The home of many huge, ritzy apartment buildings, long before the current high-rise condo craze. The new condos, which are sprouting like mushrooms, are touted as great investment opportunities. Even better investments, though, are the many old brownstones that are left. We'll be paying particular attention to them, as the Second Avenue Subway ratchets up land values to the east!

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Corner of Third Avenue & 86th Street

A striking juxtaposition of huge and tiny buildings, suggesting that development comes not when the community needs it, or people can afford it -- but when landowners get the right deals.

179 East 86th St. and 1530 Third Avenue

First we're looking at the single-story building on the corner.

Tax class 4. Land value: $4,078,000 ($815 PSF)
Building value: $2,042,000 (HUH?!)

Current tax bill: $249,791
with 75% BR LVT: $285,853

We are surprised that a single-story commercial box is valued at over two million dollars! The owner pays nearly a quarter-million per year to hold this corner. That seems like a lot at first glance, but rent from the three retail stores renting space in this building will more than cover it.

The two brownstones next door, on nearly identical lots, have per-square-foot land values of $318 and $625. Why the difference? Why, one is a commercial lot and the other is residential. That adds up to a value difference between the two of $1 million. (The same concern owns both parcels.)

The building to the right is The Gotham, a huge (and ritzy) 28-story condominium. Here are its numbers, according to the city: its 238 units have a combined land value of $6.05 million, and a total building value of a whopping $66.9 million. In other words, NYC is telling us that this condo sits on a lot worth only a paltry $263 per square foot!

Same corner, right across the street

Here we can get some insight into the nearly-magical process of "bundling". Ironically, these lots are actually physically bundled together; a yellow tape around them warns that a pest-control company is at work in the abandoned buildings. How does "bundling" work? Well, buildings are assessed and taxed individually, when in the real market, their value is ripening as a contiguous set, on which a developer can build a pricey high-rise when the market suits. Their value as that set is their true market value (for the high-rise could be built at any time). But until it is, their tax bills are much, much lower. The 50-foot wide lot at 208 East 86th St. is listed as a separate parcel, even though the building on it clearly extends over the corner lot, 1523 Third Ave.

The five parcels together create a lot measuring 150 x 102 feet. On the 2004 rolls these 5 parcels' land value is (we're told) $422 per square foot. But here's the deal: in April & May of 2006, these five parcels sold for a combined price of $73.87 million, or $4,944 per square foot!

THIS JUST IN! Here is "The Brompton," the posh new condomium being built on this site. It is offering studios that start at $1 million. Units are selling at between $1,100 and $1,700 per square foot. Many buyers from Europe and the Middle East are taking advantage of the declining dollar to snap up these apartments, which they expect to appreciate sharply.

841-843 Lexington Avenue

Here we have two buildings, being sold together, on the corner of Lexington Avenue and 64th St. It's a snazzy neighborhood: convenient to transit, packed with sumptuous shopping. Together, they comprise a 34.5 x 80 foot lot. A realtor's advertisement of their immediate availability offers us a glimpse into the nitty-gritty of Manhattan real estate. The city's assessments are low, of course: nearby parcels, all much narrower than these two, have sold in the past year for $6,083, $2,224, $2,735, $7,425 and $5,800 per square foot of lot area, while the city says these two lots are worth $1,126 PSF. (The bundling potential was always there; they've been owned by the same company since at least '04.)

The above calculations sensibly disregard the value of the buildings. That is what the realtor does too; the ad offers a "unique development opportunity" with "approximately 25,000 square feet of buildable space". (Interestingly, even the city seems to concur, for it tells us that the corner building at 841 Lex is worth only $40K!) The two buildings comprise a gross square footage of about 13,300 square feet, leaving unused development rights, or "air rights", of 11,700 square feet. Nine stories is the tallest building that current zoning allows on this site.

Thus we see that there are two pre-eminent factors in NYC real estate value: location, and zoning. The rent of a site is a function of 1) where it is, and 2) how much floor space one is allowed to construct on it. That helps to explain the wildly divergent PSF figures given above, which came from recent sales of parcels within four blocks of this one.

It's probably worth pointing out that buildings much taller than nine stories do, somehow, get built in this neighborhood; look at the monster in the background. It's conceivable the the zoning process is not entirely free of political influence.

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