Boroughs & Burbs, the National Real Estate Conversation
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Boroughs & Burbs, the National Real Estate Conversation
Boroughs & Burbs 183 || Manhattan New Development: Challenges and Opportunities
In Season #5, Episode #183, we’re joined by Stephen Kliegerman, President of Brown Harris Stevens Development Marketing, for a deep dive into Manhattan’s new development market. Stephen offers expert insights into the current state of the marketplace, shedding light on the latest trends, key projects, and the status of the real estate pipeline. We discuss the challenges developers are facing, including shifting policies, political factors, and the potential obstacles on the horizon. Stephen also shares his perspective on how these elements could shape the future of Manhattan’s real estate market. Don’t miss this invaluable conversation on the evolving landscape of development in New York City!
The Burroughs are New York City. The Burbs are everywhere else. Real estate is the ultimate game of risk and reward. It's the biggest investment most people ever make. Fortunes are made over a lifetime and lost in a day. And we're not playing with monopoly money. How do you stay ahead? Who's buying? Who's selling? And why? What do they know? We want the truth. You need an edge. Burroughs& Burbs is your secret weapon, giving you the insider knowledge and strategies you need to succeed in the high Welcome, Burrows and Burbs, episode 183, Manhattan
SPEAKER_04:New Development. We're talking challenges, opportunities, with our special guest, Stephen Kligerman. Welcome, Stephen.
SPEAKER_01:That's great to be back, guys. Thanks for having me.
SPEAKER_04:Stephen was on our very first show back in 2020, five years ago. I'm
SPEAKER_03:John Engel.
SPEAKER_04:Yeah, that was a panel discussion, and then we decided, oh, that was way too unwieldy. We needed Stephen all by himself for an hour. I'm... I'm going to do the housekeeping slides first. So that's Burrows and Burbs. You'll find us at burrowsandburbs.com. You'll find all the episodes. And if you scroll all the way down to the bottom... you'll find episode one with Stephen. I want to thank Grace Farms at gracefarms.org. And you can see that next week, next Thursday, Dinner with a Purpose featuring Indre Rockefeller. And they're talking about the Circularity Project. And I believe that has to do with sustainability and recycling. So check it out, Grace Farms, next Thursday.
SPEAKER_01:I'm going to check that out.
SPEAKER_04:That's Steven Kliegerman. He's president, Brown Harris Stevens Development Marketing. And you'll find him at bhsusa.com.
SPEAKER_02:You know, that youngster right there has already won the Henry Foster Award. What is that? That is a lifetime achievement award for contribution to the residential industry. That young guy.
SPEAKER_04:Wow. Wow. I appreciate that. Thank you. This is theengleteam.com. And you'll see that... I'm writing columns every week. And this week, it's talking about how you can use trusts, estates, and forgivable loans to help your kids buy their first luxury apartment in New York.
SPEAKER_01:We see a ton of that.
SPEAKER_04:I'll bet. And we're going to have to talk about who's buying up all that new development that you're selling. Last week, I talked about Monopoly. And that was a fun column. This is my partner. Roberto, say hello, Roberto.
SPEAKER_02:Hello, sir. How are you? And
SPEAKER_04:what's going on in the monthly newsletter this month?
SPEAKER_02:Well, the new one's coming out in a week. So that's already old news, you know, with moon news, it's new every day.
SPEAKER_04:All right. So welcome, Stephen. It's great to have you back on the show.
SPEAKER_01:It's great to be back. It's great to see you guys and your big smiling faces.
SPEAKER_04:This is one of my favorite shows of the year because last time we had you in, we got to talk about Billionaire's Row and who gets it and who does. I mean, so let's start with Billionaire's Row. Yeah, it's the ultra high-end part of the market. You've got these big bets, big bets, very expensive real estate companies. best block in Manhattan. And so why don't you talk us through it? How did it go on the billionaire row bets?
