Lowest Number of Transactions in Over a Decade

The 2022 Development Site Sales Market Summary:

With only 190 development site transactions across the 5 boroughs in 2022, the NYC land market is down 14% YOY and 65% off of its peak in 2015 (550) in number of transactions and 2% down YOY in dollar volume at $3.25 billion and down 64.7% from its peak in 2015. The average sales price however increased 23.69% to $17.1million. 2022 is also the lowest number of land transactions we have seen in over a decade (2011 had 178 sales).

Let’s look at this borough by borough because some have fared better than others:

• In Manhattan, we actually saw transactions up 13.8% from 2021 to 33 transactions valued at $1.186 billion. This was a 8.1% decrease from 2021’s $1.29b. The average sales price was $51.3million, a 7.9% increase YOY.
• In Brooklyn we saw a different story where transactions were down 23% from 2021 to 72 transactions valued at $854miilion. This was a 3.6% decrease from 2021’s $885million. The average sales price was $11.65million, a 40% increase YOY.
• Queens saw a 21% decrease in sales transactions with only 44; but a 3.5% increase in sales volume from 2021 at $777.5m and a huge 47.7% increase in the average sales price at $17.5million (a record).
• In The Bronx we saw a slight 2.9% decrease of sales volume at 34 transactions but a 86% increase in dollar volume ($329.4m vs. 2021’s $177m) and a whopping 96.9% increase in the average sales price at $9.65m (a record)
• Staten Island is a low volume borough for land sales. We saw a 12.5% decrease YOY at 7 transactions valued at $12.5m (a 64.7% drop) with an average sales price of $1.35m (67.9% drop plus record low).

The Largest Land Transactions by Borough list for 2022

1. Manhattan
2. 570 Washington Street sold for $350M to Zeckendorf Development and Atlas Capital Group in July 2022.
3. Queens
4. 43-30 24th Street sold for $200M to Carmel Partners in March 2022.
5. Brooklyn
6. 350 Hicks Street sold to the lender Madison Realty Capital for $142M in October 2022.
7. Bronx
8. 228 E 135th Street sold for $105M to Haven Capital in April 2022.

The Lending Landscape

SOFR, The Secured Overnight Financing Rate, in March of this year was 0.05%, today it is at 4.3%. This is important because construction loans are typically based off of 250 to 400+ points above SOFR. For example, a construction loan in June 2022, when SOFR was 0.77% could be 3.27% to 4.77%. Today that same construction loan would range between 6.8% and 8.32%+. CME Term SOFR Reference Rates shows the 1-Month SOFR at 4.48%, the 3-Month at 4.63%, the 6-Month SOFR at 4.8% and the 12-Month at 4.84%. These forward-looking SOFR rates are significant because this is where the market expects the rates will be at that time.

The Prime Rate has hit 7.5% in December, a 15 year high. The last time we saw 7.5% rates was in October 2007 before it began tapering down due to the great recession. In March of this year the prime rate was 3.25%. Many private lenders will base their rates on the prime rate; typically, 300 to 500 points+ above prime. So, for example, if you purchased a development site and financed the acquisition, in March your rate would have been 6.25% to 8.25%+. Today that short term acquisition loan rate would most likely be between 10.5% and 12.5%+.

The 10 Year Treasury Rate is at 3.53%, down from it’s high of 4.33% in October of this year. (This time last year, the 10-year was at 0.9%). This is helping keep mortgage rates to an adaptable level.

What to keep an eye out for in 2023

1. The 1st NY State Senate legislation session started on January 5, 2023. I trust the powers that be will look at the data over the past 3 years and make the corrections needed from bad policy in order to right this ship. (Extend the 2026 Affordable New York deadline, renewal of a 421a program, a 421g revival, revisit and reverse the 2019 rent laws so owners can feasibly renovate their vacant units to open it to the housing stock, a vacancy reset, etc.)

2. Governor Hochul’s held her State of the State address on January 10, 2023. She spoke about housing and zoning as well as a one-liner about replacing 421a. She then subsequently put out a State of the State Book which clarified her position on 421a: “Governor Hochul will work with the Legislature to fashion and enact a replacement for the 421a property tax exemption program that expired last year. A well-structured incentive is necessary to stimulate the production of new rental housing in New York City sufficient to meet the overall goals of this plan.” You can find the full State of the State book below.

3. Mayor Adams “City of Yes” Zoning Initiatives. Follow the Department of City Planning closely, as the proposed powerful changes to the zoning resolution will help shape our buildings, and the health of the city for decades to come. Mayor Adams also released his recommendations to convert underused offices into homes. You can find his report below.

4. The Feds 2023 actions as it relates to interest rates coupled with inflation data and unemployment. This ties in with watching mortgage rates closely. The macro effects the micro.

In Summary:

It is now proven that without a 421a replacement, developers cannot feasibly build affordable housing without an incentive to do so. The powers that be must realize that money, for better or worse, is agnostic, it has no borders, it goes where the returns are. (In come Florida, Texas, Carolinas, etc.) If you want to solve the housing crisis, incentivizing private development must be in that equation. Stay tuned.