How to Find an Ideal Property for Development in NYC

Michael Tobias
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    A successful real estate project starts with adequate property selection. Ideally, you will want to choose a property that minimizes construction and maintenance costs, while maximizing revenue.

    Before starting a project, it is important to assess the local availability of utility services and to check if the property is subject to special legislation such as the Landmarks Law, since these factors strongly influence development costs. Of course, a market study is also welcome, to determine which types of occupancies are in high demand, as well as their average sales prices and rental rates. Finally, a financial analysis can help narrow down your project options, leaving only the most profitable.

    Availability of Utility Services

    Heating represents a significant portion of energy consumption in New York City buildings. Since local electricity rates are among the highest in the nation, electricity-based heaters have prohibitive operation costs, and high-efficiency heat pumps are perhaps the only exception. However, heat pumps struggle to provide sufficient heating in the coldest winter days and must be complemented with another heating technology.

    Buildings in New York City normally meet their heating needs with steam, natural gas or fuel oil. Heat source selection is one of the most important design decisions before proceeding with a project, since the specifications and layout of many building systems depend on it.

    Fuel Oil

    New York City is actively phasing out fuel oil as a heat source, and the types with a high pollutant content are now forbidden by law in new installations, including fuel oil #4 and #6.

    Heating oil is used in many older buildings, but in most cases that is because natural gas was not available as a utility service when they were built. These buildings only represent about one percent of the city, but they are responsible for over 80 percent of soot emissions; by 2030 all of them must upgrade their systems to use fuels with a reduced environmental impact.

    For new constructions, either steam or natural gas is normally available. Heating oil is generally not recommended: it has a higher environmental impact, no cost advantage in most cases, and it is subject to stringent regulations. Also keep in mind that fuel oil is distributed by trucks, so it is necessary to plan deliveries and use up property space for storage. Low-sulphur fuel oil #2 is still allowed without phase-out requirements, but legislation could become more stringent at any time


    Consolidated Edison operates the largest steam distribution system in the world, and it encompasses the area between the lower end of Manhattan and 96th Street. If your property is located within this area, the steam service offers various benefits in addition to heating:

    • If you install an absorption chiller, you can have steam-powered air conditioning instead of relying on expensive electricity for all your cooling needs. Some buildings deploy hybrid systems, where electric chillers only run when electricity rates are low, and steam-powered absorption chillers take over when peak rates are being billed.
    • In addition to heating, steam can provide humidification.
    • Steam can be used for sterilization in healthcare, food processing or other similar applications.

    Steam rises naturally, and is generally the most economic option in high-rise buildings. For example, both the Rockefeller Center and the Empire State Building use steam.

    Natural Gas

    If the steam service in the neighborhood you are considering for the project, natural gas offers an attractive alternative. You can avoid the high running costs of electric heaters, as well as the inconvenience of storing heating oil and scheduling its deliveries.

    If your building will require humidification or sterilization, it is strongly suggested that you look for a district where the steam service is available, otherwise you will have to purchase additional equipment and your project will become more expensive.

    Effects of the Landmarks Law on Property Development

    The New York government carries out ongoing efforts to preserve the city’s historic legacy, and has created the Landmarks Law, along with an organization to enforce it: The Landmarks Preservation Commission (LPC). Basically, the owners of landmark buildings are responsible for preserving their condition, and any changes must be approved by the LPC. If you plan to buy an existing building for development, verify its landmark status first.

    Also keep in mind that the LPC designates historic districts, where the concentration of landmark buildings is high. If you will develop a new building in one of these districts, you will be required to use the same architectural style as the surrounding properties. Historic districts are not recommended if you have a modern architectural concept in mind.

    Depending on the type of building you are considering, being located within a historic district can also work to your advantage. These properties are often valued higher than similar ones not located within historic districts; if you find a location where market demand and rental rates are high, it can compensate the extra cost of meeting the Landmarks Law.

    Existing Buildings: Importance of a Property Assessment

    When purchasing and renovating an existing building, remember there may be hidden expenses. It is highly recommended that you get a Property Condition Assessment by a qualified consultant or engineering firm, avoiding expensive surprises.

    • Structural Assessment: The main issue with structural defects is that they are often hidden and very expensive to repair. Before purchasing an existing building, get a proper assessment of its structural condition.
    • Electrical Installations: Older NYC buildings often suffer from a limited capacity to deliver electric power, since they were built when society used much less electricity. Upgrading electrical installations can be expensive, especially if you must replace transformers and distribution boards.
    • HVAC: Of all building systems, HVAC installations are perhaps the most varied in terms of possible configuration and layout. Keep in mind, however, that some configurations are easier to upgrade than others. Deploying modern chillers and boilers with automatic controls is much easier if the building already has a duct and hydronic piping system, but extremely expensive if these installations must be built from zero.

    If you are considering solar collectors or photovoltaic panels, observe the shadows cast by adjacent buildings, trees and signs. To deploy any solar technology effectively, the property rooftop must be free from shading issues. New York has generous incentives for solar power, and the high electricity prices guarantee high savings, but the prerequisite is to have a suitable rooftop.

    Carrying Out a Market Study

    Before you develop a property in NYC, you will have to answer two important questions:

    • Will there be a high demand for the type of property?
    • What are the average rental rates and sales prices in the neighborhood?

    Boroughs like Manhattan and Brooklyn are notorious for their high rental rates, but property development costs rise proportionally. Only a professional financial analysis can let you know which potential project offers the highest return for each dollar spent upfront.

    Assess the Surroundings

    Even if you offer the best apartments or commercial spaces in a district, the surroundings can either help or hinder your project. For example, an apartment building will experience a higher demand if there are convenience stores and entertainment within walking distance; and identical copy of that building may not perform so favorably in a street with heavy traffic and only corporate buildings that remain empty at night.

    Noise can also reduce the attractiveness of a real estate project. For example, if there is a subway tunnel underneath, noise will be a persistent issue, especially in the lower building levels. The same can said of buildings located next to warehouses or industrial facilities.

    Rental Rates

    The New York real estate market is possibly one of the most transparent in the world, so information on rental and sales prices is readily accessible online. For example, Bloomberg has an excellent interactive map where you can browse through market prices and rental rates for apartments in Brooklyn and Manhattan, filtered by neighborhood. This information can be very useful for financial analysis once you have a project development budget.

    Developing Individual Apartments: Cooperative or Condominium?

    If your plan is to purchase and renovate individual apartments for renting, rather than developing an entire building, consider the two main ownership options in New York City: housing cooperatives and condominiums.

    • In a condominium, you own the apartment and are free to remodel or rent it at your discretion. Since they offer more freedom, condominiums tend to have higher prices.
    • In a cooperative, on the other hand, you own shares in a company, and they are the direct owners of your apartment. As a result, there are more rules to follow.

    There is no general set of rules for cooperatives, and they vary by company. In the worst-case scenario, subletting may not be allowed; or it may be allowed but subject to rules such as a minimum wait time after your purchase, tenant approval by the co-op board or charging you a subletting fee.


    Like with any business venture, property development in New York City depends on hard facts such as market rates, and subjective aspects such as neighborhood popularity. To increase the likelihood of a successful project, you should get at least a technical point of view from an engineering consultant of firm, complemented with a marketing and financial analysis.

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