How investing in New York’s next hottest area provided handsome returns for our clients
Posted by Wei Min Tan on July 30, 2018
Property investing in Manhattan, New York’s next hottest area has provided handsome returns to our clients. This is a case study of our investment process.
The 16-acre World Trade Center site has been the hottest upcoming development and the pinnacle of Downtown’s revitalization in New York for the past decade. Back when I first became a property broker in 2009, the financial crisis was happening and New York property prices was down about 15 percent. There was a surplus of unsold inventory and developers in the midst of converting buildings into residential condos pulled back units to be rented out.
Now, the World Trade Center area is the hottest in New York. One World Trade Center and Four World Trade Center are open and running. The Westfield mall, beneath the Calatrava-designed Oculus, recently opened and is now Manhattan’s largest mall.
This is the story of how we targeted the area for property investment. Currently our clients are reaping handsome returns, while contributing to the Downtown revival.
Year 2010: Identifying Anchors – World Trade Center and Fulton Center
Any experienced property investor knows there needs to be an anchor which would drive development and appreciation in a certain area. In this case, we recommended clients buy in the vicinity of the World Trade Center area as early as 2010, the year after New York’s property recession.
The anchors were the future development of the WTC and the Fulton Center subway station. There would be five World Trade Center buildings, WTCs 1, 2, 3, 4 and 7, comprising about 12.5 million square feet of office space. Fulton Center would be the latest and most expensive subway hub, the key transportation artery for Downtown.
The two anchors would bring workers to the area which leads to restaurant and retail openings.
Our goal was to outperform the market, minimize downside risk and get a property that is easy to rent out.
The concern then was how long would the development take. Fulton Center was supposed to be the connection between WTC to the west and South Street Seaport to the east.
Out of the many developments, some failed, some were ongoing. The challenge was deciding which buildings were a good investment as we wouldn’t want to buy in a building where a month after the transaction the developer decides to convert unsold units to rental or decrease price of unsold units.
Our process of selecting the right building was detailed. We looked at the rates of sale, amenities, demand etc. Breaking it down makes the comparison intuitive. It was obvious which buildings were going to do well and which were not.
Year 2016: WTC is a new shopping and entertainment destination
It’s now 2016 and 1 WTC, 7 WTC and 4 WTC are up and running. Conde Nast has its new headquarters in 1 WTC. The Calatrava-designed Oculus is one of the most remarkable structures in Manhattan. Beneath it, there is a new PATH train station and the new Westfield mall.
Westfield is now the largest mall in Manhattan and has all brand name stores including an Apple store, Eataly, John Varvatos, Swatch etc. Malls are uncommon in Manhattan, an island where people prefer shopping at individual stand-alone shops. Our first “mall” was Time Warner Center by Columbus Circle. It has a Whole Foods supermarket in the basement, retail shops and top tier Michelin rated restaurants on the top floors. Then came the retail shops at Brookfield Place about 2 years ago. This has multiple designer stores such as Gucci, Burberry, Hermes, and also Manhattan’s best food court, Hudson Eats.
Since Westfield and Brookfield are next to each other, the WTC area is truly a destination for shopping, dining and entertainment.
Located in the World Trade Center’s vicinity are headquarters of Goldman Sachs, American Express and Merrill Lynch. Restaurants opened in the past few years include Beaubourg, North End Grill, Parm, Blue Smoke, Amada.
Fulton Center: Connected to the World Trade Center is Manhattan’s latest subway station, the Fulton Center, completed at a cost of $1.4 billion in 2014. This prompted a lot of new restaurants and retail openings both along Fulton Street and Broadway. There is even a Shake Shack within Fulton Center. Why people would wait in a long line for a greasy burger is beyond me.
How did we do
Investing in Manhattan is always a safe bet. This is an island with finite supply and ongoing population growth. The population growth comes from birth rates, new graduates who want to be in the financial capital of the world, immigration, relocation.
Since development is heavily regulated, the amount of new inventory is a very small fraction of existing supply. In the typical American city where land is abundant, developers can keep building further away from the city’s core.
But in Manhattan, where people first settled in the 1600s, development has been optimized. Air rights have been purchased, buildings have maxed out floor to area ratios etc.
As such, back in 2010, it wasn’t about taking a risky bet. Rather it was about buying value with the hopes of exceeding market appreciation.
Case study 1:
One bedroom in full service luxury building in Financial District. Value buy in developing area.
Price per sqft foot at purchase: $1,069
Price per sqft at today’s market (est): $1,590
Rate of return: 48.7 percent
Case study 2:
Two bedroom condominium in luxury Tribeca condominium building. Stable buy, in top neighborhood.
Price per sqft foot at purchase: $1,376
Price per sqft at today’s market (est): $2,062
Rate of return: 49.8 percent
The WTC is a remarkable show of resilience for New York. It marks the new Downtown which has become a destination. The future completion of 2 WTC and 3 WTC would make the area even more vibrant.
Yes, we still recommend clients to the area and continue to forecast strong appreciation. It has been a pleasure seeing the WTC area develop over the past years. The redevelopment of the WTC proves to the world New Yorkers’ never-give-up attitude and strength.