The single most significant factor that has affected NYC’s residential marketplace, even more than interest rates which have hovered at historic lows for the better part of eight years, is the explosion of condominium choices including ground up construction and prewar rental conversions. New developments have reshaped the face of New York’s housing supply.  


When I was a rookie agent in the early 80’s, the ratio of condo to co-op product was 15:85%; by 2006 it was 35:65%; today the proportion approaches 40:60% and the share of available sales  inventory breaks down to 55% condos and 45% co-ops. In the 80’s, there was a clear divide between those buyers who sought a condominium product and co-op purchasers. That separation has blurred as both apartment products compete for buyer attention.


Since 2010 when only 704 permits for new dwelling units were issued by the DOB, there have been five consecutive years of increasing numbers of permits for new dwellings. Last year, these peaked, more than doubling from 5,435 in 2014 to 12,612 in 2015. This year’s total dropped dramatically to 1,440 permitted units from January through August for 3 reasons: the 421A program which gave tax incentives to developers expired in January; construction financing is increasingly more difficult to obtain; the market has softened. 

The pipeline for 2016-2017 of newly permitted and unsold new condominiums approximates 14,500 units (including Hudson Yards) which translates to about 5 years of excess condo inventory. At every industry conference I attended this year, every developer—from the novice to the very seasoned to the 3rd generation builder—acknowledged the difficulty of getting new construction loans and opined about a glut of apartments priced above $10M and an undersupply of units priced below $3M. Up until last year, nearly every developer targeted the high end buyer.

Hitting the reset button

For the last 18 months, upper end developers have been adjusting their marketing strategies as they hit the pause button in an environment where overpriced supply exceeds demand. Some like Worldwide’s 252 East 57 Street and Toll Brothers 1110 Park Avenue are reducing prices; others like Steve Witcoff who shelved a conversion at the Park Lane Hotel on Central Park South are putting projects on hold and sitting with patient money while they wait for the market to improve; others who are unwilling to hold onto a site because of increasing carrying costs are selling like Joseph Chetrit who paid $1.1B in 2013 for the Sony office tower on Madison Avenue which he had planned to convert into a mixed use residential/hotel/retail tower with a $150M PH but then sold it last April for $1.4B to a Saudi family who will maintain it as an office bldg; still other builders are creating smaller apartments from larger ones like Macklowe at 432 Park who divided in half five of the ten upper full floor units so instead of one unit at $80M, he is offering two at $40M—a strategy that seems to be working by the number of recent contracts signed.

Demand today is strongest in the middle and lower segments of the market however. There’s a need for more modest 1, 2 and 3 bedroom apartments priced under $3M. Gary Barnett is targeting Asian buyers at One Manhattan Square on the Lower East Side with 815 apartments priced between $1-3M. In Gramercy Park, at Magnum RE Group’s Luminaire, one bedrooms start at $900K and have been moving to contract briskly since they launched mid April. On the Upper East Side, where a Penthouse duplex recently went to contract with an asking price shy of $15M, Anbau Enterprises’ Citizen 360 at 360 East 89th Street is offering a quality mix of 1-4 bedrooms for what appears to be a blended price of $1,718 per square foot. In Soho at 565 Broome, units in the 30-story condo seem to be moving well where 500 square foot studios are asking shy of $1M and 2,300 square foot 3 bedrooms range currently from $5.450M and $8.465M.

Before the end of 2016 or in early 2017, the Fed will no doubt raise interest rates, and economists have forecast less than 2% growth overall for 2016. Momentum going into 2017 will be positive but not exuberant. We’ve had a good run since 2009 which begs the question: How long does a real estate cycle last? Earlier this year Fed Chair Janet Yellin remarked: “Expansions don’t die of old age,” suggesting that the economic growth period will continue, albeit with modest upticks. For the New York real estate market, a slowdown in an overheated luxury market is not terrible news, nor is a leveling of prices from unsustainable numbers to ones more grounded in reality. More targeted prices will yield a deeper buyer pool and a more balanced pace of activity. Options, opportunities and value abound today for the smart shopper.