SPEAKER_01:Well, you know, it went well for some and not as so well for others as is with all real estate transactions. You know, 220 Central Park South absolutely crushed it, you know, with record setting prices and a very unique sales and marketing campaign where they never really came out to the entire market. And I know we might talk a little bit about that type of marketing later, where literally, you know, Steve Ross, like literally like handpicked an interview, like everyone who was gonna live in the building, but it was super successful and, you know, built a beautiful product with fantastic views and unmatched services, And they absolutely crushed it. 432 Park, which was really the first, they did very, very well as well. And then you have things like 111 West 57th Street, which was the JDS project, which had some legal battles and some challenges also went through COVID that didn't fare as well. That was a tough one. It was a beautiful building, by the way. Let me start off by saying, extraordinary architecture and design. But because of the size of the building or the size of the footprint and the height of the building, the sheer walls were very, very thick. So the floor plans were a little bit tighter than some of the other buildings that were built differently or at a different footprint. So, you know, that building didn't see as much success as the others, you know, but it's still, you know, you still see, you know, five,$6,000 a square foot sale prices there. So overall, they still performed well on a market standpoint, but I don't think from a investment by the developers and their equity partners standpoint, it was as successful. Billionaires Row, unfortunately, when you walk up and down 57th Street, or if you're looking at the buildings from the Upper East or Upper West Side, you see a lot of lights out. It's a lot of equity preservation. It's a lot of vanity purchases. It's not as much where people live. It's a The second home is probably not even the start. It's probably a third or fourth home for most people. So it's really more of a vanity purchase. It's more of look where I am, look what I have. And we come and we entertain. And when we come to New York, we stay here. But for most people, it's not a home. You said the
SPEAKER_04:words equity preservation. We talked to you about Billionaires Row before the election. Since the election, a lot's gone on. Equity preservation is not out of style. Talk to us about the situation now, 2025, equity preservation, money coming into parking on Billionaire's Row or into other projects. What's the mood like? How's it
SPEAKER_01:changed? You know, whenever you see... economic uncertainty and you see fluctuations in the stock market and maybe even manipulations in the stock market, you are going to see money flow into real estate, hard assets. Whether it's real estate, look at gold. And not to pivot away from real estate, but hard assets. Gold, watches, you see people buying very expensive watches these days and they're buying real estate. And it's part equity preservation and it's also It's also estate planning, right? But what we're seeing right now is very savvy buyers, particularly at the high end. The high end of the market has performed incredibly well through this entire four-month period, and particularly since whatever it was, April 6th or whatever they want to call Independence Day, right? So that money is coming, and it continues to come. And it really... It's amazing because you see it more in like the$5 and$6 million and up market than you even see in the$2 to$3 million market. You see very high net worth individuals making significant investments in real estate. I think the biggest receiver and the project that's getting the most advantage out of this right now is AD Clarkson, the Zeckendorf development project that recently opened. They're selling units at$7,000 a foot. The first sale they had there was a$35 million property. And it's an incredible project. It's a Robert A.M. Stern design. You know, they spared no expense in developing the project. It's a one of a kind in downtown Manhattan because it's really bringing this 15 Central Park West concept to lower Manhattan. But that I think is a great like touching point of where I'm sure a lot of that money is getting the money out of the stock markets, putting it into hard asset, knowing that you're in a Zeckendorf development, which are known to be some of the highest, if not the highest quality developments in all of the city. And they're benefiting from it right now.
SPEAKER_02:But Steve, aren't you seeing that, like the high concentration of that type of wealth being in like in that building or trying to buy something? Like we had a conversation, I have a client trying to look up along Madison and Park in the 60s, 70s, 80s, and there's nothing.
SPEAKER_01:Right. Yes. I mean, you're definitely seeing that. It gets concentrated in whatever the newest, shiniest, best development is at that time, right? So right now it's AD Clarkson. A couple of years ago, it was 220 Central Park South. You know, for a while we had it at 200 Amsterdam. So, you know, you're seeing that if something comes out that's extraordinary, the wealth goes to that and it goes to it faster when you're There are uncertainties in other marketplaces that nobody, even the wealthiest people in the world, don't like losing money.
SPEAKER_02:Right. Can we back up? So since we had you on last, it's been about maybe 16, maybe 15 months. What has happened generally in the new development market since February of last year? And what, if anything, has kind of surprised you?
SPEAKER_01:I'd say, well, what's happened is the Upper West, the Upper East Side has exploded. Right. Naftali has built a number of unbelievable projects on the Upper West, on the Upper East Side. It's so easy because we used to say Upper West Side all the time about development. Right. And now we're talking about the Upper East Side. So, you know, and those projects have performed incredibly well with almost no negotiability factors selling in the in the in the. three to$4,000 a square foot range. And that market didn't see a lot of development in the teens, right, in the 2010 to 2018, 19, you know, range, right? So now you're seeing all those great projects get finished and they're selling out and they're selling out at great prices and they, you know, have beautiful designs, some of them by Robert A.M. Stern and the likes, and they have great amenities. So the Upper East Side has been, has really been revitalized by all this development. And on the rental side as well, by the way, And it's moving further east. Further east and further north. It was in the 70s. Now it's in the 80s. And further east to Second Avenue as well. You know, Jeff Levine's going to be bringing a magnificent project, you know, to the Upper East Side in the 80s. And, you know, I'm sure that's going to do very, very well. Douglaston's a spectacular developer. So, you know, that's one of the things you've seen. The other thing, though, that you've seen is there's not as much new construction happening as there was back in the 2010, well, let's call it 2011, after the recession, through the 2018, going into 2019, and then, of course, COVID came, and if it wasn't already planted in the ground, it wasn't happening.
SPEAKER_04:But that can't all be attributed to a higher cost of capital. It's got to be a higher risk along with a higher cost of capital.
