 |
The New York TimesBy Stefanos Chen and David W. ChenJuly 3, 2020
|
Skyline Tower, the 778-foot luxury condo building in Long Island City that looms over western Queens, was built to break records.
It is the tallest building in the borough; the most ambitious, with sales projected to exceed $1 billion; and in February the developers claimed that it was the fastest selling, with contracts signed on a quarter of its 802 units, a massive supply for a single building.
It represents the pinnacle of construction near Newtown Creek, a grimy tributary of the East River that connects the neighborhoods of Long Island City and Greenpoint, Brooklyn, two of the busiest real estate markets outside of Manhattan. Together, they have over 10,300 apartments in the works, almost 3,000 more than the mega-development Hudson Yards, according to Nancy Packes Data Services, a real estate consultancy and database provider.
But even before the coronavirus gripped New York in March, the condo market there and across the city was softening. And as the sales and rental markets cautiously reopen, many of the surefire bets that fueled the last cycle of development are being thrown into question.
Will buyers still pay top dollar for proximity to Manhattan offices they rarely use? Can developers sell tiny units in big buildings, many without outdoor space, now that building amenities are closed? With so many options on the market, what will a shrinking pool of qualified buyers and renters choose?
There may be no better proving ground for which projects will succeed or fail in a post-Covid world than what is being built in these once largely industrial neighborhoods off Newtown Creek.
The quarantine in March knocked marketing and construction timelines off track, imperiling some builders’ plans and forcing others to rethink their projects on the fly. Some builders are changing apartment floor plans to make way for home offices and decontamination rooms, and rethinking amenities that no longer make sense in close quarters. To spur sales, new discounts and promotions, like rent-to-own programs more commonly seen after the 2008 recession, are now cropping up.
And after a monthslong reprieve from endless construction, the pause has also given new life to community concerns about what should be built, and for whom, considering not only the new economic reality, but also climate change concerns around the vulnerable coastline.
Condo Market
After rezonings in the 2000s that enabled taller and denser residential buildings, both Greenpoint and Long Island City have seen a rush of development spurred by climbing land prices in Manhattan.
“In 2016 to ’17, they were humming,” said Kael Goodman, the chief executive of Marketproof, a real estate data and analytics company, about the prevalence of pricey new apartments to hit the Brooklyn and Queens markets.
But, as in Manhattan, a number of factors, including changing tax incentives and the retreat of foreign buyers, have slowed sales just as many new projects have been coming online. In Long Island City, out of 1,945 condo units completed since 2018, nearly 60 percent remain unsold, he said.
“If you’re a shoemaker, and 60 percent of your shoes haven’t sold, you’ve either made the wrong shoes, or you’ve made too many,” he said.
The problem is not necessarily too much building — there is huge demand for affordable housing in the city. It’s a matter of what was built, agents said.
“There is simply no demand for two-bedroom apartments that are 950 square feet and go for $1.5 million,” said Patrick W. Smith, an agent with Corcoran who specializes in Long Island City, referring to the recent trend toward apartments with less square footage but higher-end finishes. The average size of a two-bedroom apartment in Manhattan is 1,344 square feet, according to Jonathan J. Miller, the president of Miller Samuel Real Estate Appraisers & Consultants.
Mr. Smith considers himself lucky that his upcoming projects are still in the planning stages, which means the developers still have time to change their layouts to react to the coronavirus. At one upcoming project, the ubiquitous open floor plan has been modified to create an old-fashioned foyer — a decontamination area of sorts before entering the living room. At another, some kitchens will shrink to make way for offices, now that so many people are working from home.
“There’s a fine line between making design changes that will add value, and gimmicks,” he said, but some builders are already thinking about the permanent changes the pandemic will have on buyer preferences.
Adrian Lupu, an agent with Nest Seekers International, said an upcoming 70-unit project in the Dutch Kills area of Long Island City was originally slated to have a movie theater theme, to capitalize on the nearby Kaufman Astoria film studios. Instead, they will rebrand the building as a “sanctuary,” with air purifiers and an emphasis on wellness.
At Townhouse on the Park, an upcoming 75-unit project where rents range from $7,200 to $8,250 a month, almost all the apartments will have private outdoor space — a feature the developer, GDC Properties, will be sure to emphasize, now that so many are stuck at home.
