Developer Land Prices Going Up?

Land Prices Skyrocketing

Today we are going to focus on some questions that were asked to several Developers in the New York City Region. 

Following Questions were asked of Josh Goldflam, managing principal, Highcap Group and Andrew Barrocas, CEO, MNS:

"What are you seeing in terms of prices for developable land in the city today? How much are prices up (or down) compared to a year ago, two years ago and during the recession?
The words “historical” and “trendsetting” best describe what’s going on right now. Some development sites in prime areas of Manhattan have gone up 30 to 40 percent since a year ago, and many locations are starting to demand pricing that’s never been seen before. Furthermore, some neighborhoods that many developers would have turned a cold shoulder to in the past are starting to get major attention because of the serious lack of inventory and incredible amount of capital on the street right now. Some of the biggest developers in the city would laugh at me when trying to pitch them a site in Gramercy for over $450 per buildable square foot in the recent past, and then Toll Brothers strolls in and closes at $750 per buildable. Granted, their recent purchase on 23rd Street has a major retail component that can justify a higher price.

Sources have said lenders might soon pull back on financing because land prices have gotten so high. Are you seeing that?
I don’t necessarily see lenders pulling back on financing, but I do think things have gotten a little loose again since the crash, and banks will start getting a little more conservative once some of the guys paying high prices start getting in trouble. I have seen numerous deals that I cannot make any sense of. The only way these deals are being financed is that the developers are really betting on condo sellout prices that are higher than current comps. Hopefully they have no unexpected delays or problems, because their margins are so thin that one little thing can put your entire project under water.

What other development trends are you seeing in Manhattan these days?
There is nobody buying land that’s planning rentals in Manhattan. We do have a lot of projects coming to Manhattan on the condo side, but compared to 2006, the unit mix is more heavily on the larger side and there are fewer units in the buildings. Buildings that might have been 100 units are now 50-unit buildings."


So what can we learn from these responses.  For one the prices for development are flying through the roof and developers are looking to make more for the decreasing land available.  The amount of rentals is decreasing for condos and the units available in buildings is decreasing for larger spaces.  We should also keep note of the financing.  the leniency that banks have been giving will soon slow down with new regulations and wariness for the financial stability of the developers.


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