SPEAKER_01:Well, no, absolutely. It's, you know, so... Part of it is that the investment sales market kind of got stalled during COVID. And then as developers were coming out of COVID, they were completing the projects that they were working on and they were looking for new opportunities, but the cost of land wasn't, it wasn't meeting up with what the cost of producing the product is today, right? So you didn't have as many opportunities. And then the large developers, there used to be kind of these medium-sized developers that also developed and filled a lot of the niche. Now it's Naftali, Extel-related. Victor Segura has stepped into that role as well. So the pool of developers has gotten tighter for the high-end, what I'd call ultra-luxury marketplace. But we haven't seen a lot of I hate to call it mid-level because there's really is nothing that's mid-level anymore, but the luxury market, right? The 1800 a square foot to$2,400 a square foot market. There hasn't been a lot of that because that developer has had more trouble raising equity and raising debt. And now as we're shifting into this paradigm of tariffs and rising costs higher interest rates it's becoming more and more difficult for projects to pencil because you know i mean interest rates have doubled right so but you can't ask 50 more for the same product
SPEAKER_04:why can't that why can't the middle why can't the middle market what you're calling um Why can't they raise equity and debt? I mean, if you look at the alternatives where a lot of people think that the stock market might be, you know, not so exciting, bond market, not so exciting. They're looking at real estate. They can't all flow into the high end or can it? Because if I don't like the deal I'm getting in New York, I can look at West Palm Beach or I can look at Brickell or I could look at Austin. Austin is now deflating, right?
SPEAKER_01:Yes. Well, because Austin overbuilt. It's funny because I was at an Urban Land conference two years ago. And I met a developer from Austin and he was literally building like the tallest building that's ever been built in Austin. And he was saying how, you know, sales absorption at the moment was amazing and prices are rising. And I said to him, you know, just this is how long can that last? Because it seems like there's a lot of development going on in Austin. And as you said, now it's deflating because the the flight of of. of people, of population moving to Austin has reduced. Like the COVID hangover is over. Look at New York City. We are at and above our population pre-COVID. People have actually come back to New York City. I think Economic Development Corp of New York has us at about plus 250,000 residents post-COVID. So we've actually recouped all those people that ran away and added 200,$250,000 people more. So, but John, the issue is, is that it's so much less- Is that
SPEAKER_04:capital still looking at, are you still competing for capital with Miami and West Palm Beach in particular?
SPEAKER_01:We are because it's so much less expensive to build in those areas. You know, where construction costs here in New York for, you know, a significant project can be in the$700 a square foot range. My understanding is it's half of that in those markets, right? So you're now, but the interesting thing is if you're in Miami, sale prices per square foot are, they're not three, four or 5,000 a foot in these buildings, but they certainly are in the$2,000 a square foot range, right? So that same developer that was going to develop to the mid$2,000 market. He went south. He may go south or he may go, you know, or they may go west.
SPEAKER_04:Specifically the related companies, right? I mean, he's one of the-
SPEAKER_01:Yeah, they certainly expanded there. He's the
SPEAKER_04:poster child for- Yeah.
SPEAKER_01:I have clients that are looking at projects in North Carolina, South Carolina, Georgia, you know, because they can put their equity to work with a little bit less risk, but a lot less cost, right? So it works for them. Also, you know, now the city with the city of yes, the Midtown South rezoning, 485X, which we can discuss if that's actually a program that will foster true construction and affordable housing. The city's catching up and trying to make it more affordable and more attractive to develop in New York. But most like governments, they're five years behind the trend.
SPEAKER_02:Steve, construction costs, they were 300, 400 square foot. They went up, you're paying to 750? If
SPEAKER_01:you're building a higher end product right now, in a high-rise building, you're looking at soft costs, construction costs, I'm sorry, hard construction costs in the$700 range. Where, yeah, pre-COVID, it was 350 to four and a quarter.
SPEAKER_02:If it's a middle market, not middle market, but a luxury and not ultra luxury, does that ratchet down? A
SPEAKER_01:little bit, but the thing is, and I argue with my clients about this all the time, The cost of finishes isn't really that much. Maybe it's$30,$40 a square foot more, but it's not exponentially higher. You go shopping for appliances. Yeah, the cost of a Sub-Zero fridge is more than the cost of a KitchenAid. But in the scheme of a project of these sizes, does a$15,000 fridge, make that big, you know, add that much more cost per unit to a$10,000 fridge. It's$5,000 a unit. Okay. So in a hundred unit building, it's$500,000. But if my client expects a sub-zero refrigerator, I'm going to get that money back.
SPEAKER_02:Yeah.
SPEAKER_01:You know, and, and the other stuff, you know, there, there, there are so many good man-made products today. know in your primary bathroom in your kitchen you're going to see real stone and you know but in your secondaries most buyers have have no idea nor do they really care if you have a really high quality ceramic or type tile versus a man versus a natural stone and frankly the man-made stuff's a lot easier to care for right so
SPEAKER_04:it occurs to me i wanted to pivot to what you just said the city of yes because that's very yes but i want to continue on this path if the um appliances are not a point of difference and the marble choice is not a point of difference it occurs to me that maybe the amenities are and that might separate some of these projects a successful project for a less successful project in a prime real estate. It's well capitalized. It's on a great block. It's primo. We've got rock stars buying units in the building. Everything looks great. And yet the project is not succeeding because I'm missing some key amenities. Is that possible?
SPEAKER_01:Well, first of all, it's not that the finishes don't matter. What I'm saying is that a really good designer can match very expensive materials with less expensive materials to bring a project in on budget. Okay. You don't suffer for design. You don't suffer for quality per se. It's just not overspending. You know, so, so, but the amenities absolutely make a difference. And that's where. Which ones matter? And that's where, frankly, like the Extels of the world excel. Outdoor
SPEAKER_04:space, I would imagine, is like right up there.
