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Luxury Condo Boom Is Ending in Manhattan

Demand for luxury units slows amid unprecedented supply; One57 condo sales dwindle

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Sales at One57 tower in midtown Manhattan, center, have slowed to a trickle, with about 20 of the original 94 condos still unsold.

ROBERTO MACHADO NOA/LIGHTROCKET/GETTY IMAGES
Sales at One57 tower in midtown Manhattan, center, have slowed to a trickle, with about 20 of the original 94 condos still unsold.
ROBERTO MACHADO NOA/LIGHTROCKET/GETTY IMAGES

The 1,004-foot Manhattan condominium tower known as One57 was the envy of the real-estate market as it was being constructed in recent years, garnering interest from so many wealthy buyers that it sparked a boom by developers betting demand for luxury apartments would keep climbing to the skies. It didn’t. Instead, sales at One57 have slowed to a trickle, with about 20 of the original 94 condos still unsold. Builder Extell Development in March reduced its projected sellout value of the tower at 157 W. 57th St. to $2.56 billion, a markdown of $162 million from its 2013 projections, according to securities documents filed on the Tel Aviv Stock Exchange. MORE: Go Inside the Newest—and Most Exclusive—Luxury Residences on the Bowery Demand in Manhattan’s super-high-end condo market has dried up amid global economic jitters, just as the market has been flooded with unprecedented supply. It is a potent recipe for a bear market in a sector that has reshaped the peaks of the Manhattan skyline in recent years. The slowdown appears confined to this rarefied segment of New York’s condo market; demand remains strong and supply more limited for more moderately priced units. But it is a scenario also playing out in other super high-end markets that subsist on billionaires’ spare cash. Prices have fallen, for example, in London’s luxury property market, the high-end art sector and even the classic car market. While Extell likely will end up just fine—One57’s projected sellout value is still nearly $1 billion more than its costs—there is far more concern about the dozens of high-price projects that started afterward and have sold far fewer of their units.

“There’s a lot of stuff that is chasing what happened three years ago or four years ago when there was a boom,” said Gary Barnett, Extell’s founder. “They’re late to the party and the party is ending. ” Mr. Barnett isn’t running for the hills. He called the state of the high-end market a “temporary imbalance” that would be absorbed in a few years. But others are more fearful. Already, two high-profile projects—a conversion of the upper floors of the Sony Building and a new tower on Central Park South—have been scrapped or shelved, while lenders have turned off the spigot, market experts said. Last month, the developers of a modernist 900-foot-high tower on East 58th Street filed for bankruptcy protection to forestall a foreclosure after they were unable to obtain long-term financing needed to move the project forward. “We’ve been doing a lot of consulting for Wall Street firms that funded this development boom and woke up on Jan. 1 seeing competition across the skyline and are noticeably concerned,” said Jonathan Miller, an appraiser and president of Miller Samuel Inc. MORE: This Is the Most Expensive Home Sold in NYC in 2016 Quantifying the tumult in the sector is difficult because many developers don’t report sales. Pipeline data often don’t include pricing. But developers said there are several hundred to a few thousand units being constructed or planned now under the assumption they will command at least $3,500 a square foot. That translates to roughly $5 million for a two-bedroom unit, considered a benchmark of the ultra-high-end market. Just in the blocks around One57, a tower being built next to the Museum of Modern Art has about 140 luxury apartments including a $70 million penthouse. Another slim tower at 520 Park Ave. with 33 units has an average unit price of $38 million. Down the street from One57 is one of the slenderest buildings ever to be built on earth—111 W. 57th St.—with 60 units planned. It is to rise past 1,400 feet, well above the Empire State Building’s 1,250 feet, tapering to just over 2,000 square feet for the top residential floor. Another very slim 900-foot tower is just getting started in lower Manhattan by developer Michael Shvo and his partners, financed in part with money from Chinese investors seeking green cards. All of these builders have been counting on continued growth of global billionaires and near-billionaires who are looking for places to park money and get an apartment with good views to boot. But the depth of such a market is nearly impossible to estimate. Unlike demand for a rental apartment or an office tower, this segment of the market is considered highly volatile, whipsawed by forces such as currency changes and interest rates. The market has been shaken in the past year by such forces, brokers say, along with a plunge in oil prices and an economic slowdown in China. Even generally optimistic condo developers recently have begun to acknowledge the slowdown. But they predict there will still be plenty of demand for the best projects—namely, the ones they are working on—and they say sales are continuing at high prices, even though the velocity slows. “It definitely has been slower,” said Michael Stern, managing partner of JDS Development Group, which is codeveloping the 111 W. 57th St. project with Property Markets Group. But he said in New York, apartments with Central Park views are so limited that the developer will wait until it can sell at a big premium to the rest of the market. For now, it is holding off on a marketing push—an uncommon step at this stage. “At the end of the day, the Central Park view is New York’s most coveted view. It always has been and it will remain that way,” Mr. Stern said. Mr. Stern and many other developers have a few years before the loans they used to build these towers come due, giving them some time for the sector to recover. Meanwhile, there is one silver lining for all the developers with projects under way. Because lenders have mostly left the sector, few other projects are getting started now, meaning the pipeline isn’t expected to get any fuller. “The good news,” said Mr. Barnett, “is we’re not going to see many more projects that are going to be built.” Write to Eliot Brown at eliot.brown@wsj.com and Josh Barbanel at josh.barbanel@wsj.com This article originally appeared on The Wall Street Journal. MORE From Mansion Global: