♪ [theme music] ♪michael stoler: developments. walk around new york city.all you see are these cranes and more cranes and cranes,so there's lots of housing being built in all five boroughsand also in jersey city and other areas.so who is building it and why are they building it andwho are they selling it to, and who are they renting?so today, i have assembled this group of distinguishedindividuals to provide their insight on what's happeningin the residential rental and
condo market in new york cityand new jersey. my guests, they include jeffrey levine,who is the chairman and ceo of douglas development andlevine builders. scott schnay who is a principal atsk development. jim hedden who is a senior managing directordevelopment and construction at roseassociates.and last but not least, the kid from israel, eran polack,who is the ceo at hap investments. how are youenjoying the development game in this market?eran polack: well in israel, we
learn in english, so this is -was the best advantage, but we came, we search,few places and we looked for a place that we can start takeadvantage of the crisis that was, and be prepared for thefuture when the market will come back and then we canstill walk. and we thought like harlem, and even washingtonheights or inwood were very fit for that. and now we seethat the city is very hard to walk. and in those places,we can still find interesting pieces of land.interesting corners in a
reasonable prices and doingproject and combine between doing condos that are cheaper,condos that will go for 800 a foot, which is unheardof inner manhattan. michael stoler: you bringup an interesting thing. you're saying you're buildingapartments, which are condos at $800 a foot. as i was sayingbefore the show, i was last week in different partsof brooklyn, clinton hill, you know down at the end. thosecondos were $1100 a foot. when jeffrey was a pioneer inwilliamsburg, condos,
what were the initial pricesat the edge, the first edge? jeffrey levine: well weaveraged out at about $950 a foot.michael stoler: no but the - the beginning, when-jeffrey levine: prices? when the proverbial doo-doo hitthe fan in '08 and '09, there effectively were no sales,which unfortunately is what happens in the wrong economicenvironment for condos, but we were giving away units at -you know - inner courtyard facing units for numbers thatstarted with $650 or $700 and
the waterview outsideapartments we were giving away at the $850 number.michael stoler: okay, but here's the question, eran's talkingabout $800 a foot for a condo. you're involved with five orsix projects today in various stages of developments,rentals in the condo. you're involved with at least fouror five different developments, rentals and condos.in today's high cost of construction, how couldyou build a condo for $800 - build and make a profit?eran polack: it's a struggle.
the project that we have now,our bases in the land are very low. our bases are$30/square foot, $50, $60, $70, so this is the advantagethat we have on those land. prices now in thoseneighborhood fall in - they're more like $150-200 and nowit's a struggle. we need to struggle to build at $200-250a foot, and it's not an easy number to shoot. we're doing it.we're finding construction companies are doing it.we - we need to give a lot of support as the developer.we need to sometimes find them
the subcontractors or givethem the subcontractors that we're using in other projectsand we know he can give better price than thesubcontractors that they brought.michael stoler: so there's a lot of moving parts?eran polack: yes. michael stoler: now, jeffis levine builders, douglaston development. you don't buildfor anyone else anymore? you used to build for otherpeople. how do you see the cost of construction today,and scott, and all the others?
jeffrey levine: you know there'san inverse relationship between how busy it is and whatconstruction costs are. the reality is it's wonderfulthat you can buy land when nobody wants to buy it cheaply,but if you start to build it when everybody's building, we'veseen the prices, you know - i have a wonderful test case.we're just finishing a 40 story, 509 unit project in williamsburgwhich we bought roughly two and a half years ago. wedid incredibly well buying trades at that time, becausethere was no business for
residential construction.michael stoler: and that's-- is that a rental?jeffrey levine: that's a rental - that's a rental. okay?we're now building another rental, which we've recentlyclosed our construction loan. another 40 story,550 unit rental, and i will tell you without question thatwe'll be lucky if we don't exceed those numbersby 20 or 25%. michael stoler: really?scott schnay: that's about what we're finding, too.in the last two and a half
years. a 20-25% increase.jeffrey levine: everybody is busy.eran polack: and i think. i want to add to what you saidabout mr. levine - that he's not building to anyone anymore.and this is a fact that i learned when i came hereduring the last few years. a lot of the good builders herein new york don't build to anyone anymore.they finally understood that they can build for themselves.michael stoler: they build for themselves.they became like...
