Apartment Builders Gearing Up To Benefit From Construction Slowdown
Residential construction in New York City has slowed significantly since 2016’s cracking pace, and multifamily developers say it is a welcome development that will help soak up supply.
“I expect construction prices to fall off a cliff in 2019 and 2020. It’s a good thing if you can find land to build on,” Douglaston Development Chairman Jeffrey Levine said. “Land has stopped selling. Banks have stopped financing condos.”
The New York City Building Congress has predicted residential construction spending will hit $11.6B this year, and then slide down to $10.6B in 2019. By comparison, housing builders spent $16B on construction in 2016.
Sources said the tight lending environment, high cost of land and the adjustment to the city’s new 421a tax abatement — now known as Affordable New York — has resulted in fewer multifamily developments going into the ground. That is a good thing for developers who are actively looking to bring product to market.
Levine, whose developments include a 554-unit rental building at 2 North 6 Place in Williamsburg, Brooklyn, believes there is no doubt building rentals will pay off. The population is increasing, there is strong rental demand from baby boomers and millennials who do not want to be tied down with a home.
Meanwhile, the tax law changes have made homeownership in the city much less attractive, he said. But, he describes the Affordable New York policy as worthless and unlikely to spur more multifamily development.
“Rents have got to go up, land has to go down and tax abatements have to get better,” he said.
Slate Property Group founding partner Martin Nussbaum said the upcoming construction slowdown bodes well for multifamily in the city over the long term, but he thinks the tax abatement in its new form is working well.
"When the 421a had expired and there was a lot of unknown in the marketplace, it was very challenging to buy property because you didn’t know what the market was going to be,” he said. “If you understand [the new Affordable New York program], you can very comfortably underwrite and price your purchases and valuations based off of the new policies.”
The firm recently closed on a 200K SF development site at 37-11 30th St. in Astoria, and will be starting construction in the next two month on a mixed-used building on Johnson Avenue in Bushwick. The firm is also working on a 150K SF site at 69-65 Yellowstone Blvd. in Queens' Forest Hills neighborhood.
“All those neighborhoods have great growth from a gentrification point of view,” he said adding that, while Slate has slowed its acquisitions to some extent in the last 18 months, the firm has bought six Manhattan properties to renovate that will deliver in the next 24 months.
Half of the firm's business is in acquiring mixed-use redevelopment buildings in Manhattan and the other in development sites in the boroughs, Nussbaum said.
The outer boroughs have seen far greater construction activity in the last few years. Over the past five years, more than $150B has been spent on construction starts in the city, and the outer borough accounted for two-thirds of that activity according to the NYBC. Last year, there was more than $2B worth of construction starts for the third year running in the Bronx alone.
Multifamily developers are increasingly targeting the city's northernmost borough for residential development. Last week, Brookfield Property Partners — which has set its sights on the residential market, Chairman Ric Clark recently told Bisnow — reportedly agreed to pay $165M for Chetrit Group and Keith Rubenstein’s Somerset Partners’ residential development in the South Bronx.
The Canadian equity giant’s investment is a “tell-tale sign” the Bronx is “the place to go," HAP Investments Senior Vice President of Design and Construction Lee Karlin said. “There’s going to be a lot of developers following their lead."
HAP is on the hunt for development sites in the Bronx, which Karlin describes as “the new frontier.”
The firm is developing a 241-unit mixed-used project at 4452 Broadway in Fort George in Northern Manhattan and a 42-story luxury rental development at 500 Summit Ave. in New Jersey.
“In the next three or five years, you may see a slowdown,” said Karlin, although he added he thinks there will be more development in certain parts of the city. “It’s just a matter of strategic planning,” he said.
Karlin, Nussbaum and Levine will be speaking at Bisnow's Multifamily Annual Conference Tri-State in New York City April 25.