Investment In Bronx Multifamily Shows No Signs Of Slowing
Abandoned buildings and vacant lots have filled with market-rate and affordable housing developments. Infrastructure improvements have attracted a growing population looking for a convenient and safe commute into Manhattan.
An area of the city once left to deteriorate has become the next Brooklyn.
The Bronx’s blossoming multifamily sector contrasts sharply with the city’s overall slowdown in investment sales activity. Volume fell 60% in Q2 compared to last year, a reaction to weakening apartment rents and political and capital market uncertainty. The Bronx instead saw a 16% increase in multifamily spending compared to last year, according to a report from Marcus & Millichap.
One of the last frontiers for accessible investment, high returns and value-add opportunities, Bronx multifamily continues to strengthen, as investors get creative to drive returns.
“Investors have the chance to buy cheaper real estate with a higher return in an appreciating market,” Marcus & Millichap broker Michael Fusco said. “This is beneficial to people who are being priced out of other markets and have money on hand. They can find a value-add opportunity in the Bronx.”
Fusco sees two main types of investors buying in the Bronx multifamily market: investors using their own capital and syndicates raising money from outside investors. Both groups use different approaches to acquiring value-add property.
Private investors with greater wealth hold onto properties for 10- or 20-year returns, while syndicates use their financial cushions to turn deals into two- or five-year holds.
During these shorter ownership periods, investors have looked to improve the quality of the properties to recapture their initial investment. Owners might convert a one-bedroom into a two-bedroom and so on to produce higher rents, Fusco said. The improvements accumulate as the building changes hands, adding to the growing inventory of high-quality buildings in the Bronx.
"Not only does it help them to reap their initial investment, but also as these buildings change hands, depending on who is buying and managing it, it progresses the quality of the buildings hence improving the surrounding locations,” Fusco said. “That ties back into the Bronx becoming a more livable place for people that otherwise wouldn’t consider it an option."
Infrastructure improvements have also led to increased property value and improved quality of life. In March, Gov. Andrew Cuomo approved a $1.8M plan to reconstruct the Bruckner-Sheridan Interchange. The Sheridan Expressway will be replaced with a boulevard design that is pedestrian and cyclist friendly, and the improvements to the Sheridan will give South Bronx residents a direct connection to the Bronx River waterfront.
The project is part of the city’s $194M placemaking initiative along the waterfront, which would bring an estimated 1,500 apartments to the area. While the increase in development has residents worried about being priced out of the area, developers have focused on affordable housing projects to take advantage of tax incentives.
“While most of the development is affordable housing, the developers and the city are trying to give residents a unique lifestyle," Fusco said. "The stores, the restaurants, the breweries; that only becomes possible by having one easily accessible to the other. Almost all multifamily/mixed-use development in the Bronx right now comes with some sort of an affordable component, so that's sure to keep the area tied to workforce housing.”
Investments will continue on a deal-by-deal basis. Buyers are looking at the Bronx in pockets, areas with access to reliable transportation and retail, Fusco said. The gap between buyer and seller expectations is starting to shrink, as many sellers are meeting the market with a more realistic asking price.
Activity will spread to areas of the borough touting similar amenities. Kingsbridge, a middle-class North Bronx neighborhood with access to the 1 train and adjacent to the affluent Riverdale area, is already an attractive option for both investors and residents.
“Parts of the South Bronx have caused a ripple effect in terms of investment growth throughout the Bronx, predominantly in locations near transportation that can deliver you to Midtown or anywhere in Manhattan within 25 minutes,” Fusco said.
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