eran polack: a lotof money. yes. they enjoy. michael stoler: now,rose who has been around for 70-80 years. over thelast couple of years, you've gone into much moredevelopments. let's talk about rentals, condos andwhere - and one would - why would anyone believethat rose would be going into long island city? itwas an unknown market. james hedden: yeah, well -they have historically made money adventuring into areasthat have - what do you call
them - areas that are up andcoming, right? so we went into long island city. we're intobrooklyn. we - we have gotten the land at what we considerto be a very good basis, and we have.michael stoler: and long island city, you're doing what?that's a...? james hedden: long islandcity we have a rental. the maximilian - it's a 181units. it's fully rented at this point. stabilized. again,partnership with o'connor group and have done verywell there.
michael stoler: and in brooklynyou're - downtown brooklyn i remember a number ofyears ago when i was doing a show and i'm saying howare they gonna absorb 1800 units when they werebuilding units. now, there are about 6 - 6000 unitscoming on. james hedden: it's really aphenomenon, even supply and demand in manhattan. thestarting prices in manhattan to build, i don't think you canbuild for less than $75 a square foot on a rental side.so it's really pushing a lot of
the renters - the residentsto brooklyn, and brooklyn is over the last 10-15 years isreally just changed dramatically. probably moredramatic than any other area of new york city.michael stoler: scott, let's talk about some of thedevelopments you are working on now.scott schnay: sure, we're currently completing a 82-unitcondo down in east village on 13th between 2nd and 3rdcalled the jefferson that we - like jeff - we have thebuyout about two and a half
years ago, we were able tobuy the construction well and buy the land at what we feltwas a good basis and were successful there andselling well. we're also in construction now on four otherprojects, three other condos and a rental.michael stoler: you're on? scott schnay: 39th and3rd. we're doing a rental. 50th and 2nd is a 57 unitcondo. and then two smaller condos downtown on bond streetand on reed street. michael stoler: bond streetand reade street is the
fancy neighborhood today.scott schnay: it's a fancy neighborhood. reade streetis - we're on reade between church and broadway, so we'rein sort of the eastern part of tribeca, but we've donewell there. and in general, we - we have been lucky.we were able to buy most of our projects about two yearsago in terms of land basis. but like jeff, we've seenconstruction costs probably escalate probably about 25%.where, you know we bought the jefferson for about $300 afoot on hard costs and
most recently bought theproject on 50th street for about $400 a foot.michael stoler: now, what about - you know, at one timethere were certain things called tax abatements.in rentals today, tax abatements, you know,the way you can do it, as i said in my show a weekago, that if you have affordability, 20% affordable,you're able to do that. but if you're buying land at a highprice, it may not even pay. how do you look at the realestate taxes, mr. levine?
jeffrey levine: well, obviouslyreal estate taxes are very expensive here in new york.that's because a lot of people are willing to pay the priceto live here in new york. so there's a yin and a yangto that. with regard to the developments going forward, irecently was at a conference where the city planningcommission of carl weisbrod indicated that tax abatementas a right program and short of the state changing that,the 20% low-income component to have a 421-a taxabatement will stay in place.
