Case study - boutique condo development sold out during pandemic
New York City was hit hard by the pandemic. Hotels are going through foreclosure, office experiences record vacancy, street retails (sometimes block long) are still empty, rental apartment rents dropped 20-30%, and people across all ages are leaving the city. Everything that you see on TV or on the street is quite bleak. You wonder if the real estate industry is doomed in NYC.
As a real estate developer, I was born optimistic and here is a bright spot and great example of New York Strong, an 11-story 15-unit boutique condo development in Chelsea that was sold out in less than 12-month during the depth of the pandemic.
*Three floor-thru units (2nd/3rd/4th floors) were conveyed to a church. It appears that the developer intends to occupy the PH unit. These four units were not included in the sellout/profit calculation.
Acquisition
The developer purchased the 25’x103’ site along with a 4-story building (on an interior lot facing a narrow street) in 2012 for $4M. The lot is in residential zoning district R8A, with FAR 6.02.
Original development plan
The original filing with DOB showed a 6-story building on the 25' wide site. According to the ZLDA recorded at the time of closing, the owner of the site conveyed the lot along with 11,250 SF air rights just enough to build a 6-story building to the developer.
Zoning lot merger
The owner of the site was a religious entity which also owns a church right next to the site. The owner chose to keep the used air rights of roughly 4,252 SF to the church. To do that, the site and the church were merged into the same zoning lot at the same time of the closing.
Demolition
Demolition of the existing 4-story building started after closing and was swiftly completed in 2012. However construction of the new building per the original plan never broke ground.
Development rights
After the demolition, it appears the developer and the church agreed to build over the existing church and develop a much taller and larger building than originally planned.
Since the new building will be over the church and spans the entire width of the combined lot (75’), Sliver Law no longer applies. This means the development can go much higher and the floorplate on upper floors are much larger (75’x72’).
In addition, it appears the church agrees to give the unused 4,252 SF air rights from the original site and additional unused 23,000 SF air rights from the church site to the developer for the larger development.
There is no additional ZLDA recorded nor any monetary transaction shown in the ACRIS system. From the condo declaration recorded in 2015, it shows that the church agreed to these development rights transfer, probably in exchange for spaces in the larger development and/or renovation of its existing space.
Based on DOF records, upon final certificate of occupancy is issued to the development, three floor-thru units (2nd/3rd/4th floors) were indeed conveyed to the church.
Final design
The 1st floor (on the original 25’ wide site side) has a residential lobby and a 2-car garage plus bike storages, and a 660 SF outdoor garden.
The 2nd/3rd/4th floors (on the original 25’ wide site side) are floor-thru condo units that were conveyed to the church.
The 5th/6th/7th/8th/10th floors have 2 condo units on each floor. Each unit has a 130 SF balcony. One of the 10th floor units has a 2nd balcony of 112 SF.
The 9th floor is a large floor-thru unit, with 795 SF outdoor space.
The 11th/PH floor is a duplex unit, with more than 3,000 SF outdoor space including a pool! It appears that the developer intends to occupy this unit.
Total gross floor area for the development including the church and basement is roughly 50,699 SF.
Featured elements
The building and each unit were very well designed and the finishes were meticulously crafted. Here are some of the unique features.
- Ridiculously large living room, “The Great Room”
- Large open kitchen space
- Large outdoor space
- All (except one unit) units have 3 or more bedrooms
- 7” rift only white oak flooring
- Motorized shades with built-in installation pocket
- Built-in gas fireplaces
- Built-in speakers throughout
The construction restarted in 2016. It’s a challenging project due to the fact that the construction involves activities around an existing structure.
The building is very unique in that it has two separate components connected together. The portion on the original 25’ wide site is a 11-story ground-up structure. And the portion over the church was a 7-story addition built on a new “platform” above the roof of the church. The superstructure uses structural steel framing with metal decking and concrete topping.
It took 4 years for the construction to complete. The TCO was obtained in mid-2020 and final CO at the end of 2020.
Marketing and sales
In terms of marketing effort, the developor hired a reputable brokerage firm in the city to market the building and handle sales. It has its own website plus typical listings on streeteasy.com.
The sales started in February 2020, just before the outbreak of the pandemic in the US. Except three units conveyed to the church and the PH duplex unit that the developer intends to occupy, all other 11 units were sold out by January 2021. That’s less than 12 months and in a very challenging market environment especially in Manhattan where luxury condos are experiencing a painful dilemma.
According to DOF records, buyers are mostly domestic from the tri-state area, including wealthy family, corporate executives, start-up founders, journalist, etc. It shows again how strong local demand is for large and well-designed condo products.
Development cost and profit
- Acquisition: $4M
- Construction: $33M ($450 PSF hard + $60 PSF soft + $140 PSF financing)
- Total development cost: $37M
- Condo sellout: $65M
- Profit: $28M
- Equity: $19M (assuming 50% leverage)
- Equity multiple: 2.5X
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