Extell’s One Manhattan Square targets Asian investors

/ The Edge Property
November 19, 2015 10:00 AM SGT
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New York real estate developer Extell Development has struck a partnership with JLL for the international marketing of its upcoming luxury condominium project, One Manhattan Square. Extell is most famous for the record-breaking US$100.5 million achieved for a penthouse at its One57 luxury condominium tower.
JLL, a dominant player in international marketing of residential property, has sold more than 4,300 units in London worth US$4 billion over the past three years. “Investors are looking to diversify their investment portfolios,” says Scott Latham, JLL’s vice-chairman of New York capital markets group. “Asian investments have predominantly been in London. But I think the next logical venture is into the US, and markets like Tokyo and Australia.”
Beyond diversification, the strengthening US dollar versus Asian currencies is another pull factor, notes Latham. With property values expected to increase, Asian investors could also benefit from currency gains as the US dollar continues to strengthen, he adds.
Thus One Manhattan Square will be launched in Asia first, in the middle of November. Marketing in the US will start only in early 2016, says Anthony Mannarino, executive vice-president of development at Extell, who was in Singapore on Oct 19. Singapore will be the first stop in the Asian launch, followed by Malaysia and China.
The sweet spot for most Asian investors seems to be around US$1 million ($1.4 million) to US$3 million, and that’s the range in which Extell is pricing the majority of its one- to three-bedroom units at One Manhattan Square. “That’s really the market that’s underserved,” says Mannarino. “There’s tremendous demand, both domestically and internationally, for this kind of product — whether you want to buy as an investment, to live in, as a pied-à-terre or for your children.”
Higher and higher Many of the units being marketed in New York today are luxury units priced in the US$10 million to US$20 million range, says Mannarino. “It was One57 that really set the bar for luxury developments in New York and created what’s known as the billionaire’s row,” he adds. And it was also One57, at 90 storeys and 1,004 ft tall, that spawned a race to build the tallest luxury condominium skyscraper in Manhattan. Since the sale of the penthouse at One57 for US$100.5 million last year, other real estate developers in New York have also muscled in with asking prices for penthouses from US$100 million to US$150 million.
At Extell’s One Manhattan Square, however, there will not be any record-breaking US$100 million penthouses. Typical one-bedroom units are from 679 to 723 sq ft, two-bedrooms from 1,032 to 1,170 sq ft, and three-bedrooms from 1,400 to 2,347 sq ft. The 815-unit condominium tower sits on a 94,000 sq ft plot in the Lower East Side, near Manhattan Bridge and the East River. Construction is already underway, and when completed in 4Q2018, One Manhattan Square will stand 823 ft tall and, at 80 storeys, it will also be the tallest tower in the neighbourhood. Units on the higher floors will have views of Midtown, Lower Manhattan, Brooklyn, the river, the harbour and the Statue of Liberty.
The project will also have 100,000 sq ft of indoor and outdoor amenities including indoor basketball courts, private screening rooms, a bar and a park. It is also just a three-minute walk to the nearest subway station and in close proximity to private schools and universities.
The 815-unit One Manhattan Square, located near Manhattan Bridge and the East River,
will be launched in Singapore in mid-November
Scarcity factor Extell expects One Manhattan Square to see strong interest from Asian investors. When it comes to one- and two-bedroom units in Manhattan, “there’s a real scarcity”, says Extell’s Mannarino. “There’s not so much scarcity when you’re paying US$25 million or US$30 million for an apartment. That’s a different ball game.”
Apartment vacancy rate in New York City has been below 1.75% since 2010, with an inventory of just 3,006 available units as at 3Q2015, according to JLL. The average sale price of condominiums was US$2.3 million as at 3Q2015, compared with US$1.98 million last year, while average price psf was US$1,801 psf, an increase from US$1,487 psf over the same period. Both prices and rentals are thus expected to continue “on an upward trajectory” as demand continues to outstrip supply, says Latham.
