Real Estate News | Market Buzz
Manhattan: A Tale of Two Markets
By Michael Gerrity | March 26, 2013 2:14 PM ET
An interesting phenomenon has developed in New York's property market, which operates differently than the rest of the world.
Residential prices remain in the stratosphere, while office prices are still down to Earth. As detailed by RXR Realty chief executive Scott Rechler on CNBC today, residential real estate is selling for anywhere from $4,000 to $6,000 a square foot, four times the price of office space in the city.
That's a huge arbitrage spread and helps explain why developers are bypassing office projects, despite what he calls pent up demand. Even with new developments, the inventory of office space in New York is basically unchanged from 20 years ago, and the average age of the buildings is 50 years old, Mr. Rechler said.
"It doesn't play for the modern and 21st Century," he said.
Major Manhattan office towers are now selling in the $1,000 per square foot range, and then re-purposed as luxury residential and resold at $3,000 to $4,000 per square foot. A prime example is the recent $1.1 billion dollar purchase of the famous Sony building on Madison Avenue at 55th Street, which will be converted into a luxury hotel with condominiums at the top and a retail arcade at the bottom.
Manhattan now has the biggest disparity between residential and commercial property prices in U.S. history, creating a financial windfall for those smart enough to recognize it.
It's truly a tale of two markets in the Big Apple these days.
Here's the full CNBC video: