The price per square foot of newly-constructed condos in New York jumped 32% between 2013 ($1,656 per square foot) and 2014 ($2,193 per square foot). The wealthy wanting to buy today in New York can find much better value for money in the secondary markets, particularly in Manhattan neighborhoods like Gramercy Park or Yorkville, where prices are relatively cheap compared to the freshly-built high-rise clusters erupting in midtown. Some background: Last year, the number and dollar value of newly-developed condos that closed above $10 million more than doubled. Those 130 condos, totaling $2.6 billion, even pierced highs hit during the housing boom. No surprise, then, that more are coming online. Luxury development volume in 2015 will be 2.5 times last year’s level, claims Jonathan Miller, president of real estate appraisal company Miller Samuel, and a comparable amount of building is expected to rise in 2016. In fact, over the next five years, five Manhattan towers—like 432 Park Avenue and 220 Central Park South—are expected to fetch one-third of the $32 billion in overall new development sales, according to industry tracker CityRealty. The market is propped up by foreign buyers. “New York City has never seen such interest from international investors and high net worth buyers,” says Douglas Elliman broker Jared Seligman. And while the dollar has strengthened 21% against other currencies in the last year, Seligman says buyers from Asia and the Middle East continue to pump their wealth into prime New York City real estate. The way these folks see it, Manhattan real estate is more stable than even liquid holdings in their home country – and, of course, it establishes a desirable safe haven for the family, should things turn hairy in their home countries. (For more about how the dollar’s strength is affecting Miami, see Penta‘s “Real Estate: Top 10 Most Overvalued Cities.”) Still, developers are acutely attuned to the sizable inventory getting built and are reconfiguring floor plans and the mix of units to make their properties look unique — and maximize their potential sales, Seligman says. (See Penta‘s video with Seligman above, in which he explains what you need to know before buying into a new development.) But moving around rooms might not do the trick in its entirety. “[Developers] are going to reassess how aggressive their pricing was initially,” Miller says. So while prices might show a little softening due to growing inventory, the widening gap between newly-built condos and the overall market is still today’s best hunting ground. That’s the price differential you want to arbitrage. Ten years ago, there was no difference between the price per square foot of new construction and New York City’s broader market. A gap started to develop in 2013 and today new developments are roughly 30% more expensive than the overall New York City condo market. In short, don’t wait around for a massive decline in the prices of new construction. It’s more likely—barring an external shock—prices for new high rises will level off as the broader market catches up. “This plays out over a number of years, rather than a quick adjustment,” says Miller. So where are the Manhattan bargains? Park Avenue and 5th Ave. to 79th Street demand today an average $3,025 per square foot. For people secure with their good taste, that premium can easily be cut in half without any serious loss of cachet. Consider elegant Gramercy Park, which commands a far more reasonable $1,585 a square foot, or classy Beekman/Sutton Place, where properties can be had at $1,560 a square foot. Is the Financial District’s $1,279 a square foot attractive on paper but the neighborhood still too institutional to be seriously considered for the family? Then take a fresh look at the Upper East Side’s Yorkville, soon to benefit from the Second Ave. subway getting built and an inevitable revival, which still offers up a bargain $1,267 a square foot. With quick access on and off the FDR drive, Yorkville throws in for good measure a considerable cut in the Friday night dash to the weekend cottage. Translation: Don’t get seduced by new high-rise brochures from overpriced addresses. Value hunting is as important in real estate as it is on Wall Street. This article was originally published on Barron's Penta.
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