The real estate market in New York City is shifting, particularly with regard to luxury condo developments in Manhattan.
Properties are sitting on the market longer, banks are adjusting their approach to construction lending, land prices are cooling, and many industry experts are beginning to question the health of the high end of the market and the impact it may or may not have on the remainder of the market.
To explore these and other questions, I sat down with David Amirian, CEO of the Amirian Group and a prolific young developer who is currently working on several projects in Manhattan.
We discussed his perspective on the market and his path from his early days in the business in the mail room to CEO of his own firm.
ARI HARKOV: How did you get your start in real estate development?
DAVID AMIRIAN: Upon graduation, I was supposed to get into the finance industry but that didn't work out so well since the market had collapsed. While looking for a job in another field, a family member called and asked "Dave, do you want to go sweep the floors and get coffee for a construction company?"
I said yes and jumped into working for HRH Construction. Immediately, when I started working for them, I saw that I was missing something in terms of knowledge. I approached NYU and enrolled in their night Master's Program for Real Estate Construction and Development. I then spent four crazy years working full time during the day and going to class at night. It was exhausting.
After starting out in the Hamptons, the commute simply got to be too much and the company finally moved me to Brooklyn where I crossed paths with Anthony Rafaniello Sr., the General Super of HRH Construction, who was personally overseeing their largest project, The Gateway Retail Center.
He was the end-all, be-all of construction at the time. He built for Donald Trump, through HRH Construction, from 1979-1999, and is in every one of Trump's books today. I began shadowing Anthony in the field until one day Anthony brought me to a meeting with the owner (who was Related Properties). It was the first and largest outdoor mall ever built in Brooklyn.
At that meeting, they were looking to replace the project manager and Anthony offered me up for the job. I was 23 years old at the time and no one believed I could do it. The project ended up being wildly successful.
In 2010, I started my own company and made no money for two years. Through a friend, I was then introduced to Eric Brody of The Brody Group. After realizing we were each other's competitors bidding on a deal in SoHo, we began a partnership and we went on to build 316 E. Third St., a ground-up rental project on the Lower East Side, along with Wonder Works Construction.
After developing several very successful projects in the city, what are some lessons learned?
Building a townhouse in Manhattan is nothing like anything you've ever done. It's small. Nothing is to scale and nothing is standard. Everything must be custom and by hand. You will struggle with the underpinning and you can't use any machines. You don't know what is going to happen with your neighbors. Everything that can go wrong does.
How important is price?
Pricing is everything. People's expectations are often unrealistic. They don't realize how much money actually goes into building. The stone alone in the master bathroom at 16 E. 10th St. was $300,000. Many projects are also still on the market because of bad pricing expectations.
Something is worth what someone is willing to pay. Many developers become too invested into their projects. They spend three years total between pre-development and construction and they lose perspective and stop treating it like a business. They fall in love with their project. Again, everything is about timing. You to have buy right, build it quickly, and have to sell right away.
Where do you see the market heading?
There are more people looking to sell development sites today than ever before. Many sponsors/developers are having issues with raising debt and equity financing, and this will ultimately affect the market in the short term. I believe there will be a slow growth in new ground-up development and conversions because of the financing market and the velocity in which new development apartments are being sold. Lending for new, luxury condominium projects has either slowed tremendously or stopped completely in some areas of the city. It does not exist. Period. End of story.
Development costs have risen 17%, year over year, which has also put a tremendous damper on the market.
Between now, and the end of this year, certain things are going to happen. People are going to have cost over-runs on the construction side, and due to the slow traffic in sales, projects will need to infuse new brokers to market and sell projects in a different way.
Developers are also going to be replaced on some projects — the one difference I am seeing between this market, and the last, is a new mechanism in all development agreements, which gives the lenders and investors more power to let developers go if budgets and timelines are not met.
I know it sounds cliché, but this is the point in the market where fortunes are lost and fortunes are made.
We've reached the peak. With that said, I am not concerned about the market. The safest place to put your money, globally speaking, is in Manhattan.
Ari Harkov is a real estate broker with Halstead Property and heads up the Harkov Lewis Team, along with his business partner Warner Lewis, one of the top teams in the nation as ranked by the Wall Street Journal. The team, which focuses on residential sales in Manhattan and Brooklyn, works with both individual buyers and sellers and developers. Ari holds an MBA with honors from Columbia University and currently resides in Park Slope, Brooklyn, with his wife, 2-year-old son, and dog.
Source: http://www.nydailynews.com/life-style/nyc-luxury-real-estate-market-shifting-developer-article-1.2621974
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