Every building in New York City started as a piece of dirt. For more than four decades, Bob Knakal has made a specialty of selling that dirt: vacant lots, teardowns, assemblages, air rights, and buildings worth more for what could replace them than for what they are today.
Development sites are among the most complicated asset class in investment sales. Their value depends on zoning, construction costs, financing, tax incentives, the exit market, and the appetite of a small universe of builders willing to take on years of risk. That complexity is exactly why Knakal and his team built the Knakal Land Index, a database of thousands of Manhattan land transactions designed to explain what really drives the price of a buildable square foot.
For this installment of Crexi's Conversation with the Chairman, we sat down with Bob to talk about land, how it gets valued, why the math has been so hard in recent years, what conversions mean for the city, and what owners of potential development sites should be thinking about right now.
Knakal: When you sell a stabilized apartment building, you are selling what exists. When you sell a development site, you are selling what could exist.
That is a fundamental difference. A multifamily buyer looks at the rent roll, the expenses, and the net operating income. There is a lot of certainty in those numbers. A developer is looking at something that does not exist yet and will not exist for three, four, or five years.
They have to estimate what the building will cost to build, what it will cost to finance, how long approvals will take, and what the finished product will be worth when it is delivered into a market nobody can see yet.
That makes land the most sensitive asset in real estate. Small changes in construction costs, interest rates, or end values create enormous changes in what a developer can afford to pay. Land is where the leverage in the system shows up first, on the way up and on the way down.
I have always loved that complexity. It is where knowledge and preparation make the biggest difference for a seller.
Knakal: The starting point is what we call residual land value.
You start at the end. What will the finished building be worth? Then you subtract everything it takes to get there: hard costs, soft costs, financing, carrying costs, and the profit a developer needs to justify the risk. What is left over is what the land is worth.
That is why we talk about land in terms of price per buildable square foot. An owner might have a 5,000-square-foot lot, but if the zoning allows 60,000 square feet of building, the buyer is really paying for those 60,000 square feet.
Then the nuance starts. Is the highest and best use condominium, rental, hotel, office, or mixed-use? Are there tenants who need to be relocated? Is there an existing building that must be demolished? Can air rights be purchased from neighbors? What density bonuses are available? Is the site in a flood zone? Are there environmental issues? Is it a corner? Is affordable housing required?
Two sites on the same block can be worth very different amounts. The owner who understands why is in a much stronger position than the owner who simply heard what a neighbor got.
Knakal: The biggest lesson is that land values are not random. They follow patterns, and those patterns can be measured.
We have assembled data on thousands of Manhattan development site sales going back to 1984 and studied how price per buildable foot relates to dozens of variables: location, zoning, intended use, lot configuration, frontage, whether the site was delivered vacant, and the interest rate and construction cost environment at the time of the sale.
Some findings confirm what experienced brokers feel in their gut. A corner location for a condominium site creates a measurable premium. Vacant delivery matters. Use matters enormously, because a condo developer and a rental developer underwrite the same dirt very differently.
Other findings are more surprising, and that is where the real value is. When you can show an owner or a buyer why a site should trade at a certain level, backed by data rather than opinion, the conversation changes.
But I will repeat something I said last month about baseball. The statistic tells you what happened. Judgment tells you whether it will happen again or how today’s outcome is likely to be different.
Knakal: Because almost every input moved against developers at the same time.
Construction costs rose sharply after COVID. Interest rates rose faster than at any time in a generation, which raised the cost of construction loans and lowered what buyers would pay for finished buildings. In 2022, New York City's 421-a tax incentive, which had long supported the development of rental housing across the city, expired. It wasn't until April 2024 that state lawmakers enacted its successor, the 485-x program, leaving a gap of nearly two years without a new tax incentive for qualifying residential development.
Remember how residual land value works. If the finished building is worth less and it costs more to build, the land absorbs the entire difference. Land is the shock absorber. That is why land values fell further than any other asset type.
The good news is that a lot of that pain has already been taken. Owners who had unrealistic expectations have either adjusted or stayed on the sidelines. Developers have recalibrated. And when the inputs start to improve, land is also the asset that responds first. The land market is currently one of the hottest sectors in NYC. We expect sales volume to be up by more than 30% this year over 2025.