The bigger challenge for many developers will be competition, both from completed buildings and upcoming projects. There are roughly 1,500 new apartments available for sale in Long Island City, including units not yet being marketed, according to Marketproof.
And there were already signs of a slowdown in the borough’s condo market before Covid-19. On average, 367 condos were sold per quarter in the last two years in Queens, down almost 14 percent from two years earlier, according to Mr. Miller, the real estate appraiser.
Several developers had also been emboldened in 2019 by the prospect of Amazon bringing a second headquarters — and a presumed wave of high-income residents — to the area, but community pushback and concern over gentrification ended those plans.
“The ultimate question is: ‘At what point does the job market recover?’” said Nancy Packes, the principal of Nancy Packes Data Services, a real estate consultancy and database provider. If not for the pandemic, the new condos in Long Island City would have sold in due time, she said, while a number of slow-selling condos could potentially be listed as rentals, since the apartments there are generally smaller and less expensive than the ones in Manhattan. Despite unemployment numbers soaring, the buyers and renters targeted in these new developments tend to have more job security, she said.
Market observers are looking for answers at the 802-unit Skyline Tower, which has more than four times as many condos as the next largest building in the neighborhood. Since the quarantine began in March, there have been just six new contracts signed, for a total of about 30 percent of units sold, said Eric Benaim, the chief executive of Modern Spaces, which is leading sales at the project. But he says there is pent-up demand, much of it from local buyers, who have been waiting for a chance to see the sales gallery in person.
Prices at the tower range from about $680,000 for studios as small as 450 square feet to $4 million for a high-floor three-bedroom; the penthouse prices have not been revealed. More than half of the units are two-bedrooms or larger. Occupancy was going to begin around October, but may now be pushed to January.
Stella Liu, the head of sales and marketing for Risland U.S. Holdings, one of the Skyline developers, said the prices were warranted because of the unmatched views of Manhattan, subway access, and amenities, including a 75-foot indoor pool. But use of the shared amenities will depend on state guidance for at least the next several months, if not longer.
The lasting impact of Covid-19 is not lost on buyers. Gary Hirshfield, a 58-year-old ophthalmologist who works in Queens, moved with his wife, Stacey Kruger, also an ophthalmologist, into a three-bedroom penthouse at Galerie, a nearby condo project, at the end of 2019. Now he is having second thoughts.
“Today, if I could get my money out, I’d consider it,” Mr. Hirshfield said. For the cost of his 1,690-square-foot apartment, he said he could have bought a 5,000-square-foot house with some land in the suburbs. But Long Island City appealed to him because of the restaurant scene, its proximity to Manhattan, and the high-end fitness center in the building (now closed to residents). He still believes in the value of the project, but doesn’t know when he’ll feel safe enough to use the gym again.
Some buildings are already sweetening the pot to entice new buyers. At the Neighborly, where prices range from $585,000 for a roughly 440-square-foot studio to $2 million for a three-bedroom penthouse, the developer, New Empire Corp., is offering to pay residents’ taxes and common charges for the first full year, almost $10,000 for a one-bedroom. Another project, Corte, offered a number of “rent-to-own” plans, in which a renter would pay toward ownership — a tactic more commonly seen during the last recession.
It’s possible that bulk sales, the discounting of a large offering of units to investors, could be in the offing for some developers, but so far there have not been signs of distress in the market, said Mr. Goodman, the chief executive of Marketproof.
And there may soon come another wave of development to the area. Four developers are proposing a project, called YourLIC, on a 28-acre site that includes what would have been the Amazon headquarters, as well as adjacent properties. The development could be as large as 12 million square feet, half of which could be residential, a spokeswoman said.
One potential exit strategy for developers is to convert a number of units into rentals, but they may face stiff competition in that market as well. At the site of the former 5Pointz graffiti murals, the developer, Jerry Wolkoff, has nearly completed two rental towers with more than 1,100 apartments, most of which are market rate, ranging in price from about $2,500 to over $6,000 a month, not including prime penthouses.
Mr. Wolkoff could start leasing now, he said, but might wait several months before giving the go-ahead. “Nobody is going to go in, looking at apartments with masks on,” he said.
Rental Market
On the other side of Newtown Creek, Greenpoint is in the middle of a rental building boom.
