Investors Sticking To Industrial, Land Bets In The Bronx
Gloom is hanging over New York City’s investment sales market, as dollar volume slides and the market reacts to rent reform legislation. But in the Bronx, attention and dollars are shifting toward the borough's rising stars: land and industrial real estate.
The borough’s overall dollar volume increased during the first half of this year, with a total of $1.15B sold, according to Ariel Property Advisors data released last month.
Multifamily slipped, with just under $440M in properties trading hands, a 20% drop from the first half of 2018. By comparison, the industrial sales market experienced enormous gains. There were $269M in sales, a 477% increase from the year before.
Big players have been buying up last-mile distribution centers, including some hefty sales in the sector so far this year.
“Given what's happened since June 14 ... We've probably seen the most demand for both industrial and development [sites],” Cushman & Wakefield Director Jonathan Squires said at Bisnow’s Bronx State of the Market event last week.
Dollar volume of development sites jumped 70% in the first six months of the year, per Ariel's midyear figures, over 2018.
“Pricing is also up," Squires said. "Anecdotally, we’ve had 12 industrial listings over the last 12 months. Every single one of them sold ... We have about 20 developments sites right now and we're finding a lot of interest.”
It is almost impossible to talk about the city’s commercial real estate market right now without touching on the state’s new, beefed-up rent regulations. Since the Bronx has the highest percentage of rent-regulated units in the city, the new laws and their impact has been front of mind for players in the borough.
Meridian Capital Group broker Amit Doshi predicted that the third quarter of 2019 — the current period — will be the city's worst for investment sales in the last decade, as a result of the changes.
Nelson Management President Robert Nelson said many people are worried the rent-stabilized stock will “turn into NYCHA buildings.” New York City Housing Authority’s apartments are said to be in a state of disrepair, and the city has said they need millions of dollars worth of repairs.
Meanwhile, Stagg Group’s Mark Stagg said margins would still be there, but would be thinner and underwriting standards would be stricter.
While many panelists bemoaned the impact of the laws, others pointed to a borough that still has huge room to grow.
“In 2018, the Bronx saw more than 11.3M SF of total development,” Bronx Deputy Borough President Marricka Scott-McFadden told the audience. “These numbers are staggering, and just a few years ago, such progress would have been unthinkable.”
Specifically in the warehouse and industrial market, there have been some standout trades so far this year.
Himmel + Meringoff and Square Mile Capital Management joined together to pay $89M for a mixed-use industrial site at 1601 Bronxdale Ave. back in May. MRP Realty sold a 116K SF industrial property at 1300 Viele Ave. for $70M, or more than $600 per SF. That building is fully leased to Amazon, and the sellers paid just $25.6M for it back in 2017.
Rumors around Amazon’s plans for more distribution space in the city have been swirling for some time, with reports that the e-commerce giant is weighing a lease on a former industrial site in Maspeth, Queens, or possibly a large space in Industry City, Crain’s New York Business reported.
“Amazon isn’t the only tenant, there are similar tenants that are looking for space,” said Andrea Himmel, the director of strategic acquisitions at Himmel + Meringoff Properties. “We’re going to see similar demand for large industrial spaces, just like Amazon.”
However, finding other assets of this type has been a challenge, she said because of sellers' “unreasonable expectations” on pricing.
"It's made us have to price and structure acquisitions in a more creative way," Himmel said.
Industrial assets have been a hot commodity everywhere in recent years, thanks to a double-whammy of economic expansion and the craze for online shopping. Many players in the space wonder how the sector would be affected by a dip in the economy.
In densely populated places like New York City, packed with people who want their goods immediately, many investors are working on ways to get last-mile assets in strategic positions.
C&W’s Squires believes the key for the Bronx to become a successful borough for industrial will be zoning.
“What they are doing currently is zoning everything from industrial to either MX or straight resi, which is putting a lot of pressure on the industrial market,” he said. MX is a type of mixed-use zoning that permits residential and certain industrial in the same place.
Crown Architecture founder Michael Santora agreed that changes in zoning will be crucial, as well as better transport within the borough.
“I think that the future of the Bronx is going to be more zoning changes to more of the MX-type districts that city planning has produced in the past, which allows for industrial uses that meet sort of performance standards to be combined with residential," he said. “What the Bronx has right now is a lack of transportation that connects the Bronx within itself.”