Among the endangered species of the 21st century are New York City’s parking lots and garages. Over the past few years, developers have purchased these locations to make way for residential and commercial developments. Today, investors are pursuing opportunities for the development of residential, mixed-use, and hotel properties in light of the current credit crisis in the capital markets.

Later this month, the final bids are due for the sales of six prime Midtown Manhattan parking garages comprising a portion of the Central Parking New York City portfolio. Located between 37th and 50th streets, the six would provide a developer up to 643,889 buildable square feet. The seller is offering a prospective purchaser immediate possession, presenting the opportunity to build a hotel, office, or residential building. If the purchaser is able to file for plans and begin construction before June 30 of next year, it may be able to have the property qualify for 421a tax abatement for residential development.

Industry leaders expect a parking garage located at 138 E. 50th St., less than a block from the Waldorf–Astoria Hotel, to be sold and developed as a hotel. It may fetch in excess of $500 a buildable square foot. Many of the other sites in the portfolio will be sold to developers who will demolish the garages and build residential or mixed-use developments.

Earlier this year, Central Parking Corp., an owner and operator of parking garages, closed on the plan of a merger with KCPC Holdings Inc., a company formed by affiliates of Kohlberg & Company L.L.C., Lubert-Adler L.P., and Chrysalis Capital Partners. The major asset owned by Central Parking Corp. is 130 parking facilities in major metropolitan markets. This summer, the new owners retained investment bankers around the country to sell many of the properties and leases.

Robert Knakal, the chairman of Massey Knakal Realty Services, which is representing condominium garage sites in residential buildings throughout the city, said parking lots and parking garages “are the ideal product type for developers because they afford the buyer income virtually up until the moment they can begin construction. They also rarely have any possession issues which are highly attractive to developers.” He added: “Parking properties have always been sought after by the development community as the properties typically offer large floor plates and there is usually a significant divergence between the income the property produces for the owner and the property’s value as a development site which creates an opportunity many owners want to take advantage of. The elimination of parking spaces to make way for development has exacerbated the increase in parking rates which has, in turn, increased the value of existing parking properties.”

In Manhattan, one of the largest owners of parking lots, Edison Properties, is in the process of converting sites into residential developments. Later this year, the leasing office will open for the Ludlow, a residential rental apartment building located across from the famed Katz’s Delicatessen at 207–215 E. Houston St. A portion of the units will qualify as affordable housing.

The Edison is in the process of developing its parking lot at 501 W. 17th St., which occupies a full city block bound by 17th and 18th streets and Tenth and Eleventh avenues. The company had originally planed to build 869 residential condominium units, but real estate sources say it now plans to develop a residential rental building where apartments may rent for as much as $80 a square foot. The site was previously occupied by a 377-space parking lot leased to the nearby Drug Enforcement Administration.

Due to the recent market turmoil, investment bankers are on the sidelines when it comes to providing financing for real estate transactions. The combination of the inability to access capital and the uncertainties that presently exist in the real estate market may have a temporary effect on the sale of development sites. Industry leaders expect the combination of factors to have a short-term effect on the sale and financing of development sites in New York City.

“While lenders take a breather, regroup, and gear up for the final quarter of 2007, there has been no slowdown of interest in parking lots for development, which continues to be in the form of some type of hotel and/or mixed-use development, with retail as the key component in the project,” the senior broker at Besen Associates, Laurence Ross, said. “With banks requiring a substantial amount of equity skin in the game these days, buyers are forcing owners to renegotiate prices downwards or run the risk of losing the deal. Sellers just coming to market must accept the new realities of the marketplace and close the pricing disconnect that typically exists and lags in healthy correction periods.”

The senior director and principal at Eastern Consolidated, Alan Miller, said the coming weeks and months post-Labor Day “will be telltale as far as the psychology relating to real estate development in New York City is concerned.” He added: “The financial institutions providing financing for development projects may have not lessened the dollar amounts of the loans they agreed to provide, but many borrowers have been squeezed on rates and points in and out of mortgage commitments to finance these developments. There is nothing a developer can do when it is days before a scheduled closing for a property and its lender changes the terms that were on the table the past few months.”

Besen Associates is marketing for sale a parking lot that will be delivered vacant at 48-52 Franklin Place in TriBeCa. On the site a developer can build an as-of-right 75,000-square-foot building, which can be increased to 94,000 square feet with the development of certain bonuses. The seller is asking $30 million for the site.

The sales office is set to officially open at the Trump SoHo later this month. Nearby, a one-story garage located at 523–525 Greenwich St., between Spring and Vandam streets, is being offered for sale. The site, which will allow for a 50,000-square-foot building, is being marketed in the $20 million to $25 million range. The purchaser can increase the size of the development by purchasing neighboring air rights.

An area that has seen a great deal of demand is the Penn Station-Herald Square section of Manhattan. Last month, a parking lot at the corner of West 31st Street and Eighth Avenue was sold to a developer for $28 million. Planned for the site is a 78,000-square-foot mixed-use building that may include a residential component. In Harlem, Massey Knakal Realty Services is marketing for sale a prime four-story garage on the north side of West 132nd Street between Lenox Avenue and Adam Clayton Powell Boulevard.

“Staggering to me is the high level of pricing that has been maintained during this record bull run,” Mr. Miller said. “We recently closed a major land transaction in West Chelsea for in excess of $500 a buildable square foot, and it is not a residential site but for commercial development. A client just went to contract for another development site on the west side two weeks ago at $500 per square foot buildable, which leads me to believe that there is guarded optimism still out there and will be for some time to come.

“The end of the 421a tax abatement program at the end of June 2008 will affect Brooklyn more harshly than Manhattan. If these and other important financial incentives are no longer available to the builders out there, then they will not be able to pass the savings along to the home buyers. There will be a ripple effect felt in the residential market, with the buyers not being able to spend as much as banks tighten the reins on the amount of dollar lent,” he said. Recently, one of Manhattan’s most active residential developers of condominiums, Extell Development, purchased an existing six-story parking garage at 19–25 W. 20th St. from Icon Parking. The lot is 9,200 square feet, which allows for a 92,000-square-foot residential tower.

“Garages and parking lots are both very valuable commodities in the Manhattan real estate market,” the chief operating officer of Citi Habitats, Gary Malin, said. “As development expands further westward, these properties are continuing to increase in value. However, dollar for dollar, the more profitable use for the underlying land is still development. We are currently seeing prices from $300 to $600 per buildable square foot, depending on such factors as type of property, location, size, and use.

“Interestingly, many developers look into the feasibility of putting garages below grade when planning their development, opting to either sell spaces at approximately $1,000 per square foot or lease the space to garage operators. The availability of parking is a great added value and often a necessary amenity to many living in Manhattan, as many more individuals and families rely on a car for their daily work commute or family getaways,” he said.

Unfortunately, the value of these parking lot sites has been reduced by at least 10% to 15% due to the turmoil in the credit crisis. In these turbulent days, purchasers of parking lots and development sites are now required to invest significant equity to have a financial institution provide the debt on the site.

Mr. Stoler, a contributing editor to The New York Sun, is a television and radio broadcaster and senior principal at a real estate investment fund. He can be reached at mstoler@newyorkrealestatetv.com.