Game Changer: Big-Name Investors Bring Cachet The Bronx Is Craving
Believers in the Bronx investment market have long touted the future of the borough. But big names like Brookfield making a major play there means the area may really be coming into its own.
Last year, amid a lackluster investment sales market across the city, the Bronx actually saw a jump.
Bronx investors spent $1.5B in the second half of 2017, according to the Real Estate Board of New York’s data, up from $1.4B during the same period the year before. The overall dollar volume of development sites jumped nearly 200% to hit a total of $52M. The dollar volume of industrial sites and mixed-use properties also increased significantly year over year.
Industry players said Brookfield's decision to make a major play in the area, paying a reported $165M for Chetrit and Somerset Partners’ mixed-use development site at 101 Lincoln Ave. and 2401 Third Ave., signals a turning point for the borough.
“It’s a complete game changer. The area was cool and hot and eclectic before. But when you have a company of that sophistication making that size of a commitment, it will really get going,” said Daren Hornig, whose firm, Hornig Capital Partners, co-owns the Bruckner Building, an office property at 2417 Third Ave. in Mott Haven. “They can build critical mass. It’s a very large project by anyone’s standards.”
Hornig said seeing what he calls “smart money” coming to the borough provides an extra level of comfort to Bronx investors. Though he said it still isn't easy to convince lenders to provide backing for projects in emerging markets like the Bronx, he has no doubt that the borough has the potential to move beyond an affordable and workforce housing market.
“It’s turned. It’s happening slowly but surely, it’s doesn’t happen overnight,” he said. “It will be market-rate … Just the same way Brooklyn has become a condo market, that’s only happened in the last cycle.”
Not everyone is convinced it will be sooner rather than later.
Douglaston Development Chairman Jeffrey Levine said at Bisnow’s Tri-State multifamily conference event last week that he is not currently buying into the Bronx with the view of achieving market-rate rent. His firm is developing a three-building, 425-unit project in Mott Haven called Crossroads Plaza.
“It will happen,” he said about new, market-rate units in the Bronx. “I don’t know if it will happen in my life, but it will happen.”
Apartment supply in the Bronx has increased just 5.2% in the last 25 years, according to data from Hodges Ward Elliott, while the population has grown 25% over the same period.
"This is at the exact same time that Brooklyn, Queens and Manhattan investors are experiencing increased concessions,” Hodges Ward Elliott Managing Director Daniel Parker said at the event. “There are no concessions in the Bronx right now.”
The middle-class appeal of the Bronx — where rents are currently aligned with the median earnings of residents — means it continues to be a sure bet.
“We like to say, ‘in a gold rush, you can either pan for gold or sell shovels,’” he said. “Buying in the Bronx is similar to selling shovels.”
HFF’s David Fowler — who with his team last year brokered the sale and financing of Jamestown’s acquisition of a 10-story office building at 260 East 161st St. from Acadia Realty Trust — said the borough has the best supply and demand dynamics of the city and has attracted excellent yield.
“[Investors like Jamestown] are more difficult to please in terms of yield, so if you are able to substantiate institutional investment in the Bronx, it typically means the area has come into its own,” he said, adding that there were 20 bidders for the East 161st Street property, half of which were institutional buyers.
“Groups that need that additional yield … are finding it in [the] Bronx much more so than they are in other boroughs.”
Major institutional investment has been in the South Bronx — in Mott Haven and the area around Yankee Stadium — Fowler said. He believes it will settle there for the time being, although industrial and residential investment will creep deeper into the borough.
“People are already betting on [the area north of 149th Street] and buying into the 150s and 160s,” C&W Director in the Capital Markets Group Jonathan Squires said. “All of that seems to be driven by the affordable housing that is there, and the tax credits make it viable, but the market portions are going to be significantly higher and land prices are going up and up.”