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As Recession Looms, The NYC Land Market Is Poised To Come Back

Sellers are asking for too much. Lenders are more conservative than ever. The 421-a abatement killed off deal potential. Reasons for why the NYC market for land dried up over the last year are everywhere.


For parts of Manhattan, the land market is still nearly silent outside of Hudson Yards. But the boroughs and Upper Manhattan were more active as 2016 closed out.

Chris Jiashu Xu paid more than $100M for a 3.7-acre Flushing development site in November. Jared Kushner and partners LIVWRK and CIM Group paid $345M for a Dumbo site with 1.1M buildable SF in December. A small deal in Flushing is closing this month for a record $573/buildable SF, Cushman & Wakefield senior managing director Stephen Preuss told Bisnow.

And in Brooklyn, C&W executive managing director Brendan Maddigan is marketing development sites in Williamsburg and Greenpoint that launched within the last month or so.

"The amount of parties responding," Maddigan said, "is nearly twice what we historically get throughout a marketing period."

The fundamentals of the market that choked land deals are still there: construction financing, some would argue, is even harder to come by today than it was six months ago. The 421-a tax abatement, while agreed to in principle, is still expired. Yet many landowners are asking for prices that buyers are unwilling to pay with the exception of the absolute best locations.

"There’s going to come a point where buyers can’t pay X amount per square foot. We have to go through a cycle here," Preuss (below) told Bisnow this week. "I think we’re there. As interest rates rise and as the income level maintains, I think we’re going to see a deviation in the next year to 18 months where the cycle’s going to be in full effect."


The second half of 2016 was likely a harbinger of a land market that's getting ready to pick up. 

"Everyone said things would slow way down in 2016 — they didn’t," Maddigan said. "We sold retail on Bedford Avenue, which theoretically you can’t do with an L train shutdown. We had land sales of $300/SF, which you theoretically couldn’t do without 421-a."

That's not to say that financing, which Maddigan said is his chief concern for the market moving forward, and elevated prices won't hamstring some deals. But since the recession, when money has wanted to buy NYC real estate, money has found a way.

Many see 2017 as a point where the scales could start to tip in advance of a 2018 recession. In emerging markets, where many landowners have held property for years, or even generations, they could finally flip the switch this year.

"We may see more people that decide to sell in 2017 just because prices have increased every single year," Maddigan said, "and now an owner might come to his own conclusion that it might not be worth the same next year."

When more landowners make that calculation, there will be plenty of buyers. Not only has the influx of foreign capital continued in all parts of New York City, but more Manhattan developers are willing to make the jump across the East River.


"I'll give you an example," Justin Palmer, CEO of Synapse Development Group, said of the shift away from Manhattan elitism. "Very late 2013, when we first tied up one of our first parcels in Williamsburg, and we were talking to a major investor, and he said, ‘Why would I go to Brooklyn when I can buy in Manhattan?’ That same group today is buying out in Brooklyn. All the major families are building out in the boroughs."

Palmer, above right, with RMKB partner John Dooling at a Bisnow event in San Francisco, spent three years acquiring sites at Lorimer Street and Meeker Avenue in Williamsburg for a rental development. Synapse also has been acquiring land in Hamilton Heights, staying true to its mission of developing rental properties in transitional neighborhoods.

Palmer worked for Lehman Brothers through its bankruptcy as it had to dispose of its $20B real estate portfolio. He said that's why he doesn't build condos and balks at most of the current asking prices for land, even in some of the emerging markets like Hamilton Heights.

"I never want to end up in that scenario," he said of his Lehman experience. "On the residential land development market, NYC is definitely overpriced and there has to be a correction."

In 2017, the signs are pointing that way.