“What we’re seeing in New York is a very robust market, and a huge appetite for new inventory,” says Amy Williamson, a new development sales specialist with Knight Frank. “But inventory is still at low levels. We’re still trying to catch up from the years following the price correction when developers couldn’t get financing to get their buildings off the ground, and they didn’t have the certainty to make it economically sensible to go ahead and build. So we had a lag time of two years when we didn’t have any inventory.”
In fact, Extell was one of the few developers that had continued with the construction of One57 despite the difficulties during the global financial crisis and the recession, says Mannarino.
Last year was the first time that New York saw positive inventory growth since 2009’s peak of 35,000 units, which came mainly from developments planned prior to the collapse of Lehman Brothers in 2008, says Richard Jordan, senior vice-president of global markets at Douglas Elliman.
The inventory in 2014 increased 16% from 2013’s 18,486 units — which was the lowest level in the past decade, adds Jordan. He attributes the growth in inventory to “the resurgence of new developments in the marketplace”, with nearly 5,500 new units brought to market in 2014. “This trend is expected to continue with approximately 8,000 units coming to market in 2015 and a further 12,000 ‘known’ units that are in the early planning stages, which will come to market over the next few years,” he says.
Asians — biggest investors in New York New York is already a major destination among Asian investors, says JLL’s Latham. Asians are the dominant players both in terms of number of transactions (30 out of 57 deals) and dollar value of investment (US$10.9 billion). This accounted for 58% of foreign investment in New York in 2015, according to JLL.
Asian capital into the US has increased dramatically from US$3 billion in 2011 to US$22 billion in 2015 to date, adds JLL. The biggest investors into US commercial real estate over the past five years have been Singapore (31%), followed by China (24%), and Hong Kong and Japan at 11% each.
In terms of residential purchases, Asian investment has doubled since 2010, and Asians are now the biggest group of foreign buyers of US real estate, contributing to 35% of all residential purchases in the 12 months ended March 2015, according to JLL data.
Extell has also seen strong foreign participation in its other projects. One57, which contains 94 units and was completed in 2013, is already 75% sold. About half the buyers are said to be foreigners, and Asians accounted for 20% of those buyers, says Mannarino.
Likewise at its project at 350 West 42nd St, The Orion. The 550-unit, 60-storey luxury condominium tower was completed in 2006 and was considered one of the best-selling projects in New York City in recent years. About 40% of The Orion was purchased by foreigners. “We sold the project out in record time, and raised prices nine to 10 times during the course of it,” recounts Mannarino.
As more foreign capital pours into New York, a lot of new entrants are developing projects in the “ultra-luxury segment”, says JLL’s Latham. “And if you look at the supply and demand imbalances that are taking place, it’s the moderately priced units that are seeing the strongest demand.”
Compared with other global cities, the numbers in New York are even more compelling: the average price of a 1,300 sq ft apartment in New York City stood at US$1,719 psf as at end-June 2015, which is lower than London’s US$3,208 psf and Hong Kong’s US$2,119 psf, according to JLL’s figures. Meanwhile, Paris is just slightly lower at an average of US$1,711 psf, while Singapore’s is US$1,417 psf and Tokyo, US$1,002 psf. In terms of gross rental yields, New York’s 3.9% is second only to Tokyo’s 5%. Rental yields in Hong Kong and Singapore are at 2.8%, while London’s is at 3.2%.
“Historically, rents and condo prices do not soften very much because demand greatly exceeds supply, so that takes the volatility out of the market,” says Latham.
The relatively constant demand in New York City’s residential sector also leads to less volatility compared with its commercial counterpart, adds Latham. “People don’t move out of cities every time there’s a financial market correction,” he says, “whereas in the commercial sector, you do see office tenants shrink their footprint dramatically, which puts more volatility in the market.”
This article appeared in the City & Country of Issue 700 (Oct 26, 2015) of The Edge Singapore.

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