Knakal: They are helping, and they matter. Whether they go far enough is a different question.
Lifting the 12 FAR cap on residential was enormous because it allows density in the places where density makes the most sense. City of Yes created more flexibility for housing across the five boroughs. Rezonings like Midtown South open up areas that had been locked into outdated manufacturing zoning for decades.
485-x gave developers a tax incentive again, which was essential. But its wage requirements on larger projects and its affordability terms change the math. For some sites the numbers work. For others, particularly in the outer boroughs where rents are lower, they are still very difficult - hence the abundance of 99-unit buildings. It’s just economics. I wish policymakers used common sense because we need much more housing across the board.
What I tell owners is that zoning tells you what you are allowed to build, but economics tells you what will actually get built. Every one of these changes needs to be evaluated site by site. An owner should not assume a rezoning automatically made their property more valuable, and should not assume it didn't.
Knakal: I think conversions are one of the most important things happening in the city, and in many ways they are a land story.
When an older office building has lost tenants and its value has fallen, the question becomes: what is this building worth as something else? The answer is often derived the same way we value land. What will the converted building be worth, what will the conversion cost, and what is left over?
The 467-m tax incentive, together with zoning changes that made more buildings eligible, has turned many obsolete office buildings into feasible residential projects. That has created a new category of buyer, and a new floor of value for buildings that a few years ago seemed to have no exit. 467-m made compelling economic sense. That is why there are now 84 office buildings being converted to residential - that’s over 25.7 million square feet!
Not every building converts. Floor plate depth, window lines, column spacing, light and air, and plumbing all matter. Some buildings are better candidates for demolition than conversion. But conversions are bringing housing to neighborhoods that badly need it and bringing life back to blocks that have been quiet since the pandemic. That is good for everyone.
But we think that the traction the office market has experienced has put the meaty part of the bell curve activity in this sector in the rearview mirror. Conversions have been going on for decades and will continue to go on for decades more, but the height of activity in the space is behind us.
Knakal: This is one of the most common situations I see, and one of the costliest for owners who miss it.
Think about a family that has owned a two-story taxpayer for fifty years. They see it as a building with a few retail tenants. A developer sees 40,000 buildable square feet. If the family sells it based on the rent roll, they may leave a very large amount of money on the table.
The first thing I tell owners is to understand their unused development rights. What does the zoning allow compared to what is built? Have recent zoning changes added density? Could the lot be combined with a neighbor's to create something more valuable than either piece alone?
The second thing is lease structure. Development value depends on being able to deliver the site vacant within a reasonable time. Leases without demolition clauses or with long remaining terms can significantly reduce what a developer will pay.
The third thing is timing. Land responds to the cycle more than anything else. An owner who understands their site before they need to sell is in a much better position than one who is forced to figure it out under pressure.
You can't maximize value for something if you don't know what you own.
Knakal: I think they make a big difference, especially for land.
The pool of buyers for a development site is narrower than for a stabilized building but is still relatively large. There are 1,800 developers that we are speaking to regularly. Clearly, there are more investors than developers, but there are still enough to create great bidding competition.
It takes a specific kind of buyer with the expertise, capital, vision, and appetite for risk to build. Historically, that meant brokers called the same group of local developers over and over again.
Today, the capital that builds in New York comes from everywhere. Family offices, out-of-state developers, institutional funds, and foreign investors are all looking at the city. Many have a very specific thesis, such as a particular neighborhood, a particular product type, or a particular size of project, and they may not be on anyone's call list.
A platform like Crexi lets a site be found by the buyer whose thesis it fits, wherever that buyer is. It also puts zoning information, comparable sales, and market data in front of buyers faster, which speeds up underwriting and gives a seller more competitive tension.
For land, the right buyer is often the one who can see something in a site that others can't. Our job is to make sure that buyers see it. The more transparent and efficient the market becomes, the more likely it is to happen.
BKREA is an investment sales firm that exclusively represents sellers of investment properties and development sites in New York City.
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