SPEAKER_01:Outdoor space, first of all, private outdoor space is always a game changer. So we're working with a developer right now on the Upper West Side that's going to be releasing a building, hopefully in the first quarter of 2026. Over 50% of our 36 units will have private outdoor space. So that's gonna give us a premium. Common outdoor space is also high in demand, but private outdoor space and real private outdoor space. I'm not talking about a Juliet balcony or a four foot balcony. I'm talking about a setback or a balcony that's at least six feet deep, real outdoor space that you can actually sit on and enjoy. Other amenities, pools are coming back in style. Now you have to have a larger building really to afford to operate a pool, but health and wellness are leading everything right now, right? I mean, there are cottage industries that have been born out of health, wellness, and sustainability. So swimming, and I happen to be a swimmer, is one of the healthiest industries activities you can do. It puts less stress on your body. You get both an aerobic and an anaerobic workout. So pools have become very popular. Other areas that have become popular, obviously, any type of co-working and a co-working that also has some type of privacy opportunity, whether it be a phone booth or a room you can use, we see those areas getting booked up all the time. Really well-outfitted fitness rooms or gyms where you can bring in your own personal trainer to work with you. Pet spas. Sounds silly. It's a literally, you know, a hundred square foot room in the basement of the building, but no one really likes to bathe their pet in their bathtub, right? It's kind of gross. You haven't said
SPEAKER_04:anything about parking and all
SPEAKER_01:about congestion
SPEAKER_04:pricing. Like it matters.
SPEAKER_01:Yeah. Well, so parking is a great amenity. But the city of New York has limited the amount of parking that most buildings can put into their buildings. So for instance, the building that we're doing on the Upper West Side, without giving away too much info, because I can't, we wanted to put more parking in the building. We were limited to 13 spots for 36 apartments. Why? What's the thinking? Because the city doesn't want more cars in the city. But if you went to Brooklyn, they want you to have at least one half parking. you know, 50% of the units to have parking, right? And some were even one-to-one districts. So parking is a premium. Actually, it's funny. I was just speaking to a broker who worked on a project at 205 Water Street in Dumbo. They originally sold parking spots for$60,000 and she got a call from someone who bought from her a couple of years ago. They sold the parking spot for 120. Wow. And spots in the city are going for anywhere from$250 to$1 million. So parking is a great amenity. And most of the parking that you're seeing going into buildings now is actually automated parking. So no one ever touches your car. People have expensive cars. I know my friend who has a Porsche doesn't want anyone else sitting in his car. He doesn't want anyone parking it. He doesn't want anyone touching it. And these cars also, these automated parkings, they come with the ability for electric chargers. So if you have a car that it's an electric charger, it goes onto the pallet, you plug it in and it takes the pallet to where it has to go to hook up to the electric and they charge your car and you come back and your car is all charged up. But parking also opens up, John, the whole concept of a port cochere, right? A private drive. That elevates a building.
SPEAKER_04:And
SPEAKER_01:if that's- What does that mean? For those of
SPEAKER_04:us who are not shopping for a Port Cochere, what does that even mean?
SPEAKER_01:So it's a driveway. It's a driveway. It could either be an oval or it could be like the Apthorpe where you drive into the courtyard of the
SPEAKER_02:building. That incredible luxury in a city that is so busy and you're not parked on the street, stressed out and people honking. If you can go somewhere and park your car, even for 15, 20 minutes- And unload. Peace.
SPEAKER_01:Yeah.
SPEAKER_02:That is, I mean, that's a big luxury.
SPEAKER_01:Yeah. Listen, one of the biggest challenges, and we were very successful with sales at 200 Amsterdam. The biggest challenge we had was that we couldn't have parking in the building. And because of the bike lanes now, a lot of buildings, you can't even pull up in front of a building
SPEAKER_02:anymore. I had a client who looked at 200, and that's the reason why he didn't buy there because it was the bike lane.
SPEAKER_01:Yep, exactly. Exactly. if you could have a port cochere or a drive court in your building, it's a huge game changer. I mean, you know, the Dakota, the Apthorpe, you know, the Beresford, you know, why are these buildings so iconic? Yes, they're iconic architectural structures. And, you know, they were built at a time when you could truly build mastery, but they also had that privacy, that ability to, you know, unload your car i mean think about it now people who's moving into these buildings where it's three thousand dollars and up a square foot they all have a house in the berkshires or the hamptons or in hudson right they're all leaving the city in the summertime when they come back to the city with whoever they've got in their car they want to be able to unload all their crap yeah or load all their crap And kids.
SPEAKER_02:Right. One of my kids, one of my, we don't have a carcass here, but I was helping one of my friends who's pulling up in front of the building. They were just telling, they were coming back from a vacation. Listen, can I help you? And he comes out of the car and goes, here, yeah, sure. And he hands me a kid. Wow. That's great.
SPEAKER_01:You thought he was going to hand you a package and he hands you a
SPEAKER_02:kid. Exactly.
