Stephen G. Kliegerman
President of Development Marketing
BY MICHAEL STOLER
After looking at the surge in development of office, retail, and hotel properties in Harlem in last week's column, I'll now examine the rush of residential development north of 96th Street in Manhattan, which is proceeding at an astonishing pace.
Since 1990, about 4,550 units of free-market condominiums have been developed in Harlem, according to a principal at Guild Partners, Jeff Bernstein. "The bulk of these, or about 4,300, have been built since 2000, and approximately 1,600 units have been proposed for construction in 2007," Mr. Bernstein said.
A recent study by Jonathan Miller of the appraisal firm Miller Samuels showed the average price per square foot for central and east Harlem condominiums rose 39.5% between 2005 and 2006, the biggest increase for a neighborhood in Manhattan.
"New York's condominium market continues to be cited as the exception to the rule in terms of national housing markets," the managing partner at Massey Knakal Realty Services, Shimon Shkury, said. "Many renters found market rate rent increases so substantial that their preference in the ‘rent-or-buy dilemma' quickly changed to buy."
Many of these purchasers are traveling north of 96th street to east, west, and central Harlem to purchase one of the thousands of units under development. "Central and east Harlem sell-outs are the epicenter of such activity," Mr. Shkury said. "Comparable sales show that prices above $700 per square foot are increasingly commonplace, well above the projected $600 per square foot benchmark developers cited a year ago." An associate at Massey Knakal Realty Services, Michael Tortorici, said value buyers "continue to be the driving force behind the establishment of Harlem as a premier residential neighborhood. Harlem continues to be the place where a buyer's dollar goes a lot further in procuring not only more space, but top of the line features and building amenities."
Later this year, at the corner of Fifth Avenue and 110th Street, construction is scheduled to begin on a new mixed-use development that will house the Museum of African Art and a luxury residential condominium. The new building would provide the museum with 85,000 square feet and include 115 luxury condominiums in a 20-story tower under a partnership between the museum and developers Brickman and Sidney Fetner Associates. With a large number of the condominium units facing the park, industry leaders expect the units to fetch in excess of $1,200 a square foot.
On West 110th Street near Morningside Drive, a major residential rental project is expected to be completed by January 2009. In February the ground breaking was held for the Avalon Morningside Park, a rental building developed by Avalon Bay. Last September, the real estate investment trust entered into a 99-year land lease with the Cathedral of St. John the Divine for the site, where they will be constructing a 20-story, 299-unit residential rental property that will contain 80% market-rate units and 20% affordable units.
"Harlem and the surrounding uptown neighborhoods are undergoing an incredible transformation," the chief operating officer, of Citi Habitats, Gary Malin, said. "Residential rental rates continue to climb in Harlem and are no longer the least expensive in Manhattan. As more individuals and retail establishments move into the area, developers will continue to rehabilitate and build additional rental properties. The condominium market in Harlem is also quite strong; prices in new developments can easily reach or exceed $1,000 per square foot."
According to real estate sources, the only condominium in Harlem that has achieved a sales price of $1,000 a square foot is the 48-unit condo located across from Central Park and Lenox Avenue, known as "111 Central Park North."
According the president of the Athena Group, Louis Dubin, who jointly developed the project with the City Investment Fund, more than 70% of the building has been sold, with prices exceeding $1,200 a square foot. The project was recently named by Esquire Magazine as the penthouse of the year. "The Harlem sales market continues to outpace the rest of Manhattan, with demand exceeding supply, with new shops and restaurants opening weekly, the infrastructure is backfilling at an ultra-aggressive pace, which makes Central Harlem one of the most dynamic markets in the country," Mr. Dubin said.
The president of the City Investment Fund, Thomas Lydon, said Harlem "offers excellent investment opportunities especially the residential rental sector. The incomes of the general population in Harlem are increasing so households can pay higher rents — still affordable — for apartments that are upgraded, and offer security and professional management. If people are going to pay more, the manager has to be much more tenant responsive to attract and retain higher income tenants."
A principal at KG Plymouth, Michael Davis, said west and central Harlem and Morningside "arrived as established areas well before east Harlem. East Harlem is still grossly underdeveloped by most standards. East Harlem still features large areas that are ripe for redevelopment, including entire regions that have long been largely uninhabited, and have only recently emerged as live development projects."
