Three of New York's biggest developers came together last month for a panel at the New York Athletic Club for Esther Muller's New York Real Estate Academy. Kent M. Swig, president of Swig Equities and co-chairman of Terra Holdings, the parent company of Halstead Properties and Brown Harris Stevens, is also the owner/president of Helmsley-Spear. From residential real estate to commercial holdings, Swig overseas $3 billion in properties.
Jeffrey Levine, president of Levine Builders, has built more than 75 New York City properties, including thousands of residential units and hotels, hospitals, dormitories and retail centers. In 2005, he was appointed to the Mayor's Commission on Construction Opportunity.
Richard Mack, managing partner at Apollo Real Estate Advisors, was instrumental in bringing commercial and retail development to Central Europe. One of the most aggressive real estate lenders in the world, Apollo Real Estate Advisors builds affordable and high-end real estate all over the five boroughs and beyond. (He was also my college roommate.)
New York is in a credit crisis, which is different than the job crisis
The real estate market in New York City is very strong.
The big difference between now and two other downturn periods in 1989 and 1991 is that then New York City lost about 350,000 jobs over a two-year period.
In this round, we're in a credit crisis, which is different than the job crisis.
You have to look at the entire U.S. market to understand what's happening. The commercial space vacancy rate for midtown is only 7.4%. It's just 5.9% in lower Manhattan.
That is really extraordinarily positive.
New York building will slow down because the city is built
The velocity is going to slow down simply because the city is very, very built.
The other thing on the commercial side is that probably 60% or more of the leases in New York City today are halfway under market, or 50% below market-rate rents — not asking rents, but again, market-rate rents.
New York is undervalued in rents
So you've got a city that is woefully undervalued in terms of rent. As leases turn, landlords are going to make more money. Maybe they're not going to get everything they thought they could get in asking, but the rents are going up throughout the city because it's relatively undervalued.
There are not enough homes to buy
On the residential side, there is basically no inventory. I'll give you two statistics. One, since 2006, the condominium market rose 53% in price.
If you take out 15 Central Park West and The Plaza (two of New York's most expensive condo projects ever), it rose 18% in price. Those are big moves. Another statistic is that between 2002 and 2006, of every single home sold in Manhattan, about 18% was in new project development. Last year, that number was 29%.