Kobi Zamir Quoted in The Real Deal’s ‘Gentrification City’ January 17, 2018

The Real Deal | January 1, 2018

By Eddie Small and Dennis Lynch

 

Once upon a time, developers who were looking to make smart investment plays would throw up a building in Williamsburg, Long Island City or Bushwick and watch the buyers and renters flood in. But those neighborhoods have now largely topped out, sending investors on the hunt for the next corner of New York City that is ripe for opportunity.

This month, in an effort to suss out where real estate investors are making their next round of early bets, The Real Deal pored through building permits, demolition numbers and investment sales activity for more than 200 New York neighborhoods for the nearly 10-year stretch between 2008 and 2017. Then we zeroed in on outer borough areas with upticks in activity in the last year or two.

Unlike back in 2014, when developers were going gangbusters — pouring hundreds of millions of dollars into real estate — today’s investment dollars are largely down. Indeed, residential permit applications fell roughly 73 percent between 2014 and October 2017, plummeting to roughly 18,000 from nearly 66,000.

And while the household-name neighborhoods of the last peak are still seeing activity, it’s a fraction of what it was a few years ago.

Long Island City, for example, saw a 95 percent drop in residential units applied for from 2014 (when there were 7,459) to 2017 (when there were only 335 through October). Williamsburg saw a 90 percent drop in the same category during that same time window — developers in the neighborhood filed for 403 units in 2017 versus 4,352 in 2014. And Bushwick logged a 73 percent decline, falling to 546 in 2017 from 1,998 units in 2014.

“There’s just so much going on there,” said Aaron Jungreis, president of Rosewood Realty Group, referring to neighborhoods like Williamsburg and Long Island City. “There’s so much product that’s saturated [the market].”

In many ways, today’s real estate investments plays are not as clear-cut as they were when the market was firing on all cylinders. For starters, investment dollars are spread out among more neighborhoods and are harder to track because the numbers are not as large.

But with all that in mind, TRD identified a handful of under-the-radar neighborhoods (some with very little name recognition, others with more), that are bucking the trend and seeing an uptick in activity. Those neighborhoods — East New York in Brooklyn, Melrose/Concourse and Longwood/Morrisania in the Bronx and Rego Park and Far Rockaway in Queens — are all at different stages of investment maturity. Some are seeing an influx of affordable housing development. Others are squarely in the market-rate game. 

Jungreis said investors in East New York would likely have to start off by buying land rather than buildings.

“It’s hard to build scale there,” he said, noting that it’s still difficult to obtain large property portfolios in the neighborhood. “Anyone who’s going to get scale in that neighborhood is going to have to do it via [buying] land and then building on top of the land.”

One big factor fueling investment in that neighborhood is falling crime. In the police precinct covering East New York, for instance, murders plummeted nearly 67 percent and shootings fell about 60 percent over the last seven years.

The South Bronx has also seen sharp decreases in crime, and Jungreis argued that it’s further along on the investment front, with several new developments already in the works.

“It has a lot going for it. I think it’s a high climb also, but it’s not as high as East New York,” he said.

Tom Donovan, a vice chairman at Cushman & Wakefield’s capital markets group who focuses on Queens, said the latest trend for developers in Rego Park is buying adjacent single-family homes, demolishing them and replacing them with 30- to 40-unit apartment buildings.

“They’re knocking them down and building these sexy boutique apartment buildings,” said Donovan, noting that developers in the area are seeing sizable returns.

To be sure, TRD’s neighborhoods are not the only areas that have seen an uptick — others, like Sheepshead Bay and Red Hook, have also seen their numbers rise.

But sources said these five areas are worth watching.

In some cases, they are now matching (or topping) the stats being seen in their much higher-profile counterparts. For example, both Williamsburg and Melrose/Concourse had 403 residential permit applications filed in 2017. Meanwhile, Longwood/Morrisania had 903, compared to Long Island City’s 335, and Far Rockaway had 166 versus a measly 85 in Greenpoint, according to TRD’s analysis of data from the Department of Buildings.

