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Blockbuster Land Sales Might Be A Thing Of The Past In NYC

The New York City land market has been deathly quiet in the past few years and, as of yet, there are no real signs it will pick up.

A rendering of HFZ's XI

Lenders remain cautious, many developers are still making sense of the new 421-a tax abatement program — now known as Affordable New York — and some sellers will not adjust their prices to match market realities.

The deals that are happening, brokers said, are generally south of $100M and more frequently in the outer boroughs.

“Land sales are happening, but it’s not exactly a roaring volume,” said Savills Studley Vice Chairman and co-head of the capital markets group Woody Heller, who added the peak for development site sales was 2015. “There is no sector that is short on supply. People are being more cautious.”

Last year, there was some expectation that land sales would return throughout 2017. But transactions across the city continued drifting downward, much like investment sales across the board.

The Manhattan development site dollar volume was $2B in 2017, down 30% from the year before, according to the 2017 year-end report from Cushman & Wakefield.

It is not just volume that dipped; prices took a hit too. The average price per buildable square foot was $558 in Manhattan last year, according to the report, an 18% drop from the year earlier.

“The large deals seem to be behind us, today it’s more about smaller and less ambitious deals,” said CBRE First Vice President Carl Shorett, who added rising construction costs are likely slowing buyers’ appetites for development sites. “The obvious transactions have already occurred, [and] there has been a pullback of offshore capital, especially from China."

The total dollar volume of investment sales to international buyers in Manhattan was $23B last year, a 41% decline from 2016, according to a report from Eastern Consolidated.

Chinese buyers are now facing stricter government-enforced capital controls that are not expected to loosen any time soon, and last year Singapore outranked China in its U.S. property investment for the first time since 2012.

Shorett said there is still activity in the $25M to $100M market for development sites. Sales that are “more boutique” and require a less complex financing structure are now more popular, he said.

In 2015, for example, Ziel Feldman’s HFZ Capital reportedly paid $870M, or $1K per BSF, for its site at 76 11th Ave. In the same year, SJP Properties and Mitsui Fudosan paid $275M for their site at 200 Amsterdam Ave., where they are planning to build a 112-unit condominium building.

Savills Studley Vice Chairman Woody Heller in 2013

While Related Cos. did close on its six-site assemblage and air rights at 11th Avenue and 23rd and 22nd streets in West Chelsea for $234M last year, Shorett notes the deal was under contract for at least a year before the closing. 

“Those deals defined the frenzy of 2015 and 2016,” Shorett said. “Today it’s much harder to pull those off.”

It was a similar story outside Manhattan. In 2017, Brooklyn development site dollar volume was $1.2B, down 44% from 2016, according to C&W’s report.

In Queens, it was $444M, down 61% year over year. Sources said, however, they expect Brooklyn will see more activity this year, particularly in places like Gowanus, where a rezoning is likely imminent.

Domain Cos., for example, bought a 65K SF development site at 420 Carroll St. in Gowanus from Property Markets Group for $47.5M last month. Last week, it was reported that SL Green is selling its site in the neighborhood at 175-225 Third St. that it co-owns with Kushner Cos. to RFR Realty for approximately $120M.

“People are back looking at land transactions after a two-year holding pattern,” TerraCRG founder and CEO Ofer Cohen said. “That shows they are feeling comfortable about the strength of the rental market.”

Brokers and developers recently told Bisnow that, despite a rental glut and fears of a major oversupply of office space, there is still plenty of value in Brooklyn

Still, they said, some sellers are out of touch with market realities, and will to need to modify expectations.

“Sellers aren’t adjusting to the current lending market,” Charney Construction & Development principal Sam Charney said. “They say, 'My property was worth X dollars three years ago and it should be worth X dollars now' … [But] the lending climate is slowing for land sales and investment sales.”