The president of Integrated Holdings, Derek Johnson, said there are five new projects acting as "drivers" of condominium development in Harlem. They include 111 Central Park North, the SoHa 118 at Frederick Douglass Boulevard, 5th on the Park at 120th Street and Fifth Avenue, the Langston at West 145th Street and Eighth Avenue, and the Lenox at West 129th Street at Lenox.
"Predictably, each has in their own way triggered a new vitality in their immediate neighborhood, bringing with them direly needed services," he said. "In some cases, the amenities are downright precedent-setting. The Langston is the first residential offering that includes a full-scale New York Sports Club; 5th on the Park offers a chance to reside in Harlem's first all-glass structure; and 111 Central Park North brings to Harlem its first concierge building."
Mr. Johnson added: "Less obvious, but perhaps a more interesting observation is that none of the five developments involved any residential displacement of Harlem residents. Second, the combination of new projects and the plethora of rehabilitations is resulting in significant population growth for a community that is already larger than the city of Atlanta. This combination implies that the community is moving towards a new paradigm for Harlem where, like elsewhere in the borough, new development can only emerge as a result of redevelopment of area by mixed-use projects which provide retail, residential, hospitality and commercial growth."
More than 400 condominiums could be built in three new hotels planned for construction in Harlem. Demolition is under way for Hotel 124, which may be flagged under W Hotels's new brand, aloft. The hotel, a development of the Lam Group, is located on the site of the former Associated supermarket at 124th Street and Frederick Douglass Boulevard. The 130,000-square-foot development is expected to house the boutique hotel of about 130 rooms and 100 condominiums. Last week, construction began for the Harlem Hotel, located at West 125th Street off Fifth Avenue. According to real estate sources, the hotel may have 160 rooms. The developer has not made a decision about whether to build residential condominiums on the top floors. A third hotel, which may be either an Intercontinental Hotel or its new Indigo boutique brand, would contain 130 condominiums and would be built on the site of the former Victoria Theater on West 125th Street, adjacent to the Apollo Theater. Another proposal for the site includes a boutique hotel developed by Ian Schrager with condos at the top of the building.
"Overall the Harlem market is going quite well," the executive director of development marketing at Halstead, Stephen Kliegerman, said. "With the continuance of rising prices below 96th Street and with Brooklyn prices now trending over $800 per square foot on average in the better neighborhoods, Harlem continues to be a value in the New York City."
"What is selling is value," he continued. "For instance, at the Langston for between $630 and $690 per square foot buyers are scooping up two and three bedroom full service condos with a garage (extra fee) and a 25 year 421-a. What is not moving are overpriced inventory, shoddy workmanship and properties with too many amenities which drive up the common charges and make the overall put of pocket unaffordable."
A number of real estate leaders are cautiously optimistic about the residential market in Harlem and other emerging neighborhoods.
A principal at KG Plymouth, Michael Davis, said there are "several risk factors looming for residential developments in Harlem. The 421-a program has been a critical factor for buyers in the areas who are very sensitive to total monthly carrying charges. Barring another change, the elimination of this program in its current form would likely cause at the very least a noticeable decline in the per square foot pricing of development sites, a reduction in condo sales prices, and possibly even a larger slowdown of uptown residential development in general. Additionally, it remains very difficult for a developer to make the numbers work on a new construction for residential rental project, which is an increasingly desirable alternative to for sale development, where plausible. Lastly, the contraction of the broader credit market continues to make it harder to obtain the financing necessary to launch new projects."
The CEO of Stellar Management, Robert Rosania, said: "With the capital markets gone, the days of high-wire act financing on the buying residential units to justify wacky prices just ended. Now, the guys with the big check books and the true trust of the street will be the market makers."
A partner at Apollo Real Estate Advisors, William McCahill, who previously served as chief lending officer for real estate at Fleet Bank, said, "Because of the disruption in the financial markets, there are many highly paid individuals who are concerned about their bonuses, as well as their jobs. That is not good for the condominium market in New York City including the Harlem market."
Thursday, August 02, 2007