that that could be a sustainable market.â
For the most part, Ms. Hackett said, she says no to the weekly calls and e-mails she gets from other developers trying to sell her their problematic condominium projects.
âI think today people are having enormous difficulty getting their costs in line,â she said.
One important factor is the price of land.
The record number of new condos planned in Manhattan is making developers far more cautious about buying any new parcels for projects that wonât be finished until 2009. While they will pay record amounts for prime locations, developers are paying 5 percent to 20 percent less than they did a year ago for any land that is not in a prime location, said Robert Knakal, the chairman of Massey Knakal Realty Services Inc.
He defines prime as âon the park, the waterfront, West Broadway in SoHo, Midtown, on one of the major avenues.â
Some of the worst deals in the history of real estate are being done right now.
http://www.nytimes.com/2006/11/19/realestate/19cover.html?_r=1&ref=realestate&oref=slogin
Changing Course to Avert a Glut
By CHRISTINE HAUGHNEY
Published: November 19, 2006
IN the last few years, renowned architects and enterprising developers have rushed to put their stamp on Manhattan with contemporary condominium buildings that have seemed far more inventive than the staid old co-ops of the Upper East Side. But now, they are looking at the horizon and fearing that there will soon be a glut. They are trying to figure out how to avoid flooding the market they once fought to build in.
There are currently 28,258 new condominium units either under construction or being planned in Manhattan, according to Cushman & Wakefield, the commercial real estate brokerage.
Of these, 14,430 units are in buildings that have already broken ground, and 13,928 units are in buildings that are being planned. If they are all built, the total will approach the boroughâs current stock of 36,000 condo units and will be equivalent to a fifth of Manhattanâs 138,000 co-op units, according to census data supplied by the Real Estate Board of New York.
But with a softer real estate market in New York and a growing inventory of co-ops, condos and houses in the region, real estate experts do not believe that all of these projects will be built, or at least built as condos.
In some cases, developers are trying to sell their lots before they start construction. âIâm getting five calls a week from people who own sites and want to sell them,â says Michael Forrest, a senior associate who works in the New York office of Marcus & Millichap, a real estate investment brokerage based in Encino, Calif. âIâm surprised at how many developers are running for the hills.â
Many other developers are saying that they will go forward with buildings only in the parts of Manhattan that they see as fail-safe, like certain blocks in Midtown and on the Upper East Side and Upper West Side, and at the highest end of the market.
Real estate brokers are advising developers to turn some of these projects into anything other than condominiums: rental apartments, hotels or office buildings. And some major banks that lend to condo developers are cutting back on loans for proposed projects or for land that developers want to buy. Before granting loans, they are requiring developers to put more of their own money into their projects, to lower their prices or to sell more units in advance.
Some condominium projects already on the market have been shifted to other uses. The developers of a condo conversion project at 485 Fifth Avenue (41st Street) returned deposits to prospective buyers and sold the project to the Global Hyatt Corporation, which will convert the office building into a hotel. The Related Companies has turned seven apartments in its new 39-unit building called Astor Place into rental apartments â partly because of a complicated tax structure and not just the state of the condo market.
Still, the inventory of unsold Manhattan condos has jumped by more than 70 percent in the last year. As of Oct. 31, Manhattan had 4,115 condos available for sale, compared with 2,381 a year earlier, according to data from the Miller Samuel appraisal company.
Jonathan J. Miller, its president, pointed out that in many cases these numbers were conservative because developers often release apartments gradually onto the market to limit the perception of oversupply.
âThere are more units that could hit the market,â Mr. Miller said, âbut they will be brought in at a pace that wonât flood the market because itâs not in the developerâs best interest.
National housing and finance experts say while an oversupply of apartments may be good news for condo buyers, they do not believe the oversupply will grow so large that it could actually drag down the overall housing market in New York City. Stephen Blank, a senior fellow at the Urban Land Institute, a nonprofit planning and research group in Washington and a specialist in real estate capital markets, said that while he thinks there may be some overbuilding in Manhattan, it may not be excessive because banks wonât lend to developers the way they did a year ago.
