After nine years of working on apartment
developments in New York’s red-hot Brooklyn, Sam Charney has
moved on to a new mission, in a different borough.
Charney, with partner Ascent Development, is building
condominiums in the rental-saturated neighborhood of Long Island
City in Queens, on a wager that the area is starved for for-sale
housing. The team is completing a three-unit building on 47th
Road and plans to build a 54-condo tower about three blocks
away, encouraged by a growing pool of potential buyers.
“We witnessed this neighborhood go from a renter’s
neighborhood where people who couldn’t afford to be in Manhattan
moved here in their mid-20s,” Charney said. “Now they’re in
their mid-30s, having children, and they’ve saved up a little
money.”
Condos are making a comeback in the area after an apartment
boom that reshaped the neighborhood just across the East River
from Manhattan. More than 6,100 rental units were added in the
past eight years and almost 20,000 more are planned, according
to data from the Long Island City Partnership. The relatively
cheap land deals that enticed developers to build apartments for
lease are gone now, making it harder to profit from them,
especially as rents begin to level off amid so much competition.
“In the last two years, nobody was really talking about
doing condos,” said Eric Benaim, president and chief executive
officer of brokerage Modern Spaces, which markets new
developments locally. “Now everybody’s talking about doing
condos. With land prices shooting up dramatically from where
they were a couple of years ago, it doesn’t really pencil out
for a developer to do a rental.”
Land Prices
Purchases of residential-development sites in Long Island
City and adjacent Astoria totaled $418.9 million this year
through September, more than triple the deal volume from the
same period in 2013, data from Modern Spaces show. Buyers agreed
to pay an average of $176.41 per buildable square foot, a 27
percent jump. A Long Island City lot sale on Sept. 30 was the
most expensive ever for the area, at $293 a square foot, said
Evan Daniel, who leads Modern Spaces’ investment-sales division.
The record may be short-lived. A parcel at 22-12 Jackson
Ave., across from the art-exhibition space MoMa PS1, was listed
last month for $315 a square foot, according to Ron Solarz, the
Eastern Consolidated broker who is marketing it.
“Are condo guys looking at it? The answer is yes,” Solarz
said.
About 518 condo units are being planned or under
development in the neighborhood, more than three times the
number built in the past two years, according to data compiled
by the Long Island City Partnership. That compares with 19,700
rental apartments that are planned or under construction.
‘Financially Sound’
Developers make more per square foot on condos than on
rentals, so escalating land prices will make building for buyers
“the only financially sound move” for anyone entering the
market now, according to Elizabeth Lusskin, president of the
partnership.
“It’s going to take a while for the mix to flip, but I
certainly think there will continue to be an upward trend in
condo offerings,” Lusskin said.
Property Markets Group, co-developer of Manhattan luxury-condo projects including Walker Tower, is considering condos as
part of its plan for Long Island City’s Clock Tower building,
according to principal Kevin Maloney. His firm bought the
property in November for $30.9 million, more than twice what the
previous owner paid six months earlier in a bankruptcy auction,
he said.
“We looked at what the market is and we backed into the
number,” said Maloney, who estimated the deal worked out to
$218 a square foot. “We said, ‘We can afford to pay that.’”
Backup Plan
It was the second Long Island City purchase for Property
Markets Group. The first site, around the corner on 41st Avenue,
is slated for 391 rental apartments. Property Markets Group also
filed condominium plans for that building as a backup, “if the
condo market somehow takes off,” Maloney said.
The volume of renters in Long Island City creates a built-in audience for the 88 condos Slate Property Group is developing
in the neighborhood’s Court Square section, said David Schwartz,
principal at Slate. The firm and partner Carlyle Group (CG:US) plan to
start construction next year, focusing on “family-sized”
homes, some with outdoor spaces and back yards, Schwartz said.
“When you’re building condos in a market where people
don’t live, you have to convince people first to live there, and
then, to buy in your building,” he said. “Here, they already
live there. To convert those people to condo owners is really
not going to be the hardest job.”
