Manhattan land rush is on Developers return to ground, bulk up on building sites as economy begins to turn

Feverishly working to wrap up two deals during Thanksgiving weekend, developer Joseph Sitt barely had time to sit down for dinner with his family.

But by the following Tuesday, Thor Equities’ chief executive had much to be grateful for. That day he signed contracts to buy two Manhattan development sites, one on Fifth Avenue and West 43rd Street, and the other on Washington Street in the meatpacking district.

“I was very happy because it was quite an effort,” said Mr. Sitt. “We see tremendous upside for retail, residential and hotel [projects] in the city.”

Clearly, others share Mr. Sitt’s sentiments. Sales of development sites in Manhattan below Harlem have skyrocketed during the past two years. The rise comes amid growing optimism about long-term prospects for the city’s economy, its booming tourism industry, its strengthening residential markets and an increasing willingness among lenders to loosen their purse strings.

The number of sites over 10,000 square feet sold in Manhattan quintupled from a post-crash low point in 2009 to 51 last year, according to Massey Knakal Realty Services. Meanwhile, sales in the city—excluding Staten Island—more than doubled, to 142, over the same period, while the average price per square foot surged 38%, to $173.22.

Yet beneath that broad rise, the market remains very spotty. In Manhattan, for example, the total number of sales is still far below the 75 to 80 in a typical year, while the average price slipped 17%, to $311.22 a square foot, over the past two years.

Massey Knakal Chairman Robert Knakal said that average was likely depressed by a number of sales of smaller and less desirable locations. In contrast, in prime neighborhoods such as Chelsea and the meatpacking district, prices are almost back to their boom levels. For example, a site on West 24th Street between Ninth and 10th avenues recently sold for nearly $360 per square foot. At the peak of the market in 2007, an identically sized site five blocks away fetched $380 a square foot.

“We are seeing some really high prices being paid,” said Mr. Knakal.

Whether that can continue will hinge on further improvements in the city’s economy. In recent months, job growth has been lackluster and is no longer running ahead of the national average. Meanwhile, New York’s traditional engine—the financial services industry—continues to shed employees. In the second half of last year, that combination, along with fears of a European meltdown, hit the recovery in the commercial leasing market hard. Leasing volumes sank 31% in the last two quarters compared with the previous two.

The recent crop of buyers that has emerged recently, however, is generally more experienced and less leveraged, and looks to be far better equipped to weather such problems.

“Now you have to have a track record and put in 40% to 50% in equity to qualify for a loan,” said Peter Hauspurg, chairman of Eastern Consolidated.

Ironically, one of the factors helping to boost sales is an increasing number of distressed properties, victims of the last boom and bust, coming onto the market—many of them at bargain prices. That increased flow of troubled sites comes as banks are eager to shed some of their failed deals.

High Line bargain

Barclays Capital, for example, sold a lot at 360 10th Ave. to Sherwood Equities last year for $43.5 million after the borrower failed to pay back the loan. Sherwood, which paid cash, completed the deal in just eight days, paying about $145 a buildable square foot for the site between West 30th and West 31st streets, across from the High Line.

The price was at least 19% below what the former owner paid when he was assembling the site between 2005 and 2007, public records show.

“We got a price that you can get in a distressed situation,” said Sherwood owner Jeffrey Katz, who confessed that at this point he isn’t sure what he’ll build on the lot but is in no rush to decide. “We bought it because it was a great opportunity and the location was very unique.”

Other developers, including Mr. Sitt, are wasting no time at all. He has already hired architect Morris Adjmi to design a seven-story property with a twisted steel façade for the Washington Street site. The developer plans to have retail shops in the base of the building and either an upscale office or hotel on the upper floors.

“We’ll design with the utmost flexibility,” Mr. Sitt said, noting that he believes either option will be a success because creative companies crave office space in the meatpacking district, while retailers are keen on the area’s flood of tourists.

Sky-high pedestrian traffic is also a key selling point of the space he is preparing to build on the Fifth Avenue lot he bought for $132 million, or $440 a buildable square foot, a price he considers a bargain. “When was the last time there was a development site for sale on Fifth Avenue?” he asks.

The risk is that bargains tend to draw crowds, and that could yet slow things down a bit as prices inevitably rise in the face of increased demand.

“There is a lot of equity out there chasing deals,” said Douglas Steiner, a developer whose family owns the Steiner Studios in the Brooklyn Navy Yard, and who late last year snapped up a site in downtown Brooklyn on Flatbush Avenue for $30 million. He plans to construct a 52-story rental building on the lot. But while he is still interested in buying more sites, he notes that there is more competition now that banks are more willing to lend again.

By Theresa Agovino

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