it's discretionaryaspects of affordable housing. whether they be subsidy,grant and/or bond allocation that are all being put backinto the mixmaster and see what comes out. but again, ithink that we have an administration that understandshousing economics. i think alysha glenn has beenon both sides of the equation. both working as a deputycommissioner at hpd going years back and on the financeside at goldman-sachs housing. so the reality is, ibelieve that as the article
indicated in crains thispast week that nobody will succeed if no housing isbuilt. and so the blend of affordability mixed withmarket has to be one, which is achievable andfinance-able. i worked with jim years ago when he still- was it fleet at the time? james hedden: atthe time, that's right. jeffrey levine: okay, andi - we won't say how long ago that was. and the reality islook - we are simply passing on the economics to ourlenders. and if we cannot
make our lenders agreewith the underlying economics and projections ofour jobs, they won't get built. michael stoler: you know butin order - you know in order to build a building, you have to- we have a variety of things. we have the land, then wehave to have the structure, we have to have the taxabatements or pay the taxes. but we need this elementcalled money. now, jim, as we alluded before was fleet, andthen he was head of the region for bank of americaand merrill-lynch. how hard -
and this question is beingposed to eran and to scott, even though your family hasbeen in the business many years. how difficult is it forfinancing for a new kid on the block?eran polack: yeah, i think it's a little bit different for us,because we are new. we are not citizens here in theunited states. we are on a visa. so you have to findyour ways. one way, of course, is we are working withisraeli bank. we're working with bank leumi,which is easier for us, and
the other way is like work hard,and prove yourself, and slowly, slowly.we're doing small projects. michael stoler: are you payingto - let's say alternative lenders for some of yourfinancing? eran polack: we're doingthat for bridge loans. for buying lands or thingslike that. we do pay for alternative and we work with abridge lender, which is a little bit more - it's notlittle bit - it's more expensive. we'repaying like 8% for a
bridge loan. so it's moreexpensive than a conventional loan.michael stoler: and scott, how about you?scott schnay: we've uh - we've been lucky.we've have some strong partners then and partnershipsand together we've been able to get some - some goodsenior financing, and we've also had some strongsuccess in the equity markets in terms of bringing someinstitutional equity partners. and you know it's -it's interesting in
terms of rental vs. condo.it's - it's hard on the rental projects to go with aninstitutional equity partner.michael stoler: why? scott schnay: theyhave timelines. they have horizons.you know in general. michael stoler: right,the fund has it's -- scott schnay: the fund hasa timeline. in general we look at build the rentalbuildings to hold this. michael stoler: but you've- you've just gone and you've
just did a 270 million dollarloan with capitalone. the syndicate wanted the loan.there was no question about that. and you have avariety of equity partners. how difficult - how has theworld changed in that venue over the last coupleof years? jeffrey levine: well there's -the economics of financing and development projects isalways changing as a result of outside influences. youknow i remember going back years ago when eab wasin the market and you know
savings loan gave you90% of the development costs, and the other 10%to the equity was voo-doo magic. you go forward, okay. and thecommercial banks, you know, left the market. and - excuseme - the savings/ loan banks left the market. the commercialbig boys stepped in, but they stepped in wiserand they only went roughly for a good developer 75% of theequity costs, of the total cost. the rest of the money camefrom mes money, which is the stupidest money ever born,because they basically took
prefs of anywhere from13 to 14% and had no equity participation. so theywere looking at a return on their money with no real bigupside. when that hit the fan, the next wave of money was thecommercial banks were down to the 65% level. less forcondo and talking for rental, and the balance of money had tocome from major institutional partners - be theypension or insurance companies. i personally, because we areowner builders and there aren't very many left, have had theopportunity to work with the
likes of northwestern mutual.i've worked with the likes of new york life. i've workedwith aig and they're all great institutional partners, and ifyou can intelligently structure the pref and promotewaterfall, you can be a long-time holder.michael stoler: right. here is - here's a question with regard -eran has gone to jersey city. a number of people have goneto jersey city. how do you look at - and i'm asking the otherpeople - how do you look at the jersey city - the waterfrontproperties as opportunities
or even as i've said many timesin my show, newark? scott schnay: we've partneredon a few projects with a group called ironstate who isbased in hoboken who has done a lot of - if not the mostamount of development. michael stoler: yeah, when theywere - in their old days, they were the largestdeveloper in jersey city. scott schnay: yeah, andthey're - you know it's a strong market. it's - it'ssomewhat like brooklyn, in that it's rents and landprices are escalating
pretty quickly.michael stoler: but the convenience. you knoweverything is transit-oriented developments. if you'renear trains or if you're near the ferries, you have anopportunity. i mean you're building across street fromthe macy's on downtown-- jeffrey levine: right.michael stoler: over there, so it's great transportationover there. journal's square you have the path train.you have this opportunity. um, you know as i always say,when you're a developer, you
have this insatiable appetitethat you have to develop. you have to build other places,so you have to look at alternatives. um, have -have you looked at alternatives in the state ofnew jersey? james hedden: sure. we continueto look at emerging markets if you will. look as rentaldevelopers, primarily, we're competing with condodevelopers, and again, it's a different game. theydrive prices. they can spend a lot more for the land thanwe can. there's not a lot of
return in the short-run forrental housing. so you have to push the boundaries ofemerging markets. jeff built the ohm out on the end -between 10th and 11th. michael stoler: beforehudson yards was fashionable. james hedden: before hudsonyards was fashionable. and again, that was sort of anemerging market at that time, and the market built up aroundhim, and now it's a - you know it's a greatneighborhood, right? you're sitting in the centerof the universe. so we are
constantly looking at emergingmarkets, emerging trends to try to anticipate where thehousing growth will come. michael stoler: i thinkone of the markets that eran is going to do rather well in- it's a neighborhood that you'd know over theyears, i think inwood. and washington heights,because you have the good transportation over there. ithink there - there's a dire - you know it's 25 minutesinto the city. there's also a lot of employees - employers upthere in new york presbyterian.
