The Bronx's Middle-Class Appeal Has Spurred Record-Breaking Growth
Real estate investors shattered records for investing in the Bronx last year, pouring $3.3B into the workforce housing and industrial properties that have defined the borough's real estate for years. Although there are grand, ambitious new developments on the horizon, stability and opportunity remain the name of the game for owners in the city's northernmost borough.
"I really think this is a great market for people seeking an affordable option, and if you’re able to deliver one that is clean and safe and well-renovated, people are going to pay for it," Taconic Investment Partners Vice President Dan McInerney said at Bisnow's Bronx State of the Market event last week. "When you look around what’s happening in the neighboring boroughs, the sky’s the limit for this borough."
Hodges Ward Elliott Senior Vice President Daniel Parker is an active investment sales broker whose firm uses statistical modeling to identify opportunities. Moderator Paul Hoffman, a senior vice president at HAKS, asked him what his "data nerds" found about investing in the Bronx.
"The Bronx has been enjoying not only the largest population growth of the five boroughs from 2010 to 2016, it’s also gaining a larger portion of the middle class," Parker said. "Its earners between $40K to $75K grew 30% in the last few years. If you talk to owners who have been in the Bronx for a long time, they are increasingly seeing applications from tenants who have very good jobs, their household income is closer to six figures, but they’re simply priced out of the other markets."
The refrain is the same one that has been touted for years to explain the Bronx's potential, since back when Somerset Partners founder Keith Rubenstein acquired a large property on the South Bronx waterfront, brought in Chetrit Group and began to plan an ambitious, 2,000-unit market-rate mixed-use development.
All one has to do is follow the East River north to see where the real estate wave will crash next. It hit Williamsburg, DUMBO, Greenpoint, Long Island City and Astoria, and the logical progression brings it to the shores of the Bronx.
"We’ve seen what happened in other waterfront communities in Brooklyn and Long Island City and Jersey City, and I felt with the public transportation, proximity, waterfront views, in-place zoning, it was [a] real safe place to invest and develop," Rubenstein said.
Hornig Capital Partners Managing Partner Daren Hornig co-owns the Bruckner Building, which hosted the event, and said the combination the geographic logic and its largely forgotten nature as an investment destination is what drew him to the borough and his repositioning project, a JV with Savanna.
"I think it's next," Hornig said. "I know Keith and Somerset is doing a tremendous development. This location and its proximity to Manhattan, transportation and the [Major] Deegan [Expressway] to get north and south is really what attracted me and others to this area. It was underpriced for a number of years, and now it’s slowly catching up to hit the other markets."
The scale and price point of Rubenstein's project, which broke ground earlier this year, has meant taking on a fair amount of risk. But for investments like workforce housing and rent-stabilized apartments, the risk is almost nonexistent, especially compared with the new rental apartments that have struggled to garner asking rents in Brooklyn and Manhattan.
"When we bring a property to market in Brooklyn, it’s almost a foregone conclusion that we’re going to be explaining that a month or two were given for free when they were leasing units," Parker said. "The Bronx is a non-concession market, and that’s one of the reasons people see it as a lower-risk place because there’s so much demand for what the Bronx offers right now."
Nelson Management Group President Robert Nelson has owned middle-income housing in the boroughs for decades, and talked about how installing security cameras on every floor of his buildings helped ensure both his residents' safety and his apartment's place as a better option in what he called "downtrodden neighborhoods."
"At the end of the day, the economic laws of supply and demand mean that there is a lot more demand for middle-income housing than there is housing stock," Nelson said. "Over the years, we’ve been able to build up a tremendous amount of value in some of these buildings."
While much of the Bronx is still downtrodden, Rubenstein is confident the time is right to start building aspirational projects to lure young renters to the borough that has largely escaped the millennial gaze. He originally acquired his 1M SF of developable property as a land bank to sit on for five or more years. But the more time he spent in the area, the more confident he felt that he need not wait so long.
"We’ve done so many things to commit to this project, we’ve opened different businesses and supported businesses in and around the neighborhood," Rubenstein said. "We’ve actually relocated our offices from Manhattan to here, and I think the more time people spend here, the more time they understand why it’s compelling."