Bronx Real Estate Remains Warm, Even As NYC Market Cools April 4, 2017

The Real Deal | April 1, 2017

By Gabrielle Paluch

The South Bronx — a cluster of neighborhoods including Mott Haven, Melrose and Woodstock — distinguished itself last year as one of the only parts of New York City where rents grew, according to a study released by the rental listings website Zumper. The borough’s erstwhile reputation for poverty and urban decay is old news. Investment in the Bronx has indeed picked up rapidly in the last few years. And commercial and retail projects like the redevelopment of the General Post Office into an open-air food market are transforming the borough’s southern tip, which has also seen numerous new affordable housing and luxury residential buildings. Starchitects have even started showing up: Bjarke Ingels is designing the new stationhouse for the NYPD’s 40th Precinct. These rapid changes have been cause for concern for some who have watched the tide of gentrification — and displacement — wash over other boroughs. “Most of the inventory coming up is ground-up construction, so nobody is being displaced, yet. But I don’t know how long that’s going to last,” said longtime resident and residential and commercial broker Jason Shand Edwards. That’s especially after the New York Times named the South Bronx one of the 52 hottest destinations travelers should plan to visit this year. But developers and lenders are reviewing projects more cautiously and pulling back a bit on investment amid the citywide market softening. We turn to the experts for a closer look at how real estate in the Bronx is transforming.

Michael Weiser
President, GFI Realty Services

While the Bronx has attracted a lot of investment and development in the last few years, investment dollar volume and transactions were down in 2016 year over year, according to a recent market report. How is activity compared to a year ago? We are seeing less acquisition of development sites, where activity was spiking in the recent past.

Bank loans for NYC real estate projects and acquisitions have become a lot more conservative. Is the Bronx viewed as more or less risky than Manhattan and Brooklyn in 2017? The Bronx is less risky than Manhattan and Brooklyn because underwriting is all about making sure you can weather the storm. As a rule, basis per unit and rent levels are lower in the Bronx. So absolute rent levels in the Bronx are more sustainable in a downturn than in the other boroughs.

What type of investment makes the most financial sense in the Bronx right now and why? If NYC attracts enough jobs, developing market-rate housing will make the most sense. A recent study showed that even though tech employees make more in NYC than in other locations, the cost of living here is much higher. We need to create cheaper market-rate housing, and the numbers just work better in the Bronx.

Major developers and investors such as the Related Companies and Savanna started investing in the Bronx in the last few years. Are institutional players and big-time developers still looking for opportunities? I think they’re pausing. The Bronx is still somewhat of a pioneer ground for new market-rate development, and some of the institutions and big names want to see demonstrated success before they jump in. Then again, land costs in the Bronx are still among the lowest in the boroughs, so if you believe in the city long-term, you’re going to buy if you come across the right deals.

What type of returns are investors looking for in the Bronx, and how does that compare to last year and to other boroughs? Most of the investors we advise are buying existing assets and are targeting returns in the mid-teens, doubling their equity over a seven-year period.   

While the Bronx has shaken off its “Bronx is Burning” reputation, it is still the poorest borough in NYC. What are the biggest challenges to investing there today? We need some of the stuff that was announced to actually be built and occupied. Nothing says change like seeing something in real time.

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