From the Gut: HFZ Capital’s Ziel Feldman on the Making of a Gut Renovation Empire
By Gus Delaporte September 18, 2013 10:00 am
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You also have a project down in Tribeca and have a presence throughout the city. Does that speak to your optimism about the market? What’s your outlook?
I was a real estate lawyer in the ’80s, and I’ve been doing this since ’92, and we were in all different neighborhoods. We’re also on Christie Street, and that used to be a neighborhood you wouldn’t even walk in. Manhattan has really expanded its range of desirable places to live, and we go where the opportunity is. Every area is different in terms of what product to deliver.
Two examples of larger apartments happen to be in the areas of highest demand—Tribeca and the Upper West Side. That just fit in to the larger, family-style apartments. The Tribeca project at 11 Beach Street will be apartments of 3,500 to 4,500 square feet.
Our High Line project, on the other hand, is in a neighborhood that is just starting to become a family neighborhood, because the Avenue School opened up.
Do you find yourself having to make adjustments with changing demand?
As a developer, if you imagine a project and the market starts to change, you have to switch gears. The last thing you want to do is end up finishing a building or taking a direction you can’t reverse and end up with a housing inventory that doesn’t jive with demand. With 51st Street, when we bought it, nobody contemplated that there would be demand for larger apartments, so we designed the building with much smaller units. By the time we finally closed and the market turned in mid-2010, we said, “Hang on a second—we have to change gears.”
With the High Line, which we have only purchased in the last year, my vision for the building initially was small units, pied-à-terres and foreign buyers. Then, with the Avenue School and more families moving in, we created more of a mix.
What is your outlook for the rest of the year and next?
We are very bullish on for-sale housing. We are very keenly aware of demographics—supply and demand.
I’ve been involved since the mid-’80s as a real estate lawyer and then as a developer, and I’ve never had an imbalance of supply and demand as you see now. During the best markets we had in 2005, 2006 and 2007, we were producing between 12,000 and 15,000 new units per year. Now with everything that has gone on, it’s less than 5,000, maybe 4,000. Supply and demand is very important, but we are very bullish.
Land prices have gone up, so structure costs are going up. Some of that is offset by interest rates, but in development those rates tend to be adjustable. We certainly continue to buy. An example is last month: We went to contract on a huge portfolio. I’d like to be a lower-cost provider to mix in with my high-end product.
Again, we are very bullish on supply and demand. You just have to look at Brooklyn to see how extraordinary it is—and my position on Brooklyn is not very flattering to Brooklyn, though it’s a great place. I always plead that the nicest neighborhood in Brooklyn is a cheaper alternative to the worst location in Manhattan, and there aren’t any “worst” locations in Manhattan. I think, if for the same price people can live in the Lower East Side or even in FiDi instead of Williamsburg, overall, the buyer is going to go with Manhattan.
I think when the market softens, because it always does at some point, it won’t start in Manhattan; it will start in the outer boroughs. So as long as we find opportunities in New York, we’re buyers. We have a dozen other projects we are looking to do.
What opportunities are you looking at?
We are seeing most of our opportunities with institutional partners. We are looking at a big project in different locations with a JV partner to build rentals. Again, we want to mix some of that into our for-sale product.
We are closing on a deal in New Jersey where we are buying a beautiful sports complex, because the area has very high demographics. When a recession hits, the last thing parents will do is take away their kids’ recreation. Dinners go first—that’s the last thing you pull away.
