Crain's New YorkSeptember 16, 2012Late last month, the developers of what will be the city's tallest residential spire, now rising on Park Avenue, submitted a plan to increase asking prices for its 128 condominiums to an average of $5,800 per square foot. Not only is that a double-digit hike from the original price set just two months earlier, it comes three years before the 1,398-foot tower is scheduled to be completed.
According to the filing with the state attorney general's office, a one-bedroom apartment will start at $4.96 million and a six-bedroom at $64.4 million. Experts say that such hikes of already astronomical prices for high-end housing are symptomatic of a phenomenon that is beginning to be felt across much of Manhattan. It is being driven by everything from people being priced out of the red-hot rental market to a lack of new building in recent years.
"Prices will be pushed higher if there is no relief in terms of supply," said Jonathan Miller, chief executive of appraisal firm Miller Samuel Inc. "It's the basic law of economics."
So far this year, 432 Park Ave. is one of just 15 new condo projects whose offering plans were submitted to the attorney general's office, which must approve them before sales can begin. Although several stalled condo projects have been revived this past year and new developments are in the works as construction lending loosens, the number of units projected to enter the market in the next few years is still likely to fall short of demand.
As of last week, plans for just 27 new condos, co-ops or conversions in Manhattan, with a grand total of a mere 875 units, had been submitted to the AG's office in 2012. That is a fraction of the 52 plans, with a total of 2,472 units, submitted last year—much less the recent peak hit in 2006. Back then, there were plans for 211 developments with 15,827 units.
Meanwhile, fewer homeowners have been putting their co-ops or condos on the market, apparently hoping for better prices down the road. As a result, the number of listings for co-ops and condos in Manhattan slipped to 5,593 last month, the lowest ebb in more than five years, according to Mr. Miller.
"We can use more inventory, whether it's new development or sellers listing their homes," said Gregory Heym, chief economist for Terra Holdings, parent company to residential brokerages Brown Harris Stevens and Halstead Property.
Fanned by strong demand from foreign buyers, and average apartment rents that have set records each month since March, the outlook for sales in Manhattan has been improving in recent months. Last week's announcement from the Federal Reserve that it would massively stimulate the housing market as a way to boost employment will only heighten expectations.
"We are seeing a lot of people who were waiting on the sidelines now jumping in," said Kelly Kennedy Mack, president of Corcoran Sunshine Marketing Group.
The bottom line in Manhattan is that sales of new apartments are expected to outpace additions to supply through 2015, according to Corcoran Sunshine. It found that 1,980 units were absorbed during the 12-month period ended March 31. In contrast, just 1,676 units are expected to be released into the market in the next three years.
"It's a perfect storm," said Fredrik Eklund, a broker at Prudential Douglas Elliman and a star of the reality-television show Million Dollar Listing New York. "The beauty of it is we are at the beginning of it."
Downtown, a condo conversion at 46 Lispenard St. is a perfect example. After just one week on the market, all but two of the building's 11 units were sold at prices that ranged from $2.65 million for a two-bedroom, to nearly $8 million for a four-bedroom. Mr. Eklund, the broker for that property, said units went at the full asking price without any contingencies or buyer incentives.
Meanwhile, at 250 Bowery, he noted, 900 people have already signed up to see a new 24-unit development whose condo plan has not yet been approved and therefore cannot be shown.
"There are more buyers than available apartments," said Shaun Osher, chief executive of Core, the boutique brokerage marketing Walker Tower, a 50-unit condo conversion in Chelsea that is more than 30% in contract after less than three months on the market.
Mr. Osher would not disclose prices, but according to StreetEasy.com, a two-bedroom, three-bath plus home-office unit with 2,400 square feet went into contract late last month at its asking price of $7.2 million—which was up 11% from its previous price.
"Walker Tower is shattering record prices for downtown," he said.
Stephen Kliegerman, president of Terra Development Marketing, said that in the past four months, developers planning new condos that will begin marketing next spring or fall are contemplating initial asking prices 3% to 10% higher than projected at the beginning of this year.
"Don't expect developers to be negotiable with prices because demand is so high," he said.