Rising Prices
Residential developers started flocking to Long Island City
after the 2001 rezoning of 37 blocks east of the waterfront
abutting the Sunnyside Yard rail depot. The changes allowed
higher-density towers within the manufacturing hubs of Queens
Plaza and Court Square. New sidewalks, better lighting and a
1.5-acre (0.6-hectare) green space at the base of the bridge are
among upgrades that have made the area more attractive, Lusskin
said.
Rising home prices also may increase the appeal of building
condos, even for developers who favor rentals as a way to
benefit from an improving neighborhood, said Benaim of Modern
Spaces. Long Island City homes sold for an average of $1,020 a
square foot in the third quarter, 21 percent more than a year
earlier, according to data from the brokerage.
“It’s very tempting to do a condo when you can get that
kind of a number,” said Justin Elghanayan, president of
Rockrose Development Corp., which in August finished leasing its
709-unit Linc LIC tower in the Court Square section.
‘Unabashedly, Yes’
Rockrose, which has been buying land in Long Island City
for more than two decades, is pouring the foundation for a 975-apartment tower on Hunter Street and partially demolishing a
former Eagle Electric Manufacturing Co. building on Queens
Street, where it will build 785 rentals.
The company also owns a 0.15-acre parcel on 43rd Avenue.
When asked if Rockrose would consider condos on the site,
Elghanayan said, “Totally, unabashedly, yes.”
The company’s last condo offering in Long Island City
reached the market in September 2008 and took years to sell as
buyer credit dried up and purchases stalled in the real estate
slump. The last unit at the 184-unit project, the View at
EastCoast, finally sold earlier this year, according to Benaim
of Modern Spaces.
Charney and Ascent acquired their sites last year, for as
much as 30 percent less than the land would cost today, by their
estimates. They faced a choice between building “a reasonable
rental or a very-profitable condo,” and concluded that the
area’s current renters would embrace the opportunity to buy,
said Tien Vominh, a principal at Long Island City-based Ascent.
Not Enough
“The market is full of rental projects,” Vominh said.
“In a neighborhood like this, looking at the demographics, we
felt there was just not enough supply” of for-sale properties.
At the partners’ 54-unit project at 11-51 47th Ave., slated
to break ground early next year, prices will be about $1,100 a
square foot for most condos and $1,800 a square foot for the two
penthouses, which will have unobstructed views of the Manhattan
skyline, said Charney, who worked for Two Trees Management Co.
in Brooklyn before starting his own firm last year.
While apartment rents in the area are still climbing, the
thousands of new units flooding the market are keeping increases
in check, said Jonathan Miller, president of appraiser Miller
Samuel Inc. The median rent in Long Island City was $3,000 last
month, 2.2 percent more than in November 2012.
In the same two-year period, leasing costs per square foot
jumped 24 percent, driven by demand for the smaller units that
tenants in the neighborhood favor, according to Miller, a
Bloomberg View contributor. That level of growth is appealing
enough to keep developers building rentals for as long as they
can, he said.
Tishman Speyer
“Rental development is lower-risk than luxury-condo
development,” Miller said. “You can enjoy rising rents and you
can convert” into condos later on.
Among upcoming rental projects is Tishman Speyer
Properties’ three-tower complex near the Queens Plaza subway
stop, which will have as many as 1,800 luxury apartments. It’s
Tishman’s first residential development in New York’s outer
boroughs, said a spokesman, Bud Perrone. Construction on the
first tower is slated to begin next year.
Builders buying land today in Long Island City are
increasingly setting the groundwork for condos, inquiring how to
make future projects compliant with Fannie Mae guidelines for
mortgage lending, said Orest Tomaselli, CEO of National Condo
Advisors, which consults with developers on such matters.
“We’re seeing a lot of push in that area,” said
Tomaselli, whose firm is based in White Plains, New York. “The
calls I’m getting are those early in the process saying, ‘We
just acquired this property, we’re looking at the numbers and
we’re definitely going to do condos.”
To contact the reporter on this story:
Oshrat Carmiel in New York at
[email protected]
To contact the editors responsible for this story:
Kara Wetzel at
[email protected]
Christine Maurus
