Developer Ross Says Real Estate At ‘Best Moment' in History

Wall Street is jittery about the fallout from a meltdown in the subprime lending industry, a slowdown in consumer spending, and a sagging retail sector.

But for master developer Stephen Ross, the chairman, chief executive officer, and founder of the Related Cos., the economy couldn't be better.

"From the real estate perspective, this is the best moment in the history of the United States," Mr. Ross said to a New York Law School group yesterday. "I wish we could freeze it in time because you know it can't get any better."

Mr. Ross is the new chairman of the Real Estate Board of New York, a powerful local industry trade association that traditionally excels in hyping the city's real estate market. During his address to New York Law School's Center for Real Estate Studies, Mr. Ross described a national and local real estate scene that is as good for developers as it has ever been.

But even the chairman of REBNY admitted that this "golden age" won't last forever. "Right now storm clouds are on the horizon. If we don't address them, the results could be disastrous," he said.

Land prices in New York City are up 300% during the last three years, and commercial and residential rents are rising to unprecedented levels, according to Mr. Ross. Unless the city addresses how middle class residents — the bulk of the city's work force — can afford to live here in the future, New York is in danger of losing its social and commercial preeminence to other cities, he said.

Mr. Ross criticized the fact that the real estate tax system places a burden on new construction. As much as 35% of gross income of new rental development goes toward real estate taxes, he said. He also said graduate students and workers from Middle Eastern countries are largely choosing to reside in Canada and Britain because they no longer see America as the hospitable country it once was.

To be sure, New York City developers are taking advantage of the current economic climate. His recent sale of two hotels here commanded about $1 million a room, according to Mr. Ross.

So-called trophy office buildings are fetching more than $100 a square foot as the city's financial services companies look for new areas of the city to establish themselves. The neighborhood around Pennsylvania Station and rezoned areas of the far West Side — two places where Related has a significant presence — are the next hot spots for Wall Street firms, according to Mr. Ross.

Developers are selling office buildings with capitalization rates (the ratio of an asset's net income to its capital cost) as low as 4%. "I don't think this has happened in New York before," he said. Cap rates are at historic lows and will remain there as long as the city remains "awash in cash," Mr. Ross said.

The residential market is even more extraordinary, he said. Related's new luxury apartment complex at 15 Central Park West commands prices as high as $6,000 a square foot, he said.

"Buyers are more sophisticated than developers," Mr. Ross said. "They want amenities, layouts, finishes, and services. They're looking for classic designs by world-class architects."

With vacancy rates as low as 2%, and projections for residential rents as high as $80 a square foot, the rental market is just as impressive, he said.