Developers used the 2010s to reshape the New York skyline with soaring condo towers — many of which will struggle to sell units well into the next decade.
But what began as a period of exuberance for investors ended with a dwindling pool of high-end buyers willing to pay record prices. Apartments are still selling, especially in the resale market, but often at marked down prices.
“We think of this decade as this boom of new product never seen before, but that’s a distant memory,” said Jonathan J. Miller, the president of Miller Samuel Real Estate Appraisers & Consultants. “The second half was a reckoning with reality.”
It was also a decade of tremendous change and gentrification for the boroughs beyond Manhattan, where rezoning and the pursuit of cheaper land near public transit spurred new building, much of it too expensive for local residents. At the same time, a dire need for affordable housing continues in the city, where about 79,000 people live in shelters or on the streets.
To better understand what awaits in 2020, we explored some of the biggest changes of the last decade in the sales, rental and new development markets. Which neighborhoods received the most new development, experienced the highest rent increases, the highest sales price increases?
The building boom made Brooklyn ascendant, with Queens not far behind, and some major residential mixed-use projects are now also underway in the South Bronx. There are already signs of the market and neighborhoods pushing back against the glut of new development and subsequent gentrification. In Manhattan, where the surplus of new luxury condos could take more than six years to sell, there is already a shift toward smaller, relatively less expensive units. Sweeping rent reforms in 2019 could also shape what gets built, and for whom, in the years to come.
The Rise and Fall of Ultra Luxury
Nearly half of new condo units in Manhattan that came to market after 2015, or 3,695 of 7,727 apartments, remain unsold, according to a December analysis of both closed sales and contracts by Nancy Packes Data Services, a real estate consultancy and database provider. The report looked at buildings with about 30 or more units.
That is a staggering estimate and a humbling reversal from the start of the decade.
Investors, many of them from overseas, in search of higher returns after the 2008 recession looked to hard assets like real estate, and bet big on residential projects. Because credit remained tight for most New Yorkers, the most lucrative demographic was the affluent all-cash buyer, and thousands of new units — larger apartments, with better finishes and more amenities — were built to suit the demand.
Thus arose a number of skyscrapers on and around Central Park and exclusive pockets of Manhattan that set eye-watering sale records (currently: $240 million for a 24,000-square-foot pied-à-terre on Billionaire’s Row in Midtown). Since 2009, 22,304 condo units were built in Manhattan, the most in any borough.
But a confluence of global economic headwinds starting around 2015, as well as unfavorable changes to property and transfer taxes, cooled interest among well-heeled buyers.
Luxury real estate is a sentiment-driven market, said Nancy Packes, the principal of Nancy Packes Data Services. “Someone who has $30 million has four to five homes — they don’t need to buy,” she said.
The ambitious pricing created a divide between buyers who intended to live in their apartments and investors seeking a certain return. In 2011, the average sale price of a new condo was $1.15 million, just a 9 percent premium over resales. By 2019, the average price of a new condo was $3.77 million, a 118 percent premium over resales, Ms. Packes said.
That disconnect has led to a glut of unsold luxury condos. Including shadow inventory — the units held off the market until conditions improve — there were 7,050 new condo units available for sale in Manhattan in January, according to a Halstead Development Marketing report. That is the equivalent of more than six years of inventory at the current pace of sales, when a balanced market typically sells out in two to three years.
“You never had this kind of supply in these price ranges,” said Gary Barnett, the president and founder of Extell Development, which has built some of the priciest condos of the decade.
“The $5 million to $10 million market is hammered — there’s way too much of it,” he said, leading most developers to pump the brakes on new residential plans, until the current supply is sold.
The competition has meant deep concessions to buyers, including developers’ offers to cover closing costs, several years of common charges and other sweeteners. At One Manhattan Square, Extell’s massive 815-unit condo tower in Two Bridges, where prices range from $1.2 million for a one-bedroom to $12.1 million for a penthouse, several units are being offered with “rent-to-own” plans — an unusual option that underscores the volume of supply. Only about a quarter of the units had been sold in October, according to a StreetEasy analysis, though marketing began in 2015. A spokeswoman said, however, that there are “hundreds of more units” that are in contract.
In the pipeline of new residential projects, there could be a renewed focus on full-time residents, with a mix of smaller, comparatively affordable units.
At Essex Crossing, a six-acre mixed-use project on the Lower East Side expected to be completed in 2024, the nine building complex will incorporate retail, community space, and a total of 1,079 new apartments, more than half of which will be reserved for low- and middle-income tenants. Seven of the nine buildings are open or under construction.
Led by a consortium of developers called Delancey Street Associates, the project began in 2013, but only after decades of false starts under different city administrations and input from local residents, who pushed for more affordable units and other considerations.
To be sure, the project is supported in large part by luxury apartments. One of the nine buildings within the complex, 242 Broome Street, a 55-unit condo designed by SHoP Architects, had prices that ranged from $1.275 million for a one-bedroom to over $7 million for a three-bedroom penthouse — certainly expensive, but far from the prices sought for more extravagant spreads earlier in the decade. All but three units there have sold, a spokesman said.
“There needs to be a balance of buildings that’s consistent with the demographics of the community,” said Charles Bendit, the co-chief executive officer of Taconic Investment Partners, one of the developers.
The next phase of Essex Crossing will also include 92 affordable units for seniors. The project also has parkland, office and retail space and the new Essex Market, which is already open.
As for the overall real estate market, well-priced apartments, especially resales, continue to sell, said Ms. Packes. “It’s just not healthy for overpriced new construction.”