SPEAKER_01:So, you know, amenities, amenities, amenities set the building apart, but the Greatest amenity other than what we've talked about is service, quality service. Having a management company or a concierge company that is training your staff and how to serve the folks that live in the building properly, how to make sure that their needs are taken care of, that you hire quality people so that you have staff in the building that is that measurable is it scored it is they
SPEAKER_04:look at 200 amsterdam versus 80 clarkson and say one or are they just say they're all they're all like five star service
SPEAKER_01:they do look at them because some have actual concierge services some don't some have concierge services that are run by third parties some have some that are run you know in-house um you know obviously these are newer buildings but like i just talked to a friend who I haven't seen in a long time. And for years, he lived in a Glenwood building on the Upper East Side. He moved out of the building 15 years ago. He recently rented an apartment in the same exact building that he lived in 15 years ago. He walked in the door and the doorman said to him, Mr. Such and Such, it's such good to see you. We hadn't seen the guy in 15 years. And the same doorman is there because they run their buildings well. So when you're buying from a developer, you might not know yet personally the staff, but you know that Zeckendorf Development is going to hire a first-class staff, right? You know that, you know, Related is going to train their staff well. And not that the others don't. I'm just using a couple of examples. And so you have... a sense of certainty that if their other buildings are run well, this one's going to be run well.
SPEAKER_04:Can I make up for missing amenities? If the city of yes says no to a couple things like enough parking, can I make up for it as a developer by just providing stellar service and I can get around? It's not a death blow?
SPEAKER_01:You can get around it for most, but as Roberto's customer said, this one was a deal breaker for them. Look, you can probably satisfy seven to eight out of 10 buyers by offering other types of services or maybe a car on demand, right? That'll make up for the lack of parking, but there's always gonna be that buyer that says, if I can't get out of the car and walk right into the building and I gotta cross a bike lane or whatever it is, I'm not doing it. As a matter of fact, This is gonna be interesting when the Flatiron Building comes to market. Because the Flatiron Building on both Broadway and Fifth Avenue, you can't drive right up to the building. And it's an iconic building, right? And I'm sure they'll sell their units very well. But there's gonna be some buyers who say, I'm not crossing a bike lane. And by the way, and I love that we've tried to reduce cars in the city and have bikes in the city. those bike lanes are pretty treacherous. Because if you don't look right, you could get, my mother ran over. And they come the other way too. No, that's the problem. They come the wrong way. So you're looking up, you're looking downtown because everything's supposed to be coming from the other way and you get slammed from the other side. So John, you can make up for some, but you can't make up for all.
SPEAKER_04:Talk to me about what role, see it's on my sheet here, my cheat sheet. What role do government politics and zoning regulations play? You answered that with a slogan. We are the city of yes. And I thought, wow, Roberto has been saying New York is back, baby, for what, two years now. He's like, the New York market is coming back. You can't keep New York down. That is true. All you do is roll out a slogan, the city of yes. I'm a believer. So talk to me
SPEAKER_01:about the city of yes. Well, you know, what the city of yes is doing is trying to make things easier. Easier for developers, particularly to convert office to residential by softening some zoning. Are you still a
SPEAKER_02:big advocate of that office of conversion or like the doge of office building to residential?
SPEAKER_01:There's a place for it. Not every office building converts well to residential.
SPEAKER_02:Right, but I mean, there was a unit that was like helping people get to the right people. Is that still functioning well?
SPEAKER_01:It is because like they answer questions for you that you need to get answered in order to take the next step. So for instance, if you're building a new building, you have to have a 30 foot setback between your building and the building behind you or next door, depending on the orientation of the building in order to have legal light there on the units facing that setback. So that what the city of yes has done is said, okay, that doesn't make sense for some of these zones in the city. So we're gonna reduce that to 20 feet so that you can convert this building. And it's kind of a case by case, or it could be within the rezoning of an area. But what they did is they took space that wouldn't have been convertible to residential because it didn't have the required 30 feet of light there. and made it convertible. Height limitations, taking dead square footage from a building and being able to add it onto the top of a building is something that makes the economics of a project all of a sudden more doable because if there was, let's say, 20,000 square feet of dead corner space because it backed up to a corner where there was two buildings and you can take a core out of that and add it to the top of the building, I just monetize that 20,000 square feet. You know what the city of yes is also doing is that they, you know, the city has suggested this midtown south rezoning, which is going to make mid block development, higher density, which is going to unlock a lot of opportunity for property owners who have class B or C office buildings that are not economically feasible anymore. And now they're going to be economically feasible. So, and they're also trying to cut a lot of the red tape so that you don't have to wait two years to go through a rezoning or Euler process in order to get your building to convert from a commercial or industrial use to residential. So, you know, the city and the state are trying and then they can't. It's working, but it could work better. They came out with the 485X housing program, which is a program to promote market rate and affordable housing by giving rental developers tax incentives in order to provide affordable housing. The problem is, and no offense to the unions, I have a A lot of respect for unions, but they lobbied really hard. And by doing so, they created these tranches of different building unit counts where wages change depending on how big the building is. I don't want to get too technical. And the amount of affordability within a building changes depending on the size of the number of units in the building. And what a lot of developers have determined is that The first tranche was 99 units, the next tranche was 100 to 149 units, and I think it was 150 to 249. These larger buildings with higher wage requirements are hard to build under this program with the amount of affordability you have to add in as well. And to their credit, the city built in some different AMI bands, but there's still the low AMI band and developers are turning around and saying, I can't build a 500 unit building and make it work economically. So instead I'm gonna build 599 unit buildings, which doesn't really help to add enough affordable housing. And I am a big advocate of affordable housing. So the program will probably get tweaked over the years. it's working for some, but it doesn't work for all. So it's creating, it's going to create another housing shortage before it creates more housing. So every, you know, every mayor comes in, I'm going to develop 500,000, you know, new units, but you can't under these programs. And, you know, if you brought on a large developer like Douglas did, or like BFC or L&M who do a lot of affordable housing, you know, they would tell you that, you know, these programs have not really given them the impetus to develop what they would like to do, which is provide more affordable housing for folks who need it.
