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(Bloomberg) -- What does a Manhattan residential developer build in a market overcrowded with costly condos and high-end rentals? For Harry Macklowe, who’s making plans to convert a landmarked office building he owns on Wall Street, the answer -- for now -- is more condos.
The builder was seeking more than $1 billion in financing for a largely rental conversion of the former Bank of New York Mellon Corp. headquarters at the corner of Wall Street and Broadway, but he’s switching gears. Macklowe now plans to put in more equity and get a smaller loan for the project, he said in an interview airing Monday on Bloomberg Television. The building, initially planned as 65 percent rentals, will now overwhelmingly be condos and might not have any leased apartments at all.
“We feel more comfortable by investing more equity in the building and seeking less financing than we did when we had this significant rental component,” said Macklowe, who’s in advanced talks with three separate lenders. “We’ll put in more capital and we’ll take less debt.”
Like many Manhattan developers, Macklowe Properties is trying to find a balance in the aftermath of a construction boom that’s piled thousands of expensive new condos and luxury rentals onto the market and left lenders wary of financing more. Amid so many choices, wealthy investors, who once snapped up multimillion dollar homes off floor plans, don’t feel as much urgency to strike a deal. Renters, who endured years of rising costs, are now demanding landlord concessions such as a free month in exchange for signing a lease.
“There’s no question about it: The market is slower, more careful in selecting, and of course, the buyers all want to negotiate, test and probe the market,” Macklowe said.
About 4,282 newly built units are expected to be offered for sale in Manhattan this year, about double the number that were listed in 2016, according to brokerage Corcoran Sunshine Marketing Group. The bright side to so much supply is that it gives developers a road map for future projects, Macklowe said.
“Overproduction is OK because it can create order out of chaos,” he said. “There is now certainty in the market. We know where the price floors are. We know that the demand for $10,000- or $12,000-a-foot units is very slow, that the appetite for that is limited and therefore, the production of that housing should be limited. We also know that there’s a great need for housing in the $2,500- to $3,000-a-foot range.”
See the graphic: Manhattan & Brooklyn Real Estate Hot Spots
At his downtown project at One Wall Street, Macklowe plans to have it two ways. The lower section of the tower will have condos priced from $2,000 to $2,500 a square foot, he said. Units in the upper third of the building will be about $2,800 to $3,000 a square foot -- about 10 percent less than the average at nearby new developments, according to Macklowe.
The project will also have about 150,000 square feet (14,000 square meters) of retail space, about a third of which will be for a Whole Foods Market. Two other retail leases for a combined 90,000 square feet of space are pending, he said.
Macklowe’s still got some unfinished business with his boom-era luxury tower, 432 Park Ave., a 1,397-foot (426-meter) property in Midtown co-developed with CIM Group. Sales began in 2012 and a third of its units were sold within six months because there wasn’t much else to buy at the time. The pace of deals slowed once more competition arrived in the area. Macklowe said he still has 18 of the building’s 106 apartments left to sell.
At the newer crop of condo skyscrapers rising in Midtown -- such as Zeckendorf Development’s 520 Park Ave., which is marketing a $130 million triplex, and 53 W. 53rd St., a Jean Nouvel-designed tower next to the Museum of Modern Art -- sales will be slow but their developers can weather the slump, according to Macklowe. The builders have large equity stakes in the projects, so they aren’t in danger of being taken over by lenders, he said.
“Will they find an audience? Yes I think so,” Macklowe said. “It will take longer, but that’s OK.”
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