NYC’s Development Site Market Is Changing. So Is the Way We Create Value.
The New York City development site market is experiencing a significant resurgence, and the implications extend well beyond an increase in transaction volume.
Based on the activity my team is tracking, we anticipate that development site sales volume will increase more than 30 percent this year compared with 2025. We expect to have the actual statistics available shortly, but the anecdotal evidence is already compelling. Buyer demand is expanding, competition for well-positioned sites is intensifying, and, perhaps most importantly, opportunities to create value through zoning changes are becoming increasingly significant.
These developments are changing not only the market but also the way property owners should think about maximizing the value of their assets.
Robert Knakal. PHOTO: Patrick McMullan/Patrick McMullan via Getty Images
Consider a development site we are currently marketing in Chelsea. We have received more than 80 offers, the greatest number we have experienced on a single development site since 2015. Even more remarkable, pricing has reached approximately 15 percent above our original high-end expectations. That is a meaningful result, particularly in a market where construction costs, financing expenses and regulatory requirements remain challenging.
What does this tell us? First, there is substantial capital looking for attractive development opportunities. Second, the depth of the buyer universe is greater than many market participants appreciate. And, third, when a property is exposed to the broadest possible audience and a competitive environment is created, the results can exceed even optimistic initial projections.
Another interesting trend is the expanding universe of purchasers for smaller Manhattan development sites. We are seeing an increasing number of established developers from Brooklyn, Queens and the Bronx looking to complete their first projects in Manhattan. These developers bring experience, capital, and sometimes different underwriting perspectives from those of traditional Manhattan developers. Their participation creates additional competition and expands the universe of potential purchasers.
This is particularly important because the most aggressive buyer for a property is not necessarily the most obvious one. Identifying that buyer requires extensive market intelligence, comprehensive prospecting, and relationships developed over many years.
Perhaps the most consequential trend we are observing involves the Department of City Planning and its apparent receptiveness to potential rezonings. In several situations, the additional density that City Planning appears willing to consider has been substantially greater than we initially anticipated. This is creating an interesting dynamic in which we are increasingly advising certain property owners not to sell their development sites immediately.
Instead, we are suggesting they consider pursuing a rezoning to increase their development potential before selling. Think about that for a moment: A broker advising an owner not to sell today because the opportunity to create additional value may be more compelling than the opportunity to capitalize on current market demand.
Rezoning is never guaranteed, and the process involves time, expense and uncertainty. But when the potential increase in value materially exceeds those risks, waiting may be the most economically rational decision.
Of course, additional density does not automatically translate into additional value. One of the most striking characteristics of today’s development market is the enormous disparity between land values for sites with affordable housing requirements and those without them. In certain neighborhoods, we are observing differences approaching 50 percent. The economics of mandatory affordability can dramatically affect projected revenues, financing and, ultimately, residual land value.
Consequently, evaluating a potential rezoning requires much more than calculating additional buildable square footage. It requires understanding precisely what can be built, what affordability obligations will apply, and how the resulting development will perform financially. The difference between creating additional density and creating additional value can be enormous.
The marketing process itself is also evolving. Developers are inundated with emails, and we are finding that direct telephone calls and personalized text messages are increasingly more effective at generating meaningful engagement. Email remains an important information-distribution tool, but sending an offering memorandum is not the same thing as actively marketing a property. Direct communication, persistent follow-up and detailed prospect tracking are essential.
Equally important is creating competition not only on price, but also on contract terms. Having multiple qualified purchasers simultaneously negotiate contracts can produce cleaner agreements, stronger deposits, fewer contingencies and greater certainty of closing. The highest offer is not necessarily the best offer if the transaction never closes.
All of these trends point to a broader evolution in the investment sales business. The value of information is declining. The value of judgment is increasing. Knowing what a development site is worth under its existing zoning is important, but understanding what it could become may be far more valuable. Knowing who has historically purchased development sites is useful, but identifying the next generation of purchasers can produce better results.
And generating offers is only the beginning: Structuring a process that maximizes both price and certainty is what ultimately matters.
The New York development market is creating opportunities, but opportunity and value are not the same thing. Opportunity exists in the marketplace. Value is created through knowledge, creativity, preparation, relationships and execution. The best results rarely happen by accident.
And, increasingly, the most valuable question we can ask a property owner is not simply, “What can we sell your property for today?” It is, “What could your property be worth if we fully understood and maximized its potential?”
Robert Knakal is founder, chairman and CEO of BK Real Estate Advisors.
Source: commercialobserver.com — article syndicated from the publisher’s feed; all rights remain with the original publisher.