Elevated sales prices flying under the radar.

It has been widely publicized that the cost of raw land and conversion projects has skyrocketed to record heights in the past year.

The sale of the Mayflower Hotel (which included an additional vacant lot) and the sale of Beth Israel Hospital's Singer Division Property are both examples of exorbitant land deals. Selling at $650 and $770 per buildable square foot, respectively, these sales demonstrate the frenzied nature of today's real estate market.

Interest rates are low, money is cheap, Wall Street bonuses have improved, and the off-balanced supply/demand curve is putting upward pressure on condominium prices. Developers are speculating sell-outs of their newly developed condo units in the $1,000 to $1,200 square foot range which will most likely render a handsome profit, despite having paid premium prices at the front end of the deal.

Common also, is to see a residential brownstone or mansion in the Upper East Side sell for over $1,000/sq. ft. when the purchaser is to be a primary resident. Fundamentals, like capitalization rates and gross rent multiples, seem to go out the window when an individual's home is concerned. And while residential projects have received the lion's share of the press as of late, less attention has been paid to some commercial building sales in Midtown that have crossed the $1,000 per square foot mark.

In a year that has seen a drop in office vacancy rates, an increase in average office rents, and a hyperactive retail market boosted by in influx of foreign money visa vie, several new European store openings, it is not surprising that the prices of commercial buildings in Midtown have increased accordingly.

Premium prices are always expected along major retail corridors in Midtown, but when prices on a per square foot basis begin to creep over $1,000 per square foot, one can't help but pause and ponder. Are economic indicators strong enough to support such extreme purchases? Can lessees absorb the higher rents necessary to justify these elevated sales prices? Well, if one believes that the real estate market is reasonably efficient, then the answer to both those questions is a resounding "yes".

Commercial sales in the sub-market known as the Plaza District offer glaring examples of such notable transactions.

The Sitt family bought 743 Fifth Avenue in April 2004 for $28,000,000 and is aggressively leasing up the property. Off the corner of 57th and Fifth Avenue, this 10 story, 18,000 square foot building sold for an astounding $1,500 per square foot. Granted, this property is fortunate in that it lies near the cross-section of two of Manhattan's premier retail corridors, but a broader look at this past year's Midtown sales demonstrate an irrefutable trend and debunk any claim that the sale of 743 Fifth Avenue was simply an anomaly. Properties at 41 West 56th Street, 153 West 56th Street, 48 East 57th Street, and 50 East 57th each sold for close to or north of $1,000 per square foot.

In fact, the average of each of those sales on a price per square foot basis, including the sale of 743 Fifth Avenue, is almost exactly $1,000 per square foot.

The diagnosis then, by investors and users alike, is that the economic outlook for Midtown Manhattan is positive and the city is most certainly recovering from the post- 9/11 slowdown in 2001.

Buyers that are stretching to acquire a prime building and are perhaps even overspending to gain a presence on a superior thoroughfare are counting on continued increases in consumer spending, capital investments, and corporate expansions.

The recent commercial sales market of 2004, specifically in the Plaza District of Midtown, supports such a notion. Therefore, while the residential developers of the moment are monopolizing the headlines with there large scale residential conversions and ground-up condo construction, the commercial sales market is quietly becoming newsworthy.

MARK J. SPINELLI,

DIRECTOR OF SALES,

MASSEY KNAKAL REALTY SERVICES