A newlyannounced $550 million public-private development project in New York City has beenin the works for three years, and it could take so long to come to fruition thatit will boost AvalonBay CommunitiesInc.'s fortunes in the next business cycle, company executives saidin an April 28 conference call.
In reportingits first-quarter earningsa day earlier, the company said it added a development on East 96th Street in Manhattanfor a project that will include roughly 1,100 mixed-income apartment units, plustwo new public school buildings and up to 20,000 square feet of retail. The project"is expected to have a lengthy public approval process," the company said.
In theconference call, Chief Investment Officer Matthew Birenbaum said the company hashad past success with public-private partnerships, including some in the Long IslandCity section of Queens, N.Y., and some near transit stations on the West Coast.
The East96th Street site covers a full city block and is on top of the city's planned SecondAvenue subway line, Birenbaum said. AvalonBay was selected as a developer over otherbidders that may have offered a higher land value for the property, in part becauseits reputation, scale and balance-sheet strength add up to greater certainty ofexecution, he added.
"Thereare some schools to be built there on that site, as well as the project we wouldown, and by dealing with and selecting us, they don't have to deal with a privatedeveloper who's going to have a separate equity partner or separate lender, separategeneral contractor," Birenbaum said.
AvalonBay'sbusiness in New York has decelerated in recent months as a result of new supplyin the city, company executives said. But their comments during the call suggestedthey view the East 96th Street property as exceptional. Given the timing of theregulatory approval process, "that deal actually may well start kind of earlyinto the next cycle, which … are frequently deals that have very strong returns,"Birenbaum said.
Executingstraightforward land deals in New York City is "very, very difficult in today'seconomics," so developments in the city are more likely to resemble the East96th Street plan, even though such partnerships are infrequent and complex, he added.
AvalonBayhas minimal capital at stake in the project at the moment beyond legal and planningfees and may be able to exit the project in the coming years if projected rentsor the length of the approval process change, company executives said. Though Birenbaumsaid he could not discuss specifics, "there's a fair amount of flexibilityon all sides," he said.
The project'ssize could affect a different company project near Columbus Circle on the city'sWest Side, Chairman, President and CEO Timothy Naughton said. Because the East 96thStreet project is so large, AvalonBay may consider taking on a joint venture partnerin the Columbus Circle project as a way of reducing its concentration risk in NewYork City, Naughton said.