SPEAKER_04:You talk about, and just briefly, you talk about trying to raise equity and raise debt. Is there... Is that a challenge for these developers? I mean, it's one thing to have the city regulation. It's another thing to say my costs went up because interest rates went up, but access to capital has got to be, is that changing? Is that a factor?
SPEAKER_01:Again, for the really big ones, not so much, right? But for your next tier developer, raising equity right now is a little bit difficult, right? Particularly for condo projects, because the life of a condo project is, has stretched right so you know if you're we i i had an investor a couple years ago he's he's got an investment group fund their money is earmarked for four years they they if they take a dollar today they're telling you four years from now we're going to start returning your investment that doesn't work in condos the condo if you're developing a 50, 60 unit condo project or bigger from the day you sign the contract on that land until the day you get a TCO, you're talking about a year in product development, two years in construction minimum. So you're not coming to market till the middle to end of year three. So you can't get out in four years. It's a five, six year process. So a lot of that equity has gone towards the residential rental side or gone to other cities and states where construction happens a lot faster. There's not as much, there's not as many requirements. That doesn't necessarily mean it's good, right? I mean, look what happened in Florida, right? You have buildings falling down, right? So that equity goes to other places, but there is equity looking for opportunities in New York City and there's new players. There's a lot of new players funds, family offices coming into the marketplace, providing equity for developers. We've seen in the last 18 months, actually some big new players with like billion dollar funds that they're, and that money's getting out there. So it's happening, but it's just not happening at the pace that we saw 15, 20 years ago.
SPEAKER_02:Are you seeing more rental development? Because I mean, the-
SPEAKER_01:The rental
SPEAKER_02:prices are at all time highs and we have not even hit the peak season.
SPEAKER_01:It's
SPEAKER_02:crazy.
SPEAKER_01:Yeah. It's about four to one rental development to residential. The presentations we're making to developers right now is four to one. And again, there's many reasons for that. There's tax reasons for that. There's where the equity is coming from. There's also obviously the tax consequences of having a tax abatement. You know, so there's all kinds of reasons. And
SPEAKER_04:that's independent of whether it's ultra lux or luxury Brooklyn or Manhattan doesn't it's cross the board.
SPEAKER_01:Well, I mean, not really. I mean, you're not, no one's going to buy a development, a development site for five,$600 a square foot and build rentals because you just can't make it work. So, you know, either you own the site or you assemble the site over a south of$400 a square foot, you know, so you can make rentals work. If you're in Brooklyn, your basis might be south of$250 a square foot. You know, but so, but if you're buying a site, like, you know, if you're buying like some of the sites you've just seen, like Extel, et cetera, you know, on Fifth Avenue or Madison Avenue at a thousand dollars a foot or more, you're building condos or you're building a hybrid of office at the base and condos at the top because you can't make rentals work. And a lot of times
SPEAKER_04:rentals in the mid market, money is flowing into rentals in the mid market before it's flowing into sales in the high end market right
SPEAKER_01:now. For the most part. But again, the high end market is really dominated by very large developers who, you know, related. They're a public company. Right. So they've got plenty of cash on hand. You know, Extel floats bonds in Israel, from what I understand. So, you know, so there's other ways for them to build their equity, right? But for the most part, other than the high end, a lot of the things you're seeing in the middle market, the money is going more towards rentals, which actually is going to be very beneficial to the middle market in the future, because if there's less supply there, prices will rise in the future as well. The other thing is rents are rising very quickly in Manhattan. You know, any new building built south of 96th Street is in excess of$100 a square foot, trending to$110 a square foot. And you've got buildings out there, you know, on the Upper East and Upper West Side that are$130 a square foot. It's
SPEAKER_02:crazy.
SPEAKER_01:The other thing, John, is a lot of rentals are built on land lease land. So there's a lot of families in the city that own generational land They're not selling for tax purposes, for generational wealth purposes. So they're doing land lease deals. And you can really only build, unless it's a city-owned property, you can really only build a rental on land lease plans. And those are 100-year leases? Some are 200.
SPEAKER_04:So... So I'm a developer and I'm getting squeezed. The cost of capital is 10% higher. The risk of tariffs is 10% higher. I got affordable housing pressures. That's adding some more costs. So sustainability, right? I say, well, something's got to give. Those solar panels on the roof, yeah, can't afford to do that anymore. Is sustainability and ecology taking a hit?
