Posted by Leonard Steinberg on October 6th, 2013

The other day while speaking at AVENUE’s SCHOOL (what an amazing place!) about the historical re-development of West Chelsea, I was asked why everything in new real estate is so expensive. Greed certainly comes to mind as the obvious answer and that certainly is part of the problem. More importantly, costs are rising everywhere in Manhattan: labor, land, taxes, interest rates and materials prices keep going up, up, up, often compelling developer to be ‘greedy’.

A B-grade site traded for $ 850/sf in Chelsea recently. Now add labor, materials, financing interest, marketing costs, etc and it becomes easy to see why the new ‘average’ for new buildings starts around $ 2,000/sf. Building a high quality building now costs over $ 450/sf, and when you see some super-high-end construction, you can be certain that figure is much higher.

Now a new problem is emerging: keeping up with demand. I have heard of buildings scrambling to find concrete, fridges and bath fixtures. The demand far outstrips the supply…..this always results in rising pricing. The supply of A-grade development sites is also shrinking.

So the bottom line is not to expect pricing to go down anytime soon: in fact, all indicators are pointing to more rising costs….and yes, higher real estate prices.