Here’s an idea: Why don’t we build apartments?
This was a question Vornado CEO Steve Roth posed in his annual letter to shareholders this week.
In the letter, he enumerates the benefits of building apartments compared to “office buildings aka capital hogs.” He says that developing an apartment building of, say, 500,000 square feet would cost $400 million less than an office property of the same size. Apartment buildings also don’t require a developer to court prospective anchor tenants to land financing.
“So why aren’t we building some apartments? A very good question.”
I’m sure that a number of developers and landlords could chime in with answers. In fact, analysts with Piper Sandler quibbled with part of Roth’s rosy outlook for apartments, noting that “costs and regulatory requirements are onerous.” In a report released late Wednesday, the analysts pointed to construction wage requirements that kick in for 485x projects with more than 99 units.
Roth himself has repeatedly raised the alarm about construction headwinds. In February, he said ground-up construction remains challenging given stubbornly high interest rates and the lack of aggressive capital.
But the chin-stroking question Roth posed isn’t coming out of nowhere: Since at least 2023, Roth has dropped hints about building housing in the Penn District. In May 2023, Roth indicated that, yes, the market was abominable for ground-up development, but Vornado would likely begin with an apartment building in the Penn District when the time was right.
In his letter, he mentions a site at 34th Street and Eighth Avenue, where Vornado is planning to begin construction of a rental property “shortly.”
He has also repeatedly indicated that Vornado is considering including housing as part of the Penn 15 development.
The letter also discusses the prospect of Vornado selling its office buildings. As Roth says, “there are no sacred cows in our portfolio.” H/T to Crain’s for first reporting on the letter.
What we’re thinking about: A bill to expand the low-income housing tax credit program was re-introduced in the U.S. House of Representatives this week. The bill, first introduced in 2016, has 117 bipartisan co-sponsors. Will it get passed this year? How are you thinking about these potential changes in terms of broader financing challenges? Send a note to kathryn@therealdeal.com.
A thing we’ve learned: A state bill that would restrict ground-lease rent increases and grant co-op shareholders the right to renew the lease was voted out of the Senate Judiciary Committee this week (in a very close vote).
Elsewhere in New York…
— The City Planning Commission on Wednesday approved zoning changes needed for Related Companies and Wynn Resorts’ casino proposal. The vote means the proposal now heads to the City Council.
— The Charter Revision Commission convened by the mayor was initially focused on housing and land use issues but is now expanding to cover other topics, City & State reports. The commission will consider a number of election reform-related proposals. Good-government group Citizens Union, according to Gothamist, submitted testimony to the commission calling for the creation of a “special removal election” that allows voters to decide whether a mayor should be removed from office due to misconduct.
— NJ Transit is launching a new initiative to renovate housing near Newark Penn Station for homeless individuals, Gothamist reports. The agency and its partners plan to spend $6 million to renovate 200 apartments near the station to serve as transitional housing. The agency also plans to build a drop-in center for people to rest or take a shower. “Instead of washing up in Penn Station’s bathroom, they get to go up the street and take a shower and wash their clothes and get services and treatment not too far from here,” Newark Mayor Ras Baraka said.
Closing Time
Residential: The priciest residential sale Wednesday was $12.6 million for a 4,100-square-foot condo unit at 140 Franklin Street in Tribeca. Danny Davis and Lisa Balbuena of The Corcoran Group had the listing.
Commercial: The most expensive commercial closing of the day was $7.25 million for a 1,700-square-foot mixed-use building at 218 East Ninth Street in the East Village. The Toraji Corporation purchased the property from an entity tied to Derby Copeland Capital.
New to the Market: The highest price for a residential property hitting the market was $27.5 million for a 9,000-square-foot townhouse at 40 East 73rd Street in Lenox Hill. Adam Modlin and Andrew Nierenberg have the listing.
Breaking Ground: The largest new building application filed was for an 83,318-square-foot, 15-story, 99-unit mixed-use project at 277 North Eighth Street in Williamsburg. Kao Hwa Lee Architects filed the permit on behalf of David Grunfeld.
— Matthew Elo