SPEAKER_01:I think it is. I mean, it's interesting. In the rental side of the business, you're seeing a lot more passive houses actually being built, which is great. In the condo side, unfortunately, for the most part, buyers, it's kind of like the same thing with LEED was years ago. Buyers, they want it because altruistically they want it. They're not really willing to pay a lot more for it. But New York, just by the Just by being a dense city, frankly, does provide a lot more sustainability within its construction because you don't have as many cars, right? So you don't have as much, you know, carbon coming out. You know, the buildings are efficient. You know, it would be great to find a way to build that, you know, without concrete, right? Because concrete is highly unsustainable. But now you're getting recycled concrete. Not that we're doing this here in New York, but I was amazed. I don't know if you guys have seen the videos of what they're doing in California, in LA after the fires. They're recycling all of the concrete from all of the burnt out buildings and neighborhoods. And they're doing it on site and then they're going to reuse it. It's really cool. And all of the steel also. And they're actually doing that right there on site. So they're not trucking it out and bringing it back. And I think you'll start to see types of things like that here in the city in the future. It would be great to have more solar panels on roofs, but we're not seeing that right now. But New York does do certain things, you know, Wastewater retention tanks so that the wastewater doesn't flood our sewer system, which creates problems. The energy efficiency ratings that buildings now have to go through. The fact that in a few years, you're not going to see any more gas in buildings. It's all going to be electric. This is a good thing. These are positive steps towards sustainability. Now the real challenge is to get the city, the state, the federal government to produce that energy sustainable. And there's a dirty word out there. It's called nuclear power. Can we switch
SPEAKER_02:gears to inventory? Like where was inventory a couple of years ago and how are we comparing it to where we are now? and what do we think the pipeline looks like in a couple of years?
SPEAKER_01:That's a really good question. So inventory, pre-COVID inventories, a healthy inventory was about 5,000, 6,000, well, 4,000 to 5,000 units that were coming to market at any two-year interval, right? Because that's what we could absorb. COVID came, we built up inventories, inventories got to 10,000 units. Then it got down to 6,000 units. Then it got down to 5,000 units. We're actually in an inventory crush right now. We're like, the pipeline of inventory is like 4,000 units in Manhattan and under 2,000, you're talking condo. And under 2,000 in Brooklyn right now. So we're actually approaching like an inventory dearth, you know, where we're actually out of balance. So, you know, we're absorbing, more units than we're producing. So for absorbing four units, but only producing three units, we're actually minus one. And that's pretty much across the board in Manhattan and Brooklyn. Is that going to improve in the next two years or not? I don't see it improving much because the pipeline is pretty thin. So the prices should go up. Prices in Manhattan and Brooklyn should go up because inventories are low.
SPEAKER_02:And who's, I know that when we, you know, the foreign buyer kind of disappeared for a while, but last year, I remember you said that you were seeing, actually seeing a decent amount of Chinese buyers. Now, just super recently, and maybe we don't have the feedback yet, but the dollar has slightly cut back since this, you know, Liberation Day. Are we seeing more inquiries of foreign buyers or the politics kind of overtaking all of that?
SPEAKER_01:So in 2023 and 2024, we saw a lot of foreign buyers. Mostly, I would say the majority of that more Pacific Rim from Asia. I still see foreign buyers, but I am seeing less foreign buyers right now in 2025 as a percentage of our inquiries than I did in 2024. Do you think it's politics? I think it's 100% politics. I think that... People are concerned that they may not be welcome. I think people are concerned that maybe a new tax comes in for a foreign buyer. I think the Chinese buyer also right now is probably getting pressure from the government to hold off. Listen, it was always hard to get money out of China. It's probably really hard to get money out of China right now from what I'm hearing. And I think there's some nationalism happening in other countries saying, let's not give them too much right now while they're picking on us. But if a farm is
SPEAKER_04:going to be a welcome anywhere, it's going to be in New York.
SPEAKER_01:Yes, absolutely. And I was just about to say, I think other markets are probably suffering a little bit more of this than we are. So for instance, the Florida market has a lot of Canadians. A lot of Canadian buyers go into the Florida market particularly for the winter. And I will tell you, I own two investment properties in Naples, Florida on the West Coast. Our inquiries for winter rentals this winter after the election dried up. I mean, dried up. Wow. And we have owners in our building that are Canadian that are, you know, if they didn't own, they probably wouldn't be here right now. It's kind of sad.
SPEAKER_04:At the top, so foreign buyers, very important. The other thing we mentioned at the top of the show was Generation X and baby boomers helping their kids, helping millennials buy their first apartment. I just wrote an article, you can see it on theengleteam.com, about where I had a case study of 1,250,000 to buy apartments. a two bedroom in hell's kitchen. And I said, the rental is 5,000 bucks a month. Those young kids, young professionals are trying to buy a million 250 and the expectation is they got to come up with$250,000 down. One strategy I said was first time home buyer loans, you can borrow 97% and put down 3%. But what I'm finding is the parents are stepping in a great deal of the time and bridging the gap, sometimes with a trust to help either with a forgivable loan through a trust or down payment assistance. And you said it's huge. What does that mean?
