The Bronx's Surprising Stability Is Drawing Risk-Averse Multifamily Investors
New York City’s apartment market has been hit hard by the coronavirus pandemic, but the Bronx has appeared to have fared much better than other parts of the city. Now, the borough's underlying fundamentals that helped the market make it through this protracted health and economic crisis could bolster it for years to come, Bronx boosters believe.
Across New York, multifamily sales have tanked; overall volume was down 58% in the first quarter to $620M, spread across just 56 sales, according to Ariel Property Advisors. The Bronx was relatively more active, however. The borough's sales volume was down by 39% compared to Manhattan’s 55%.
Meanwhile, residential rents have held firm, and landlords have been reporting relatively strong rent collections over the past year, even as job losses swept the city.
Sources say the borough’s heavy reliance on affordable housing and fewer transient renters has been a boost for the area and potentially a lure for investors as the city begins to recover.
“In the past 12 months, there has been a lot of capital attracted to the downside protection that affordable housing provides … the Bronx has been a beneficiary of that,” said Ariel Executive Vice President Victor Sozio, who said he is currently marketing thousands of affordable housing units in the borough with bidding deadlines coming up this month.
Uncertainty is still looming over much of the multifamily market, Sozio said, which is spooking some investors leery of risk. Free-market residential buildings were considered a more attractive place to park money in the lead-up to 2020, he said, as new regulations were introduced to curtail how much owners could raise rents on stabilized stock. But in the 14 months since the coronavirus took hold, that prevailing view has been shaken.
In Manhattan, residential vacancies soared to more than 5% for the first time ever, and rents fell as much as 25%. Rents have begun to recover and lease signings have improved, but the market is still seen as extremely weak. The potential of the “good-cause eviction” bill — which would protect tenants who haven’t paid rent from eviction if the cause is deemed to be an “unreasonable” rent jump — is also threatening the free market, Sozio said.
“You go to a bank, they don't know how much they can finance, nobody knows what to plug in for their market rent assumptions, what to put in for how many concessions or for their vacancies," Sozio said. “You have more depth in that multifamily rent-stabilized space in the Bronx, and it's because people know how much equity they have to come up with versus a big question mark, or not knowing if you're gonna have a lender at the table at the end of the day when you get to closing."
While Manhattan and Brooklyn saw major rent drops, the numbers in the Bronx tell a different story. The average rent in the Bronx in April was just over $2K a month, according to data from MNS, a small increase from the month before. Studios went up by under 1% from the same time last year. One-bedrooms went up by more than 9% and two-bedroom apartments increased by nearly 3%. The average rent in the borough is up 4% from April 2020, per MNS.
“The Bronx has fared pretty well, because if looking at Mott Haven, where you have mostly new construction coming up, the supply is very, very limited,” said MNS New Development Vice President Stephanie Andrews. “It's a price point issue as well, you do have a discount on rent compared to say, your Harlem market across the bridge. So it's a mixture of those things.”
Major investors were already seeing the benefit of the market well before the pandemic. The numbers of people moving in outstripped the number of units available, and it was one of the few places where rents match up to median income in the city, so people with middle incomes could live there without being rent-burdened.
Brookfield’s plan to build 1,350 apartments on 4.3 acres at 2401 Third Ave. and 101 Lincoln Ave in the Mott Haven neighborhood, was considered a game-changer for the future of the area.
Some expect the pandemic will only make the Bronx seem more attractive as tenants reassess how they want to live.
“Manhattan, because of the concentration and density, bore the overall brunt of the pandemic,” said Darren Hornig, whose Hornig Capital Partners joined with L+M Development Partners to develop a 450K SF mixed-use project in the Belmont neighborhood, across from St. Barnabas hospital.
“People just wanted to leave because of the pure density," he said. "The outer markets, even though it’s still New York City, it didn't have that dense feeling.”
Those considering multifamily in the area would take heart from the rent collections some landlords have received. Taconic Investment Partners, which owns 1,900 units in the Bronx, reported occupancy between 97% and 99% throughout the pandemic, while collections have averaged between 95% and 98% of the billed amounts.
“We haven’t seen any drops in occupancy levels last year,” Taconic Residential Asset Management Senior Vice President Rick Lapidos wrote in an email. “We have seen a slight uptick in move-outs during Q1 2021, but demand has been high and we were able to lease those apartments very quickly.”
There are still ongoing challenges, said Keith Gordon, the managing partner at NCV Capital Partners. His company owns more than 500 units in the Mount Hope section of the Bronx, all of which are affordable. The firm is also planning an 82-unit affordable housing project in a former theater in the borough, for which he is currently seeking construction financing.
Rent collections have been in the mid 80% range through the pandemic, he said, while noting the state’s moratorium on evictions being extended until the end of August will impact the ability to collect some outstanding rents.
Laws preventing foreclosures on small businesses and landlords were also extended, but bureaucratic red tape is holding up much of the nearly $50B in aid Congress approved for rent relief, Politico reported this week.
“I would say that the buildings have performed better than what we thought. We are not out of the woods … [But] people are impressed with how the borough held up,” Gordon said, adding the crisis has forced landlords to be more “customer-focused” and help tenants find various ways of accessing rent support.
Ultimately, he believes the Bronx market has done well because locals have put down roots in the area, unlike other places in the city.
“In Manhattan, for example, two of their roommates might work on Broadway, then you have tenants who worked in the finance sector, their lease [may be] coming up … Why would you pay some really high rent, when you work remote from Nashville?” he said.
“That’s why they say the Bronx is more stable: a lot of our tenants, they don’t have the luxury to take off and go somewhere else. This is their home.”