One of the most ambitious projects, Greenpoint Landing, is a 22-acre mixed-use mega-project now under construction along the industrial waterfront. When the first phase is finished in 2022, it will include five towers soaring as high as 40 stories, four low-rise buildings and a waterfront esplanade with views of Manhattan. A pre-K through 8 public school is also planned.
Early projects have already proven successful. The tower 1 Blue Slip, a 30-story building with 359 market-rate units overlooking the East River and Manhattan skyline, opened in 2018, according to the developers, Brookfield Properties and Park Tower Group. Prices ranged from $3,000 to $6,000 a month, and there are currently just a handful of vacancies.
“It was a bit of an unproven leasing market, but it was very strong,” said Kevin Davenport, a vice president with Brookfield.
One current Blue Slip tenant is Lia Araujo, 39, a television producer and writer. She had lived in Greenpoint for a few years in a classic railroad apartment, but decided to look for safer quarters when she and her neighbors began having trouble with an erratic neighbor.
She settled into a one-bedroom apartment, with a monthly rent of $3,200. She has since become fond of not just the co-working spaces and modern amenities and open space, but also the neighbors and staff.
“Having seen the other luxury buildings along the waterfront, Blue Slip somehow manages a personal vibe that I didn’t find anywhere else,” she said.
About a quarter of the 5,500 units planned throughout Greenpoint Landing, which includes three low-rise buildings developed by Park Tower and L & M Development Partners, will be reserved for residents who make between 30 to 130 percent of the area median income, which is $102,400 for a family of three. Rents for studios in those units start at $393, and are in high demand: There have been three vacancies the entire year in the affordable units, and each unit was filled within a month, according to the developers.
The next luxury tower, 2 Blue Slip, had just begun leasing its 421 units, 30 percent of which will be affordable, in February when the pandemic struck. About 20 deals were signed, but leasing essentially shut down in March, despite virtual tours. The least expensive market-rate studio is asking almost $3,100 a month, and a larger two-bedroom is seeking nearly $6,000 a month.
It’s unclear how well the units will be received in this new climate, but early data suggests hurdles ahead. Nearly a quarter of New York City rentals were discounted in May, up from 15 percent in the same period last year. And the discounting was most pronounced in buildings with more than 50 units, where the median discount was 9.3 percent below the original asking price, according to Nancy Wu, an economist with the real estate listings site StreetEasy. She calls that discount the “social distancing premium,” because the data suggests renter wariness with more crowded buildings.
Mr. Davenport, one of the developers, was hopeful that Manhattan residents would show interest in the Greenpoint offering, but said it will take a few months to “figure out where the demand is in the market.”
The condo market in Greenpoint, though less crowded than Long Island City, may also face headwinds. The property at 44 Box Street, a former parking lot leased by a plumbing company, was sold in 2014 for $1.875 million, then again in 2018 for $4.15 million. Plans were filed for a six-story condo with about 15 units that would cater to tech-forward millennials, said Jay Batra, founder and chief executive of Batra Group Real Estate, who does a lot of work in the neighborhood.
But phone and email messages left with the developer, M Development, were not returned. Mr. Batra has also had no luck connecting with the developer, and says that the status of the project appears to be unclear.
The wave of mostly luxury development in Greenpoint has rankled some longtime community activists who say that the landscape has drifted far from the city’s original rezoning plans, which they believe could have included more moderate-income housing and resiliency measures in flood-prone areas.
Ronald Shiffman, professor emeritus at the Pratt Graduate Center for Planning and the Environment, says there should be a moratorium on all waterfront development until there’s a comprehensive plan for addressing the city’s industrial land in the context of climate change.
“We’re rezoning all of this area out of existence and we don’t know what the manufacturing needs will be in the future,” he said, citing the shortage of face masks and testing equipment during the pandemic.
Jane Pool, a longtime community activist in Greenpoint, said that “it appears that our rezoning was all about building towers, and infrastructure has been an afterthought.”
But if there is anything positive to come from the pandemic, it may be that the quarantine has given New Yorkers some time to reflect on the city being built up around them.
“We’re in an environment where we can make the pandemic pause an opportunity to solve problems and make a healthier community,” she said. “That would be amazing.”
