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A decade dominated by the ultra-luxury condo tower
PROPERTY 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 Miller, 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.
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 neighbourhoods 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 towards smaller, relatively less expensive units. Sweeping rent reforms in 2019 could also shape what gets built, and for whom, in the years to come.
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 2019 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 US$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 unfavourable 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 US$30 million has four to five homes - they don't need to buy," she explained.
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 US$1.15 million, just a 9 per cent premium over resales. By 2019, the average price of a new condo was US$3.77 million, a 118 per cent 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 US$5-10 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 US$1.2 million for a one-bedroom to US$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 last 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. The search for affordable housing pushed both builders and new residents beyond Manhattan, and Brooklyn was by far the most changed borough of the decade. Reviewing the areas that experienced the biggest rent increases in the 2010s found that seven of the top 10 neighbourhoods were in Brooklyn, according to census data collected by the New York University Furman Center.
At the top of the list were the neighbourhoods of Williamsburg and Greenpoint in northern Brooklyn, where the median monthly rent was US$1,854 in 2018, up 54 per cent since 2010.
Closer to Downtown Brooklyn, Pacific Park, formerly known as Atlantic Yards and anchored by the Barclays Center stadium, attracted major residential development nearby. A number of new mixed-use residential towers begun in the 2010s will soon dwarf the 157 m clock tower at One Hanson Place, which was the borough's tallest building for decades.
Nearby, when it is completed in late 2021, the 325 m skyscraper will be the borough's first super-tall skyscraper, and record holder.
"Brooklyn became a brand unto its own," said Brendan Aguayo, a managing director of Halstead Development Marketing, who oversees several luxury rental and condo projects in the borough.
The seeds were sown in the mid-2000s, when parts of the mostly industrial waterfront were rezoned to allow for denser building, and developers sought out less expensive land near mass transit. Tax abatements given to certain developments encouraged more building, and residents priced out of more central neighbourhoods fanned outward. "It's taken a number of years for all these dynamics to converge," Mr Aguayo said.
Critics argue that much of the new development, even when a portion of units are reserved for low- and middle-income renters, have made housing unaffordable for long-time residents, the majority of whom are black and Hispanic.
Greenpoint and Williamsburg lost about 15,000 Hispanic residents between 2000 and 2015, while the overall population rose 20,000 in that same period, according to a census analysis in December by Churches United for Fair Housing, a nonprofit community services group.
"There's this promise of affordable units, but by the time those units manifest, the people who needed them, they are long gone. They have already been pushed out," said Alexandra Fennell, the group's network director.
The forces that transformed Brooklyn in the 2010s are well underway in Queens. Even without the addition of Amazon's second headquarters in Long Island City, the western Queens neighbourhood, including the Hunters Point area, added 12,367 market-rate rental apartments from 2009 to 2019, according to Nancy Packes Data Services. That accounts for more than three-fourths of all market-rate rental apartments built in Queens in the decade.
"Those numbers don't surprise me," said Patrick Smith, an agent with Corcoran who specialises in the area. After rezoning in the early 2000s, the largely industrial area has seen a surge of new residential development, aided by the opening of new schools and several acres of waterfront parkland.
There are still several large development sites along the Anable Basin, near the proposed Amazon campus, that could yield thousands of additional market rate and affordable units. And the Sunnyside Yard, a 73 ha potential development site in western Queens that has been eyed for decades, could soon move forward, though community fears of gentrification and displacement have intensified in recent years.
The change is not limited to the neighbourhoods closest to Manhattan. In downtown Flushing, the last stop on the 7 subway line, rows of glassy condo towers have redefined the largely Chinese and Korean immigrant enclave.
Since 2009, developers have built 3,075 new condo units in Flushing, second only to Williamsburg, Brooklyn, in terms of condo construction citywide, according to Nancy Packes Data Services. NYTIMES