You Still Can’t Get Three Bedrooms in NYC—and That’s a Good Sign

(Bloomberg) -- For the first time in years, it’s good to be a luxury real estate developer in Manhattan. Demand for high-end condominiums is soaring and prices are rising—and so are new buildings.

One of the most striking is 130 William, a 66-story, 242-unit skyscraper in the financial district designed by David Adjaye, the star architect best known for designing the National Museum of African American History and Culture in Washington. The William Street tower, with its striking, arched windows and dark facade, has made its mark on the downtown skyline. Prices for available apartments range from $1.8 million for a one-bedroom unit to $20 million for a four-bedroom penthouse. Residents began to move in late last year. 

Bloomberg spoke about the current state of the New York luxury market with Mitchell Hochberg, the president of Lightstone, the building’s developer. Comments have been lightly edited and condensed for clarity.

First let’s define the terms: What falls under the category of “luxury” real estate?

The luxury market is somewhere between $5 million and $20 million, and then you have the ultra luxury market, which is $20 million and above. And those really are two distinct markets. Luxury is fueled by local New York buyers, and that market has done extremely well through Covid; it’s been one of the strongest markets in the city. Ultra luxury is another story.

And it’s not a happy story, as I understand it.

It represents such a small percentage of what’s actually sold, but it gets a disproportionate amount of airtime. Peak sales in the ultra luxury sector was, I think, 90 units in 2015. It’s almost half that now. It’s really a very, very thin market. 

What’s bringing that ultra luxury tier down?

One thing that’s happened over the past decade, which has had a negative impact on luxury prices, is that a lot of developers have mistakenly stretched the geographic boundaries of what can support a luxury price point. They were trying to get the same types of numbers that they saw on Billionaire’s Row in other parts of the city.

Right, there’ve been some major price cuts along the High Line.  

They have had to cut prices; some have to go through a restructuring. Being on Central Park is unique, and it attracts a foreign buyer. But you’re not going to get a foreign buyer to spend $25 million, $50 million, for an apartment in Chelsea. You might get one, but you won’t get 50 to buy out a building.

When the pandemic began, though, things weren’t so hot in your price tier either.

We, and others, were giving discounts in the beginning of Covid. That changed abruptly in 2021.

What kind of discounts are we talking?

It wasn’t as if we had to move them very quickly, but we did want to keep up the sales velocity. We were giving discounts of 5, 10%.

Not exactly an “everything must go” discount.

We had a lot of traffic, and a lot of offers that we did not accept. Because although we didn’t have a crystal ball, we felt that Covid’s impact would only be temporary, and we believed in the long-term viability of New York. And we were able, based on our capital structure, to wait it out. 

A strategy that seems to have paid off.

When we did 130 William, we weren’t looking to hit the ultra luxury market. Yes, we sold one of the penthouses this year for $20 million, but the vast majority of apartments in the building are under $5 million. The real estate market is a pyramid, and the lower you go on that pyramid, the more potential buyers there are.

How do you cater to that wealthy, but not rich, sweet spot?

We designed very efficient units, thinking about how people would live, and not putting in spaces that weren’t very usable. We also focused a lot on the windows, which are oversized. In a lot of units, they’re floor-to-ceiling.

Isn’t “efficient” a euphemism for “small”?

It is and it isn’t. Efficient does mean they’re smaller, but they’re well thought-out, about where you are and aren’t putting the spaces. A lot of the one-bedroom and studio units don’t have a conventional kitchen, for instance. Instead, we built them as millwork into the walls. When you’re in a studio apartment, you're not exactly entertaining dinner parties all the time—but with these, you can if you want. And when you’re not, you have this beautiful wall of cabinetry.

Where is the luxury market strongest?

The market is very strong in two- and three-bedrooms. There’s a dearth of supply of three-bedrooms throughout the city, and a lot of that has to do with the housing market: Prices in the suburbs have gone up exponentially, so I think people—families—are now becoming more and more comfortable with staying in the city. If there’s any one testament to the resilience of the city, it’s the strength of the three-bedroom market.

We’ve been talking about domestic buyers. Do you see foreign buyers coming back?

The luxury market will always be attractive to the foreign buyer, because New York is New York. You buy something for $50 million, and it’s going to be worth $50 million one or two or three years later.

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