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Developer’s bet on huge $35M penthouse pays off

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From Crains New York

Developers bet on huge $35M penthouse pays off

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A bet by Manhattan-based developer Witkoff on a slowing segment of the market has paid off: After the firm combined floor plans for two apartments at 10 Madison Square West into a single penthouse last year, it announced Friday that the unit recently went into contract for $35 million, about 21% more than what it would have gone for if they were sold separately.

The firm, led by Steven Witkoff, snapped up 10 Madison Square, the former Toy Building, in a 2011 auction for $190 million. And with plans to gut the tower and construct a six-story addition to the top of the property, which overlooks Madison Square Park, the developer sold 75% of the units within three months after they hit the market. However, a handful of apartments, including two on the 22nd floor, were more difficult to unload.

“As two separate units, they were tougher to sell,” said Kirk Rundhaug of Douglas Elliman Development Marketing, which handles sales at the building, noting that 22A was not the best-flowing apartment and 22B was listed for a high price per square foot.

But Elliman and Witkoff decided to redraw floor plans for a 6,500-square-foot, full-floor, five-bedroom apartment instead, after seeing a need in the market for larger homes. But in some ways, the move was still a risky one. An influx of newly built or renovated ultraluxury apartments are hitting the market, and the more expensive units have been selling at a slower pace.

Manhattan’s absorption rate—the amount of time it would take to sell all the apartments on the market—increased by more than 40% for luxury units between the first quarter of 2014 and this year, according to a recent market report from Elliman, which identified luxury units as anything north of $3.35 million.

“There are still a lot of buyers, but they are saying, ‘I have more choices now,’” Mr. Rundhaug said.

Modifying unit size to adjust for market conditions is a common tool for condo developers. For example, the developers of 432 Park decided last summer to go small and convert plans for two units on the 34th floor into 14 studio apartments instead, according to documents from the state attorney general’s office. In the case of 10 Madison Square West, creating a larger apartment by melding two units paid off for Witkoff. Now that the 22nd-floor penthouse is in contract, there is only one apartment still for sale.

“We are thrilled that there has been such strong demand,” Lauren Witkoff, a senior vice president at the firm, said in a statement.

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