âWhile prices may flatten or even decline slightly, there are other markets that the real estate community thinks are at greater risk for larger price declines,â Mr. Blank said. âMany people point to Miami, Las Vegas and San Diego, where there has been a lot of speculative buying.â
Mr. Blank said that in New York, he wasnât âworried about planned condominiums because itâs going to become increasingly more difficult to finance new construction.â
Academics tracking the national markets donât think that the Manhattan market will ever have the inventory problems that Miami and Las Vegas are currently facing.
Las Vegas has 83,400 condos that are under construction or proposed, and plans for building 12,200 more have been canceled or suspended, according to data collected by Applied Analysis, a Las Vegas research group.
The Miami market now has 82,486 condo units under construction or planned, and plans for 3,246 have been canceled, according to data from the cityâs Planning Department.
John McIlwain, a senior fellow for housing at the Urban Land Institute, predicts that there may be some deals for buyers in the boroughs outside Manhattan and in Manhattan neighborhoods where banks and developers are pulling back â Harlem or the financial district, for example.
VIEWS SELL Miki Naftali plans to turn the office building at 250 West Street into condominiums that cater to buyers willing to pay a premium for Hudson River views.
âIf you wanted to move into Manhattan, this is probably a good time to buy in a second-tier neighborhood,â he said. âThey may not be the top performers. But they are the entry points for a lot of people who want to get into Manhattan or who simply want a bigger space.â
Miki Naftali, the chief executive of El Ad Properties, encourages buyers to jump on deals in these parts of the market now, so they wonât have to compete with Wall Street bankers and their annual bonuses early next year.
For projects that will not be completed for several years, developers say they are becoming much more selective about what and where they will build.
Gary Barnett, the chairman of the Extell Development Company, said that for some of his projects, he was still figuring out how many units he might turn into hotel rooms or rental apartments.
One building that he is planning to construct on Riverside Boulevard between West 62nd and 63rd Streets may have some rental apartments. He is planning to turn the lower half of his project at 135 West 45th Street into a hotel, and part of his project at 151 East 85th Street into rentals.
Jules Demchick, the chairman of the J. D. Carlisle Development Company, who is building 290 apartments at 23rd Street and Third Avenue, said he would decide within the next month what the breakdown would be between rentals and condominiums.
Converting projects to rental apartments is starting to make more sense because this sector has strengthened. The vacancy rate for rental apartments in Manhattan is a very low 0.8 percent, according to Citi Habitats, a Manhattan real estate brokerage. The borough hasnât had such a small percentage of rental vacancies since before Sept. 11, according to Gordon Golub, Citi Habitatsâ senior managing director of Citi Habitats.
But some developers are also persevering with their condo plans.
Earlier this year, Veronica Hackett, the managing partner in the Clarett Group, bought the lot where a supermarket once stood at West End Avenue and 70th Street. Clarett is building nearly 200 condo units there now.
Ms. Hackett said that the deal seemed right because she paid an affordable price â less than $300 a square foot for the land â in a location where buyers will be willing to pay a premium.
The Hypo Real Estate Capital Corporation, which has avoided projects in the financial district, wrote the loan for Ms. Hackettâs deal because it had confidence in the site.
âWe liked the family location,â said Evan Denner, Hypoâs deputy chief executive. âWe liked that it had a long history of being a stable neighborhood. Weâve done no residential development in the financial district. We were concerned because of the lack of services down there. We have not been able to get comfortable that that could be a sustainable market.â
For the most part, Ms. Hackett said, she says no to the weekly calls and e-mails she gets from other developers trying to sell her their problematic condominium projects.
âI think today people are having enormous difficulty getting their costs in line,â she said.
One important factor is the price of land.
The record number of new condos planned in Manhattan is making developers far more cautious about buying any new parcels for projects that wonât be finished until 2009. While they will pay record amounts for prime locations, developers are paying 5 percent to 20 percent less than they did a year ago for any land that is not in a prime location, said Robert Knakal, the chairman of Massey Knakal Realty Services Inc.
He defines prime as âon the park, the waterfront, West Broadway in SoHo, Midtown, on one of the major avenues.â
