News
CONDO CAUCUS
March 15, 2011
| Long-term amortization of construction costs. Possible capital appreciation. Reasonable financing. Sound too good to be true? Then you might want to look into office condos, which have seen a hefty increase in sales, with tenants noting the long-term benefits of ownership. |
 |
| Demand for Manhattan office condos far outweighs supply and there's plenty of opportunity for owners and developers to bring more to the market, Rudder Property Group principal Michael Rudder, third from right, says. He recently joined NYC Economic Development Corp SVP Miriam Harris, EisnerAmper partner Aaron Kaiser, Herrick Feinstein real estate chair Carl Schwartz, Herrick lead condo/co-op attorney Douglas Heller, and Grubb & Ellis senior managing director Joseph Hilton at Herrick’s office to discuss these trends (between Aaron and Carl is Bright Spot, representative of the sector). Only 2% (8.2M SF) of the city’s office stock is condo, but the number is poised to rise given market conditions, planned activity, upcoming accounting rule changes, and relatively hassle-free formation. |
 |
| Sue Zhang, principal of Aurora Investment Group, discusses office condos with Carl and Herrick’s Howard Peskoe, a member of the real estate group that repped Time Equities in NYC’s first-ever office condo project at 633 Third Ave. Developers are already responding by converting offices from traditional leasing to condo, and are evenconstructing new office buildings to sell piecemeal as condos, the panelists say. Why does it make sense to convert? Buyers will pay a premium to own space, and owners don’t have to incur build-out costs or give buyers TI concessions. If you want to market a commercial condo heavily, you need an offering plan, Douglas says—but it’s even easier than a normal conversion plan. “It’sinexpensive and painless to get condos to market to test demand.” |
 |
| Concerned about the price? Office condo space now costs 40% lessthan what it was pre-economic meltdown. Michael tells us his firm has been marketing an office condo unit on the seventh floor at The Bar Building at 36 W 44th St and has issued contracts on the 3,900 SF unit to a high-end recruiting firm for close to the $590/SF asking price. One segment of the buyers’ market is Chinese and Indianbusinesses in NYC, whose cultures are among those in which owning office space is preferred over renting, he says. A typical buyer is a business owner who wants to occupy 10k to 30k SF, doesn’t want to lease, and can’t afford to buy an office building. You also see many non-profits, unions, medical practices, and schools as buyers. |