there are other situationsover there to build. what's your thought? you'rein lower manhattan, also, with- jeffrey levine: with 70 pine.michael stoler: with 70 pine. how do you look at the lowermanhattan market? i want you to also bring up yourthoughts on that. james hedden: we're very excitedabout it. i mean i think our timing has been perfect onthat. you know we got in at a relatively good time, lowbasis, just before i think a lot of the development,which is now coming to fruition.
all of the - you know brookfieldside is fully leased now. westfield side is fully leasednow. so we're very excited. we're going to open up earlypart of next year, and we're expecting a lot of...michael stoler: a number of years ago i remember jeff andi knowing an individual who was buying a site in lowermanhattan, and we both felt similar feelings about it.and that site probably was acquired for $80 a foot.and recently traded for $500 a foot over a periodof four years later. do you see-
i mean there are theresidential rentals in lower manhattan have done okay.battery park city has done okay. the big question is-i'm talking lower manhattan as opposed to reade street.i'm talking about - you know the office...james hedden: tribeca. michael stoler: so the financialdistrict. do you see that as the big condo market,because 26 beaver was a failure originally? maybe it wastiming failure. there were a number of other ones. what'syour thought about the
condo market in lower manhattan?james hedden: we um - well - i guess we'll find out, right?larry has his building down on church street...michael stoler: that's a luxury. you know that was what wewere talking before. that's a luxury like...jeffrey levine: uber luxury.michael stoler: uber luxury. jeffrey levine: it doesseem that that's what people are building down there.james hedden: it's all good. michael stoler:when you say it's all good?
james hedden: it's goodfor the growth of downtown. jeffrey levine: butin general, you know? success is good anywhere.failure is no good anywhere. james hedden: absolutely.jeffrey levine: and the reality is that there are afew uber luxury projects that had the good fortune to bedeveloped during the down turn and delivered on the upswing.you know gary barnett, 157, great example.steve witkoff down in west... michael stoler: charles street.jeffrey levine: charles street
in west village. these areenormously successful projects. now, on the heels of that,you have a number of projects be they gary barnett'snext project, macklowe, park avenue tower,you have the park lane hotel, you have a number of...michael stoler: you have vornado site on central park.jeffrey levine: vornado site. you have a number of theseextraordinary uber luxury jobs with a large number of unitshitting the market, and while new york city is the greatestcity on earth, the united
states is the healthiest sickvictim in the hospital where the rest of the countries areconcerned. and the money is coming here, but the questionremains to be seen, are there enough sheikhs, oligarchs,flight money from china, is there enough of it to sell,not hundreds of uber luxury market but thousandsthat we're seeing come to the market.and that remains to be seen. james hedden: right.that remains to be seen. i don't know if it's thousandsbut certainly it's a lot.