SPEAKER_01:So first of all, in the 1.3, because there's very little new development under 1.3, 1.3 at about$3 million new development, Price range, I don't think I'm exaggerating when I tell you that 50% of our buyers are adult children who are buying with or with the assistance of their family. Some foreign, definitely, some foreign. A lot coming whose parents are in the medical fields. financial services. Those would be probably the top three. And they're coming with cash, again, taking money out of the market, putting it into hard assets. Many of them are doing it in a trust or other form of LLC. And the reason to do this also is that the basis steps up when there's a death occurrence, right? So all of a sudden, you bought a place for$2 million, Unfortunately, your parent passes five years from now. Now that apartment is worth$2.3 million, and now your basis is$2.3 million. So you just save capital gains tax, call it between city and state, 30%. On$300,000, it's 90 grand. It's real money. So it's a great way to transfer wealth. And it's a great way to help your child out if you can. And with rents where they are, it actually makes a lot more sense to buy than rent right now because you may as well either pay your own mortgage or pay your own return versus paying the landlord's mortgage. So we're seeing a lot, a lot. I mean, particularly, and it's really interesting. What we're seeing a lot of now is like the first... one child is going into college one child just came out of college and they're buying a two or three bedroom so their children can live together right and they're kind of killing two birds with one stone because now they're housing two children instead of one and if they buy a three bedroom there's a bedroom for mom dad or whoever it might be when they want to come in the city and crash and they also figure If my child moves out of that one day, maybe I'll move into it or we'll rent it out because condo rents are aggressive and high. So you see a ton of parents buying with or for their adult children and not just local. They're coming from California. They're flying in from San Francisco. The adult child goes and does the first round of looking, of searching, and then the parent flies in and they make the deal. And it's literally, I would say, Under$3 million, easily half of our buyers. I want to get back, by the way, really quickly to that supply situation, because I just pulled up our first and second quarter, well, first and second and a half quarter market report. So on average, over the last 10 years, New York City supply has averaged about 5,500 new development units in the pipeline coming or like either shadow inventory or on the market. Right now, we're at 4,500. Okay, and the trend is coming down. It built up in 2016, it was 4,607. If you think about that, it makes sense, right? Because that's when the construction was rising. And by 2019, it was 5,800. Then we hit COVID, 6,600. The heart of COVID, 6,600. And then it started coming down, 5,800, 5,500. Now we're at 4,500. So we're almost 20% below the average supply for the last 10 years.
SPEAKER_02:And the fact that that's all happened in a time period of below than average deal volume.
SPEAKER_01:Right, and rising interest rates. Exactly. And this is the interesting thing that our market report showed. Sales volume in Manhattan doesn't change when interest rates go up. It changes for other reasons, Roberto, but not because of interest rates. It changes during uncertainty, but it doesn't change solely because of interest rate. Because we've looked at the market as rates fluctuate And the average number stays the same. The average number of transactions in new development. New supply, this is really amazing. 2016, new supply was coming to market in any one year was over 1,500 units. We are now at new supply coming to Manhattan of 270 units. Because a lot of people are developing rentals and very few are developing condos. And the condo inventory that's been built, it has absorbed. Yeah, there's the outliers. There's the massive buildings that add to the inventory. We typically take those out. No offense, and I'm not going to name names because I don't want to bash anyone's project, but there are like four projects in the city that make up 40% of all the lingering inventory, but they've been on the market for seven to 10 years. So they're not, they were never great projects from a financial standpoint to begin with. So they're absorbing over time, but everything else has absorbed. It's really these four projects or so that make up, you know, well over a thousand units.
SPEAKER_04:So for our final minute, it's the crystal ball. I mean, you've already said that with this inventory situation, you expect prices to rise. What else do you see in the next couple of years?
SPEAKER_01:Well, I think prices will rise. What I do see coming in the next couple of years is even better products, higher level of design, higher level of amenities. I think the mega projects, you're not going to see as many of. I think more boutique projects, 30 to 60 or 70 units because they're more manageable, they sell quicker, there's less risk. I think you're gonna see more development in upper Manhattan, like Inwood. Meaning a better product mix too then? A better product mix, absolutely. I think you're going to see the far west side continue to develop. You know, Hudson Yards kind of started it. There's a big RFP now by the city for over by the Intrepid for a site that will be rentals, both affordable and market rate. There's another one down in the Gainesville area. So I think, you know, the far west side, like you've got this gap between Hudson Yards and Waterline Square, right? That's going to fill in. And that's gonna become a different neighborhood over the next 10 to 15 years. The hustler club eventually will probably go. And I think what you're gonna see is, I think you're gonna see a city where it becomes more user-friendly to develop, which will be the catalyst for more development in the city. And I hope with that comes more affordability. And with that, John, to your point earlier, comes more sustainability.
SPEAKER_02:You're awesome. Thank you. You guys are great. Thank you guys
SPEAKER_04:so much. All right. This is a great show. Number 183, Manhattan New Development, Challenges and Opportunities. Sounds like a lot of opportunity with too little inventory to develop. And I think if you can figure it out, there is an equation out there to make some money.
SPEAKER_01:Absolutely.
SPEAKER_04:Take
SPEAKER_02:care. Until next time, Steve. Be
SPEAKER_01:well. Cheers.
SPEAKER_02:Bye. See you Skipper.
