New York City Real Estate Developers Cracking Into Townhouses and Brownstones

by Vlad Sapozhnikov30. January 2014 12:06


Townhouses and brownstones have been a staple of the New York City real estate market since the 1900’s. These walk-up buildings represent only a small fraction of the NYC housing inventory, but because they define certain cherished NYC neighborhoods, the implications of their transformation are considerable. The townhouse supply is limited. And estimates suggest that around 10,000 pre-war townhouses in Manhattan, with around 50,000 citywide (mostly in Brooklyn). Because supply is low and demand is high, operating in this submarket can be highly profitable for real estate investors and developers.

And over the last few years, a new trend that we are seeing in the New York City luxury real estate market is real estate developers cracking into walk-up buildings like townhouses and brownstones. Not only is it a trend but also it has emerged as a “can’t live without” mania for NYC homebuyers entering the New York City condo market. Neighborhoods like the West Village (48 Bedford Street) in Manhattan and Prospect Heights (650 Bergen Street) in Brooklyn are seeing a surge of NYC real estate developers building out brownstones and townhouses. For instance, New York City real estate developer Jared Kushner recently purchased seventeen walk-up apartment buildings (267 apartments and 25 retail spaces) in the East Village for about $130 million.

Why is this?

Let’s look at the numbers and origin of this trend.  According to The New York Times, the average monthly rent for New York City luxury one-bedroom walk-up apartments has jumped 5.7% in the past year. Additionally, over the past 12 months, the sale of NYC walk-up buildings has climbed to 64%. Jonathan Miller of Miller Samuel chimes in that over the past year, the price of walk-up apartments in New York City has risen nearly 22%, versus less than 2% for apartments in full-service NYC buildings.

A new type of renter and homebuyer has entered into the New York City luxury real estate market with a preference for a more intimate living environment that you don't find in many condominiums, co-ops and full service rental buildings. These high-end NYC renters and homebuyers are also willing to sacrifice some amenities for more space in the apartment.


Furthermore, these NYC walk-up buildings generally have old pre-war charm that has been merged with hi-rise condo development renovations and design (i.e. luxury finishes, high end appliances). In addition, idiosyncratic layouts can actually be a plus and not a negative! Novelty can translate into a premium over comparable units in full-service buildings in the same area. And NYC real estate developers have figured this out.

An obvious but critical reason for this emergence is that NYC real estate developers also see the value in “keeping small” and not overexposing themselves like a lot of real estate developers did back in 2006-2007 in the New York City real estate market.

NYC real estate developers have also figured out that their real estate tax bills will be lower. Walk-up buildings less than 3 stories is assessed at 6% of their market value as opposed to walk-up buildings with more than 3 stories at 45% of their market value which, as you can see, will result in a larger real estate tax bill. All and all, the lower the monthly carrying costs, the more a NYC homebuyer can pay upfront. Simply, the lower the monthly costs – more money available to pay upfront.

Ultimately, this trend to invest and develop walk-up buildings in New York City represents a vote of confidence in the big apple, a sign of recovery and economic growth.