michael stoler: but there'sat least - there's a couple of thousand upper luxury overthere - and like someone said on my panel last night at nyuwe're talking about expensive price finishing's that you can'tbelieve. floor pipe heating systems, you know small boneappliances that you've never heard of going into theseapartments. how do you find new property? i meanthe competition is there. how difficult is it?eran polack: ah - it's very difficult. very hard now.and i think the answer to that
is look at the other places.like journal - journal square-- and - or long island city,which is already... michael stoler: long island cityyou have - you have 6000 units coming on there. it's reallyover there - is - is - are we talkingabout where you grew up. no - where you grew up istoo high expensive. are we talking about east newyork? are we talking about above the train tracks inqueens? i mean what are we talking? i mean - scott?scott schnay: i think we had
discussed a little bit earlier.i think a big part of it may be people going for somesort of re-zonings, where they're taking a risk onprojects or property that's not zoned for residential.i think what we've been seeking out are projectsthat are more joint venture based or even land leases,which a lot of people shy away from, but we're finding it'sreally the only way to get new rental sites.because to purchase land to build a rental siteis very difficult. so -
you need to be creative.jeffrey levine: i agree with you there. there are threedimensions, length, width and height. but the fourthdimension i feel like more into the twilight zone now,is time. and pursuing variances, ulrps forintelligent locations, that you can bring to the market ina different time constraint, i think is a very rational wayto approach this project. michael stoler: no, i mean as isaid earlier - last week i went to the gowanus. i hadn't beento gowanus in a long time.
i remember 4th avenuehaving a number of already - auto body shops. 4thavenue looks like housing row. it's one after another. there'sthis beautiful- jeffrey levine: that's 4thavenue toward park slope. we move to the gowanusside and it doesn't look quite like that.michael stoler: no, but there's 60,000 square footwhole foods, which is magnificent with lighting andeverything over there. and right around it, besides the gowanuscanal is you know five or six
people planningdevelopments over there. jeffrey levine: and in orderto plan those developments - i've looked at them as well- you have to believe that the rents over there are going tocontinue to exceed $50 a foot and move forward. but i musttell you - to some degree, i've seen this movie before.neighborhoods which are evolving tend - once the economyhits a bump, to regress. and if you're projecting50 going to 55 and when you get there, the rentsare 40-45, you're s-o-l.
michael stoler: what about youknow the two boroughs, which have not really beentalking about - what about staten island and the bronx?i mean the bronx has lots of affordable housing that wasbuilt due to tax credits. where do we see - haveyou thought of staten island? do you know, have you beenallowed to go to staten island? eran polack: no.michael stoler: not a lot. jeffrey levine: i guess i'mbuilding both in staten island and in the bronx as we speak.and again, in many cases,
they're special purposebuildings. in staten island, we're building assisted livingfor seniors. we're planning independent living for seniorson an adjacent site. and we're trying to cobbletogether an intelligent pro forma so we can get ourfinancing and proceed with that. michael stoler: but thoseare affordable units. those are not market-gradeapartments? eran polack: but i think thatin this age, those are very important units for themarket.
michael stoler: weneed this for the citizens in new york.eran polack: and people live longer. much longer.jeffrey levine: and in the bronx, and in the bronx we aredoing affordable. we're doing this crossroads project.when it's all finished, in three phases, we'll haveapproximately 550 units. and it's a very near project andit's a very difficult project to build because you know in asuper-heated construction market, when you're doingaffordable work, even though you
have subsidy, even though youhave the land for very affordable or free. thereality is the economics of low-income affordability arevery difficult, and when construction prices increaseit's hard to hold the line. michael stoler: that's right.have you looked at this? james hedden: we havenot been up to the bronx or to staten island. staten island,again, we - we're trying to stay close to the transportationlines, and so we have looked at new jersey. i thinkjournal square is a great story.
we've been out to brooklynand we start to push the boundaries into brooklyn andinto - into long island city. michael stoler: so in summation,it sounds like the - the residential rental and condomarket looks - the outlook looks fine. thereis the question of the uber. of the ultra-uber apartments.but you know if they can be absorbed and we can haveenough sheikhs and other ones in that market, as long asthe banks, your former home, okay, and other banks areout there, and the equity is
there by insurance companies andother fine people, and there's more equity coming in - peoplefrom israel wanted to come here and other investments - ithink the market will prevail. i'd like to thank jeff levine,scott schnay, jim hedden and eran polack. andi'll see you next week. ♪ [theme music] ♪
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