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Real Estate Bisnow
The largest commercial real estate publication in the United States.
November 28, 2011 


When $520M Looks Small

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The Gotham Org is running base to base with its $520M West Side development, which may be better than a home run in a downturn (it's called "small ball" for the baseball-challenged). Development EVP Melissa Pianko, a speaker at Bisnow’s New York Post Recession Projects event Dec. 8, tells us building rental apartments is a long-term play that allows more resistance to economic changes.

otham Chairman & CEO Joel Picket, Mayor Mike Bloomberg, Gotham's Melissa Pianko and prez David Picket

Melissa joined Gotham chairman & CEO Joel Picket, Mayor Mike, and prez David Picket for this month’s groundbreaking of the firm’s development (West 44th to 45th from Tenth to Eleventh). Why has Gotham been much more aggressive on the rental side? Condo buildings are like daredevil stunts: they can flop if the timing doesn’t work, she says; although units priced at the high and low ends of the market are holding pricing, the middle market is a bit more challenged. And lenders want to really be sure about sponsorship and basis before proceeding. (Gotham was able to secure a syndicate of lenders led by Wells Fargo, which will help finance the project along with tax-exempt bonds issued by the NYS Housing Finance Agency.)

The Gotham Org's $520M rental development on the West Side (West 44th to 45th from Tenth to Eleventh)

Here’s what the SLCE-designed development will look like when it’s completed in 2014. (And we hope the traffic will be that good, too.) The centerpiece will be a 31-story tower with 550 luxury apartments. Three mid-rise buildings will join it, adding 432 middle-income and 250 affordable housing units. And a new public elementary school for 630 students will be built adjacent to the development. Want to learn how projects like this are getting done? Join us and Melissa, Bentall Kennedy's Martin Standiford, Greenberg Traurig’s Rob Ivanhoe, Gibson Dunn’s Andy Lance, and LePatner & Associates’ Barry LePatner Dec. 8 at The NYC Bar Association. More speakers to be announced! Sign up here.

CBRE vice chairman Bill Shanahan

Multifamily’s terrific across the US, but there’s particular pressure in Manhattan for homeownership, CBRE investment guru Bill Shanahan tells us. Couple that with a younger workforce in areas like Silicon Alley and Wall Street (who aren’t buyers) and you’ve got very low vacancy—some submarkets are at nearly 1% or 2%. There haven't been a lot of deliveries either, so supply is constrained; only 21,000 new rental units will be added to the inventory over the next five years.

The Corner
The investment side has prime rentals ($2,500/month and up) and workforce housing. Bill's team recently brokered the sale of The Corner at 200 W 72nd St (above), which sold for $1M per unit, or $1,000/SF. They also sold two portfolios in the outer boroughs consisting of 15 buildings that only went for $140k per unit. But on both sides, there’s not enough product to satisfy investors, from institutional capital to family-dominated businesses. Add to that more new domestic funds and players returning to the market, like GID Investment Managers, UDR, and TIAA-CREF. (Reminds us of that Black Friday line for the cheap Xbox. We're still rinsing our eyes.)

Expect this market to continue through 2012, Bill says. Investors still want in, especially while the stock market is a roller coaster. Rental rates have already recovered to their pre-Lehman highs (can we agree on the abbreviations B.L. and A.L?); Q3 multifamily effective rents per unit surpassed the previous high reached in Q4 ’08 ($3,662). And rents are predicted to increase at an annualized average rate of 3.6% over the next five years. Freddie and Fannie are still opening their wallets, and low mortgage rates aren’t expected to run away from us either, he points out.



Joe Cohen, 1st Street and 6th Avenue, Brooklyn, NY, 2011

Boutique residential developer East River Partners principal Joe Cohen (with his back to the camera at a recent firm event) tells us Brooklyn is the next frontier for family living. A condo owner might pay $4,200 annually in taxes in Park Slope, compared to $20k for a similarly valued home in Westchester. The schools in Brooklyn are top-notch, too, he says. It’s just that supply of two to three-bedroom condos hasn’t caught up. East River is developing eight condos at 1st Street and 6th Avenue across from PS 321 (sales will start in spring).

Sarah Mencher, JR Benton, and Len Herczeg at 1st Street and 6th Avenue, Brooklyn, 2011

At East River's forum on condos, Brooklyn resident Sarah Mencher and others had some low-cost, family friendly suggestions for East River's JR Benton and architect Len Herczeg, including ditching some luxury ideas: Don’t extend wood floors from the rest of the apartment to the kitchen; it’s easier to wipe spilled milk from stone. Deep bathtubs are a no-go, too. Other worthy add-ons: extra insulation in common walls (neighbors and crying babies don’t mix), rounded counters and handles, and a ground-floor parking lot for strollers.

Reis research maven Victor Calanog

Hungry capital is not only going after multifamily. The Super Committee's failure to reach a deficit deal might not do much for congressional approval ratings, but Reis research meister Victor Calanog (snapped at our August event on distress) tells us it could boost CRE investment. "It adds to the overall atmosphere of uncertainty," he says, "and to many investors real estate looks like a relatively safe bet." Volatility in the stock market and a rocky road for sovereign bonds means yield-producing investments are dwindling, and the assumption is that good-quality assets in strong markets will at least generate income. "Even if fundamentals are tepid, expect to see investment inflows to hold steady over the next year," he says.


What was your best Black Friday/Cyber Monday deal? Tell amanda@bisnow.com and amanda.metcalf@bisnow.com.

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