Developers Are Confident In Westchester And Fairfield, But There Are Obstacles In Their Way
Westchester and Fairfield counties have seen slow but steady growth in demand and new development since the financial crisis, but now that’s about to kick into high gear, according to panelists at Bisnow’s 5th Annual Westchester & Fairfield State of the Market event.
Transportation is king in the NYC's northern suburbs, and that’s been a major driver of their recent growth in rental projects, thanks to their proximity to New York City. Some areas, like New Rochelle and Stamford, CT, can be reached from Grand Central in just over 30 minutes if you catch an express Metro North train.
“It was kind of amazing to me to realize that, from Midtown, we could get to our site in downtown Rochelle faster than we could get to some of our sites in Dumbo,” says Philip Watkins, a principal at Megalith Capital (snapped above on the left along with Paredim Partners' David Parisier and Harbor Point's Ted Ferrarone). “And the rents at our Rochelle project are 40 to 50% cheaper than what we’re bringing online in Dumbo.”
Megalith is working on two ground-up rental projects in Westchester County right now, the firm’s first development outside of the five boroughs.
Ted, COO at Harbor Point, says transportation is pretty much the sine qua non of upstate development these days.
“Only 30% of the people who live in our units in Stamford are from there originally,” he says. “On top of that, the Stamford stop is the busiest stop on the Metro North, which is the busiest train line in the entire Northeast.”
Even if it’s not too long of a commute, all the panelists agreed that rental projects need a major draw if they’re going to compete with rentals in New York, where a large portion of Westchester County’s renters live.
Part of that’s the reduced rent; as Philip noted and other panelists seconded, rents in Westchester are, on average, roughly 50% cheaper than the city. Still, that doesn’t quite cut it these days. And that’s where the amenities come in.
“Not only are rents a lot lower, but you get a lot more here,” Ted says. “In a lot of developments you’ve got a washer/dryer, you’ve got a pool, a gym, barbecue pits, plenty of space, everything. It’s a really nice lifestyle, despite the commute.”
Jose Cruz, a senior managing director at HFF, quipped that “the only thing missing is someone to give me a piggyback ride to the door of my unit—we’ve got every amenity under the sun out here.”
Panelists say the ease of the commute, coupled with substantially lower rents and abundant amenities, has succeeded is driving strong demand for rental units in Westchester and Fairfield counties.
While you won’t see rent growth like the annual 5% or so that’s common in much of the city, annual rent growths of 2% or 3% are reasonable, the panelists say.
On top of that, roughly 70% of the existing rental stock in those counties was built before 1970, and until very recently new supply has lagged demand considerably, meaning that rent growth should be able to be sustained for a good time yet.
Jose (snapped above along with Caroline Vary, a managing director at the Jonathon Rose Cos) says both debt and equity are plentiful in Westchester and Fairfield right now, so funding generally isn’t an issue.
“Right now we’re seeing banks being very willing to lend, and there’s also a lot of foreign equity in the market, from places like Asia and the Middle East,” he says.
Still, building in Westchester and Fairfield comes with its share of difficulties.
“We love doing business in Connecticut, but the state has really got to get its act together,” says David Parisier, a principal at Paredim Partners.
Due mainly to a series of missteps by the state’s legislature, Connecticut is currently in a $1B budgetary hole, a fact that’s been a drag on the state’s economy, panelists say.
On top of that, getting permission to build can be considerably more difficult than in New York.
“Stamford is run like a New England village… in 1620,” Ted says. “The other day we were at a planning board hearing until midnight, arguing about esoteric minutiae for a deal that should’ve gone through easily.”
Despite the civic obstacles, the panelists were convinced the rental market in Westchester and Fairfield still has plenty of room to grow.
“We just put another crane up down the street,” Ted says. “So obviously we’re bullish on the market.”
Of course, not everyone in Westchester and Fairfield is a commuter. A strong pool of local employers and a healthy office market is essential for the area’s continued economic good health, panelists say.
The ultimate goal, for some, is to turn the major cities in Westchester and Fairfield into true live/work/play communities, along the lines of Manhattan or San Francisco, but panelists acknowledged that’s still a ways off.
“The live/work/play dynamic is definitely starting to happen, but it's in its infancy,” says Clay Fowler, CEO of Spinnaker Real Estate Partners (snapped above with RSM's Steve Kirn). “Stamford is not Palo Alto. The missing component here is a major university. That would be a really fantastic driver of future growth.”
Clay says he’s holding out hopes for a UConn in Stamford, but due to the state’s budgetary woes he doesn’t see that happening anytime soon.
Nonetheless, the area does has an extremely educated workforce, and that’s a major draw for certain types of employers, says Robert Weisz, chairman and CEO at RPW Group (snapped above with BLT's Paul Darrah).
“The medical market and the biotech market are off the charts right now,” he says.
He cites Regeneron, one of the world’s largest biotech firms, as the star example. Regeneron currently leases over 1M SF of office space in Stamford, and is a major employer in the area, something made possible by the high level of education amongst most of the area’s residents.
“A very highly educated workforce is making a tremendous difference,” he says.
Robert says that, for the first time in over a decade, he’s actually been unable to find space for employers looking for Class A office. Alas, the same can’t be said of the area’s vast supply of Class B and C space, much of which still sits vacant.
As more of that space is repositioned into Class A, or even into residential and retail, as is happening at some projects currently, panelists say they expect the area to continue moving toward that elusive live/work/play end goal.