23-Floor Manhattan Office Building Just Sold at a 97.5% Discount | Hacker News Reader

23-Floor Manhattan Office Building Just Sold at a 97.5% Discount

nytimes.com

9 pointsRestlessMind8 comments

While it would have been great to convert these offices into housing units, it is not so easy in practice and the challenges are well documented by now.

https://www.strongtowns.org/journal/2023/5/12/5-reasons-why-...

https://www.naiop.org/research-and-publications/magazine/202...

https://bipartisanpolicy.org/explainer/vacant-offices-housin...

What would have been good is if when we had zero interest rates, that builders would have just built housing instead of office buildings, but they didn't want to do that. retrofitting is just an endpoint idea as the result of perverse incentives.

> builders would have just built housing instead of office buildings, but they didn't want to do that

They did [1]. Just not in New York.

It takes years for new housing projects to get approved [2]. Given land in New York is $5 to 120mm per acre [3], financing an optimistic 2-year approval timeline even at the 2021 low of 6% [4] is $600k to $14mm in extra costs. Those costs, on their own, add about $100k to any residential apartment. Just for paperwork.

[1] https://www.axios.com/2022/07/18/housing-construction-us-map

[2] https://www.nyc.gov/office-of-the-mayor/news/893-22/mayor-ad...

[3] https://www.6sqft.com/study-shows-huge-disparity-in-u-s-urba...

[4] https://eyeonhousing.org/2023/05/rates-on-development-and-co...

Great analysis, I totally agree.

I would add (for those unfamiliar with financing costs or approval timelines) that two of the major assumptions are conservative to the point of being unrealistic. Cost of money is likely closer to 10-12% and a two-year timeline for approval is very rosy and also doesn't include construction/leasing timelines.

These are real costs that developers have to bear, not just paper costs.

> two of the major assumptions are conservative to the point of being unrealistic

Yup. Take those to 4 years and 10% (still very optimistic) and you’re adding a quarter of a million dollars in financing costs to get through paperwork alone.

That’s the policy-enforced floor to the cost of a New York City apartment. Before any design, materials, construction, further permitting, inspection, sale/leasing and/or maintenance reserve costs.

Finance that with an optimistic mortgage, add on property tax, and you get the policy-enforced minimum market rent.

Right, but a city of 12m that doesn't have enough housing constrains everything. There are only some many people willing to commute on the broken infrastructure.

I was living Brooklyn during the Great Bubble, and there were condos going up everywhere--it was the biggest building boom in the city like ever. Builders did want to build housing, as much as they could. It was all for rich people, of course, but still.

“The auction was for the building itself, not the land. That is owned by a publicly traded real estate firm, which collects a monthly lease. But the rent from the building’s current tenants is not enough to cover those monthly payments, which are set to increase every five years and do not expire until 2123.”

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