The numbers are not as clear for investments sales for both development sites and cash-flowing properties, according to a TRDanalysis of sales recorded with the Department of Finance. But TRD’s five neighborhoods have all trended up on average for the last several years, even if their dollar volumes were lower than some of the hipper outer borough areas that have recently topped out.

Long Island City, for example, saw commercial sales volume come to a screeching halt in 2017. It logged nearly $280 million in deals last year through October, but that was down from $1.7 billion just one year earlier. Williamsburg saw a similar trend, netting $311 million in deals in 2017 versus a peak of nearly $733 million just two years earlier.

Melrose, however, is on the upswing. It saw $210 million in deals in 2017, a 31 percent increase from $160 million the year before. Rego Park saw $143 million in deals, which was down from the year before but up dramatically from $7 million in 2014.

In many cases, these neighborhoods are also benefiting from rezonings.

Far Rockaway is one of those areas. Cushman’s Donovan said the neighborhood, where he pegged cap rates — or the rates of return based on the expected income — at 5 percent to 6.5 percent, has also benefited from improved transportation.

“It used to be an isolated peninsula where you went to the beach, and you had to go home over the bridge to do any kind of shopping,” said Donovan. “Now, people go and spend the whole day there.”

In general, these neighborhoods are obviously not attracting the same kinds of dollars that, say, Midtown Manhattan is. But they do offer investment upshot in terms of yields. “There’s more risk, but that’s why there’s a higher reward,” Donovan said. “You’d be hard-pressed to find anything close to a 5 percent [cap rate] in Manhattan.” —E.S.

Rego Park, Queens
Both residential construction and investment sales are skyrocketing, but the area is better for long-term plays 

Hipsters and Rego Park might not get along very well.

“It’s not trendy enough for them,” said Kobi Zamir, a broker with GFI who focuses on the neighborhood. “They’re looking for more nightlife, and I think it’s a little bit lacking in Rego Park.”

Luckily for the Queens neighborhood — a roughly two-square mile area, which is nestled deep in the borough between Forest Hills and Elmhurst and located right along the Long Island Expressway — there are plenty of less-hip New Yorkers and real estate players who like what it’s selling.

The number of applications for residential units in Rego Park jumped 116 percent to 190 in 2017 from 88 units back in 2008, according to TRD’s analysis.

While those numbers are undoubtedly tiny compared to anything a Manhattan neighborhood would log, commercial sales volume skyrocketed as well, jumping to $143 million in 2017 from about $112 million in 2008 after peaking at about $203 million in 2016.

Developers have added both new condos and rentals to the neighborhood, where median rents clock in at roughly $2,275 and median sales prices are a modest $392,000, according to StreetEasy.

Aaron Hillel, a broker with the Hillel Group, said interest in the neighborhood has spiked as more buyers and renters realize that the commute to Midtown is about 30  to 40 minutes and that the area has an array of retail, including several large brand-name stores.

And bigger investors are clearly circling in pursuit of the returns.

In July 2016, for instance, Madison Realty Capital and Ariel Capital dropped $136 million on the 419-unit Saxon Hall rental complex at 62-60 99th Street — the largest transaction in Rego Park history.

Blumenfeld Development Group also placed a big bet on Rego Park last summer, scooping up 99-01 Queens Boulevard from Vornado Realty Trust for $31.2 million. (Vornado is a major investor in the area. It owns the Rego Center, a large shopping mall that opened in 2010 and anchors the neighborhood, along with the Alexander, a 312-unit luxury rental above the mall.)

Meanwhile, Queens residential developer Kenny Liu is planning a 50-unit condo that will include a 12,000-square-foot health care facility on the first two floors.

The investment sales market in the area was also stirring near the end of 2017. In October, a Manhattan-based real estate firm bought a 113-unit residential building for $31.5 million, and the LeFrak Organization sold an 11-story office building. 

Modern Spaces CEO Eric Benaim described Rego Park as a better play for a long-term investor than for someone looking for a quick turnaround.

“If somebody’s looking to buy, fix up and flip right away, I don’t really see that being that lucrative,” he said. “It’s more for somebody looking to buy something, fix it up or do ground-up construction and hold it for five or 10 years.” —E.S.

 

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