Residential development is playing a critical role in the changing architectural landscape of New York City. From Philip Starck’s 15 Broad Street to the Time Warner Center and the newest edition of Hudson Yards, neighborhoods are changing because of each new development. Beyond being known as eye candy or game changers, these projects are proving to be New York City most lucrative investments.
Due to limited quantities, new residential developments appreciate disproportionately higher when compared to the rest of the market. Prices appreciate for several reasons in new development: new infrastructure, no barriers of entry, flight to quality, high design aesthetic, building economics and inventory. I’d like to take a moment to scratch the surface and point out these factors that impact the market, value and your bottom line.
New Infrastructure
It’s shiny and new. The largest majority of consumers love that.
No Barriers to Entry
When buying in a new development, there is no board process. You sign a contract, submit a check, and pay the balance at closing with your associated closings cost. That’s it.
Flight to Quality
Flight to quality has been influenced by the consumers, but mainly by the financiers. Underwriting standards have changed and you have to underwrite at higher numbers than ever before. Sometimes, $2,000-plus on the base price-per-square-foot. This has forced developers to build better product in order to create equal profit margins to past developments. In essence, you can only charge more if the quality is better. The better the product, the more it retains its value and tends to appreciate higher.
Building Economics
In the building economics arena new developments tend to have a well thought-out service and staffing plan. Many, if not all, of the major systems are warranted or insured and there is no need for capital improvements. This creates a system where your common charges tend to be low or average, and you do not face special assessments or an underlying building mortgage.
Inventory – Product Availability
One aspect people overlook is the finite amount of new development product out there. First, new development is roughly looked at as what’s been built in the last ten years. Overall, there are 847,000 residential units in Manhattan per “The Real Deal 2012 Data Book.” Only 67,000 of those are privately owned condo units, which equates to only 8% of the market. However, that includes new and old condos and the old substantially outweighs the new. The limited quantity of new developments also helps to retain value.
Moreover, as inventory shrinks quality inventory at high prices is being absorbed by “end users.” This had a direct effect on the resale value of apartments, as fewer come to the resale market in these buildings. Additionally, this minimizes speculation, therefore further securing future market value.
Now, with this basic information, how does one put it to good use? Be sure to see my next post on 1/15/13 for guidance on when to buy, what to look for, what it means for owners and more.
All the best,
Jarrod Guy Randolph