After a real estate new developments drought back in 2008, a new wave of real estate projects is moving forward in major cities across the U.S. Instead of developers relying on debt markets, they are financing their projects with equity, mostly from outside investors. The risk of a building being turned over to a lender is lowered if the project fails. On the other hand, it raises the stakes for the developers and investors since they are putting more of their own money on the line.
In New York, CIM Group is completing the foundation of 432 Park Avenue, a 1,400 foot condominium which will be the tallest residential tower in Manhattan. CIM Group, a private equity firm, took the unusual step of raising equity for its condo tower by tapping individual investors who put in at least $1 million each.
Some investors are willing to move forward on projects with their own capital because values have been increasing for high-quality office buildings and other commercial real estate in major cities. Additionally, prices for high-end residential properties in select locations like Manhattan are picking up.
The developments moving forward in 2012, are primarily in markets that have seen high demand for certain types of space. Demand for high-end condos in New York remains strong, while a booming technology sector is pushing office vacancies down and rents up in San Francisco.
Experts say that the wave of new development projects is a reflection of rising values. Index reports have shown that U.S. real estate value has increased 53% since May 2009, just 6% below its 2007 high. Much of the increase stems from increasing investor demand for properties. As a result, many buildings’ values have risen.
All in all, the developers who were the first to begin construction in the current cycle are doing well. New developments continue to attract many buyers from all over the world.
SOURCE (The Wall Street Journal)