Year-to-date statistics for northern Manhattan show 2016 is shaping up to be yet another banner year for development site sales in terms of pricing and dollar volume. The latest figures have somewhat leveled off at 2015 levels, but for reasons outlined below, the market outlook above 96^th St. looks positive for the remainder of the year.

For the first half of 2016, northern Manhattan saw $297.9 million in development site sales - a robust 163% increase from 2H 2015, which saw $113.2 million worth of trades, according to recent data from Ariel Property Advisors.  That same report showed 22 development sites sell during the 1H 2016, a number on par with the number of transactions during both the first and second halves of 2015.

Development site pricing was also up year-over-year—$234 was the average price per buildable s/f for 1H 2016, a 13% increase from 2H 2015—but it’s important to note that absent a handful of well-located transactions the average price per buildable would be slightly down for the year.

A notable transaction that exemplifies this trend is Delshah Capital’s $111.5 million purchase of 30 Morningside Dr., a 260,000 s/f Beaux Arts building in Morningside Heights. The price translates to $388 per buildable s/f, and the firm plans to convert the former hospital campus into 200 high-end rental units.

Another example is the sale of 1655 Madison Ave., which sold earlier this year for $391 per buildable s/f. Construction will soon begin on an eight-story, 19-unit mixed-use building spanning 16,731 s/f — with nearly 1,500 s/f of retail — spanning 1653-1655 Madison Ave., in East Harlem.

Near Columbia University, the Jewish Theological Seminary sold 411 West 120^th St. for $19 million, which translates to $417 per buildable s/f. The developer filed plans in September for a 15-Story, 57-unit rental building at this Morningside Heights location.

The strength of the development market in Upper Manhattan can mostly be attributed to a strengthening condominium market, characterized by strong demand and far fewer supply of new units coming on-line. In Central Harlem, two former SROs at 318 and 320 West 115^th were converted to six condos spread across 13,426 s/f. Three and four-bedroom units are currently in contract for over $1,300 per s/f.

East Harlem is also seeing higher sell-out values on new construction units. Condominiums at a recently constructed 77 East 110^th St. project are selling for north of $1,100 per s/f – pricing that out-paces East Harlem condo sales over the past few years.

However, development site prices are facing some headwinds as recent deals that are under contract reflect pricing 10-15% lower than 2015/1H16 pricing, but still well above what was achieved either pre-2015 or at the last peak in 2007. The lack of 421-a abatement is making it difficult for developers to underwrite a rental scenario. Concerned about several thousand units expected to come on line in the next few years not only in Upper Manhattan but also in Brooklyn and Queens, banks are being much more selective in terms of site and sponsor quality when giving construction loans. Rising rents and the continuation of low interest rates offer existing multifamily investments as an alternative to new development. 

Yet while there may be some pull back in pricing and deal volume, we’re confident that several market drivers will continue to make Northern Manhattan development sites an attractive investment in the near term. The de Blasio administration recently announced a rezoning plan for East Harlem which will increase building density in major corridors. The administration laid out a series of proposed changes to East Harlem recently, where zoning reforms would allow buildings of up to 30 stories, a mix of retail and residential space, pedestrian, as well as transit improvements. Officials from the Department of City Planning indicated a desire for more housing, new job opportunities, and public space in the neighborhood. The area slated for the rezoning is bound by Second and Park Aves. and 104^th and 12^5th Sts., and extends west to Fifth Ave. in the northern portion, from 126^th St. to 132^nd St.

Aside from the upcoming Second Ave. Subway and the opening of the first phase of the Columbia University expansion, Northern Manhattan may also see increased residential demand from residents looking to avoid the commuting pitfalls of the looming L-train shutdown. We’re optimistic that the area’s ongoing evolution has positive implications in store for both uptown property owners and residents.

Michael Tortorici is an executive vice president, Matthew Gillis is a senior sales associate, and Brett Campbell is a senior analyst at Ariel Property Advisors, New York, N.Y.

Tags: