Midtown residential development in a stabilizing market.

Although New York City's residential real estate market is prone to extreme highs and lows, it is currently in a stabilization period and returning to normalcy after the record-setting prices seen in recent years. LCOR--a national real estate development, investment, operations and asset management company--had been looking for new residential opportunities in the Manhattan marketplace over the past couple of years. We saw this emerging stabilization period as an opportunity to develop two new luxury condo projects.

Our market perspectives are rooted in a strong history of residential development both locally and nationwide.

LCOR has developed more than 20,000 residential units around the country. This includes such prominent here in the metropolitan area as the $140 million, 500-unit Bank Street Commons--a development that helped to set in motion the remarkable revival of downtown White Plains--and the award-winning, 200-unit, $34.5 million Gaslight Commons in South Orange, New Jersey. LCOR also developed the $1.4 billion Terminal 4 at JFK International Airport, as well as a range of high-profile commercial developments in and around Manhattan.

Given the current market conditions, the company took a conservative approach in choosing residential locations in Manhattan. We ultimately decided to pursue two projects in Midtown, an inherently attractive area situated in close proximity to popular retailers, restaurants, clubs and offices.

LCOR believed that this cautious approach made sense because--while there has been plenty of available volume--it is imperative that it be sensitively priced.

After examining pricing trends for a number of neighborhoods in Manhattan, it became obvious to us that prices in the Murray Hill section had been "stuck in neutral," while the rest of the market progressed.

It had also become clear from the lack of price appreciation that properties in this neighborhood had simply not been living up to today's standards. A significant number of sites had been built back in the 1980s and thus lacked the finishes, amenities and ceiling heights that homebuyers currently seek.

As a result, LCOR undertook a joint venture with Lehman Brothers Holdings and CalSTRS to develop The Charleston, a high-end, $212 million condo project at 225 East 34th Street between Second and Third avenues.

We anticipate a positive response to the building, a 251,000 s/f mixed-use property that will feature a 12,900 s/f commercial condominium on the ground floor, 191 luxury condominiums in a variety of unit sizes, and a wide range of services and amenities. With occupancy scheduled for August of next year, the Charleston sales office will open this summer, with sales starting after Labor Day. The sales office will be at 205 Lexington Ave at 32nd Street, across from the New York Design Center.

In the coming months, it is anticipated that we will see some price appreciation in Murray Hill. This area could benefit greatly from an infusion of new apartments, but a lack of sites bars that practical possibility. Although there is some speculation about developments that may spring up in the future, the next phase of delivery is uncertain. Looking westward to Chelsea, LCOR saw a market that was very hot and witnessing a lot of activity, with an overabundance of small, low-rise buildings that were mainly co-op or rental. LCOR observed a number of residents moving out of high-rise rental projects, and wanted to provide a comparable, for-sale solution in this neighborhood.

Motivated by these market dynamics, LCOR's second property is located at 101 West 24th Street in Chelsea. Under development in conjunction with Lehman Brothers Holdings, BlackRock Realty and CalSTRS, the 323,000 s/f, $260 million luxury building will feature 204 residential condominiums, a 16,000 s/ f commercial condominium and a 3,500 s/f residential lobby. Construction began in April and the first units are scheduled for delivery in October of next year.

Our firm expects that development in the Chelsea area will continue to move further and further north. We also expect to see a significant amount of development in West Chelsea, which was recently rezoned. LCOR believes that its approach in choosing "safe" locations for its new buildings is key in the kind of stabilizing market we are experiencing.

Although it is important that prices be set at neighborhood-appropriate levels, we anticipate price appreciation in both areas, as interest in Murray Hill increases and the level of activity in Chelsea continues at its current pace.

BY DAVID A. SIGMAN

SENIOR VICE PRESIDENT, LCOR