Posted by Leonard Steinberg on October 7th, 2013

There is lots of chatter surrounding estimates circulating that the volume of Manhattan new construction coming to the market or currently on the market totals over $20 billion.

This figure addresses properties planned between now and the next 5 years, and to most this figure is alarming, conjuring fears of a repeat of the 2008 bubble or worse. I have had to field many banker and developer calls on this subject in the past few weeks and this is my analysis:

1) $22 billion divided over 5 years is very manageable based on the estimates of wealth growth and economic growth in New York City.

2) The absorption rate will slow to a more normal pace as buyers have more options and need more time to make decisions. The Bravo-style razzmatazz moment of selling out in weeks is over and the absorption will be slower and steadier.

3)  Developers had a moment where they could price pre-construction property at deliverable pricing: I think those days have come to an end too, and if you cannot deliver your building within 6 months of showing it, you will have to reflect that in pricing.

4) $ 3,000/sf is NOT the new $ 2,000/sf…..not a few months after $ 2,000/sf became the new $ 1,500/sf. We do not exist in Banana-republic-style inflationary times and this runaway pricing escalation is not sustainable. We did experience significant price escalation in the first half of 2013, and that has plateaued. This is not a bad thing. But this is reality. Of course there will be a few exceptions for some truly great properties in prize locations.

5) Buildings such as The Puck Building and 224 Mulberry are asking stratospheric pricing, yet these prices are low compared to mid-town highrise buildings or prime real estate in London, Monaco or Moscow. Manhattan is relatively cheap in the global market. However, without a GREAT location, SUPERB finishes and a long list of attributes, pricing in the stratosphere will be met with disappointment: already there are buildings where sales have stalled due to excessive pricing and BS-hype.

6) Why is almost every developer aiming for the same demographic? This stupidity has to end. There is a rather wide variety of property types needed and some developers will be punished for following the herd. Yes, land costs, labor costs and materials costs keep going up: that should not automatically force developers to ONLY develop very high end real estate.

7) Beware rising interest rates AND rising monthly costs: interest rates WILL go up, and common charges ARE going up: the combination could prove to be lethal if they are not addressed intelligently.