Gregory J. Heym
Executive Vice President, Chief Economist
Developers shift to smaller units at higher prices per square foot
By Vanessa Londono
Tom Iovane, left, and Jon Goldberg, right, co-principals of Gramercy Property Group, say they are doing more small, efﬁcient layouts. Developers in Manhattan's slower residential market are downsizing their square footage to keep residential units affordable to a larger share of the market and help sales.
Compounding the slowdown are increased construction costs, now up to around $400 a square foot, say developers, from $335 a square foot in 2005. The average sales price for a Manhattan apartment dropped 7 percent from the second quarter through the third.
Developers are trying to maximize profits by selling smaller units, which have a higher price per square foot than larger units, says Andres Escobar, head of interior design company Andres Escobar & Associates.
"The price per square foot is more obtainable in smaller units," Escobar said. "Developers need to be looking at the ultimate price. Most developers realize the market isn't as strong as it was a couple of years ago."
Market reports for Corcoran, Prudential Douglas Elliman and Halstead have all reported a growing market for apartments priced below $800,000. Achieving higher per square foot prices means the entire project is worth more.
"There is a sweet spot for [achieving sales at] $1,100 a square foot," said Andrew Heiberger, founder and CEO of Buttonwood Real Estate.
Heiberger is targeting small unit buyers with his new condo conversion, the 459-unit Greenwich Club Residences at 88 Greenwich Street in Lower Manhattan. The average size of an apartment in the project is 665 square feet and prices average $1,104 a square foot.
"Developers are seeing very little resistance for new and conversion product at $1,100 a foot," Heiberger said.
In order for developers to squeeze $1,100 a square foot out of an $800,000 price tag, it means keeping units at approximately 685 square feet -- the size of a one-bedroom or a studio.
At Thorndale Condominiums at 406 West 45th Street, a conversion of a carriage house in Hell's Kitchen into 21 loft-like apartments with exposed brick and fireplaces, developer Gramercy Property Group created efficient 681-square-foot one-bedroom apartments.
Tom Iovane, co-principal of Gramercy Property Group, says they are doing more units in the 600-square-foot range. A few years ago, he said, the apartments would have ranged from 700 to 750 square feet in size. And two-bedroom apartments that would typically be around 1,200 square feet are sized down to 1,055 square feet.
"Given where the market is, price point has to do with the sales momentum," said Jon Goldberg, co-principal of Gramercy Property Group. "It's the efficiency of the layout and use of the square footage that keep price points attractive."
Instead of the standard two-bedroom apartments, developers have resorted to designing one-bedroom, one-office apartments with a windowless room on the interior that can be used as a second bedroom.
"It's more affordable, especially for families starting out," Iovane said.
When the price point gets above $2 million, you start to limit your market, says Andrew Oliver, managing director of investment banking firm Sonnenblick-Goldman.
"[An apartment] at $1.5 million has a bigger buyer audience for the smaller overall size of the apartment," he said.
However, Escobar says that obtaining the maximum return on a residential project depends on many factors.
"It's relative to the style of the building and how deep it is," Escobar said.
And location plays a key part, he said. For example, entire buildings with studios and one-bedrooms don't work in family neighborhoods like the Upper West Side.
In mostly single Chelsea, however, sales of studios at the Jade sold by Shvo Marketing were a hit. The units began at approximately 460 square feet with a $500,000 price tag.
"We chose to create smaller units at Jade to differentiate the building from Chelsea's often too-large loft units, and to create condos that were well priced for the neighborhood," said Michael Shvo, president.
When developers go with smaller units to maximize their profit, they often try to come up with novel ways to make the spaces feel bigger.
In the Jade, this meant the construction of "pods," 8-by-8-foot or 10-by-10-foot cubical modules constructed near the middle of the living space. Each pod contains the bathroom, kitchen, washer/dryer and closet.
In other projects, Adrienne Albert, president of new development marketing firm the Marketing Directors, says developers are offering quasi-loft-like spaces that give buyers the feeling of openness.
"Developers are using spaces differently. People aren't cooking, so developers don't devote space to kitchens, but bathrooms have gotten bigger," Albert said. "There are no dining areas because residents can use the building's dining area and hold their business meeting in the business centers. Many buildings include these amenities because residents can socialize in different places instead of their home."
Ultimately, it is about targeting the right audience, says Albert.
"More than half of the heads of households are single people and they may not need the space," she said.
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Friday, December 15, 2006