NIMBYism And Skittish Lenders: The Barriers To Building In The Bronx
The Bronx has garnered plenty of attention in recent years as the city’s next development frontier. But building there isn’t without its challenges, and developers are still grappling with cautious lenders and community backlash against perceived gentrification.
There is no doubt there is significant investor appetite in the borough. The average elevator building sold in the Bronx for $207 per SF in the first half of the year, a 15% increase from the same period in 2017, according to Cushman & Wakefield figures.
The supply-and-demand fundamentals are incredibly attractive, with the number of people moving into the area far outstripping the available units. Investment brokerage Hodges Ward Elliott data indicates the Bronx has only delivered one new unit for every 15 new residents that have moved into the borough over the past two decades.
But despite those strong economies, and the fact that industry giants like Brookfield are investing in the area, developers say making new projects work still takes some serious effort.
“One of the challenges as far as development is concerned is NIMBYism,” Nelson Management Group President Robert Nelson said at Bisnow’s Bronx State of the Market event Thursday.
His firm is joining with L+M Development Partners to build two 435-unit, mixed-income buildings at 1520 and 1530 Story Ave. in Soundview.
“You have a lot of backlash and a lot of uproar about gentrification,” he said, adding that he believes the borough holds the key to fixing the city’s affordability housing crisis. “We as owners have to push forth an agenda in terms of saying, ‘we are here to build housing.’”
The area has long been dominated by affordable units, but many say that market-rate housing is now just around the corner. It is the only borough where rents match up to median income in the city, so people with middle incomes can live there without being rent-burdened.
There are several megaprojects on the horizon. The redevelopment of the Kingsbridge Armory into an ice skating complex is close to securing financing, rumors are swirling over the New York City Football Club picking the area for its stadium and Brookfield’s play in the area means it now has 1.3M SF across two separate development sites in the South Bronx.
Walmart subsidiary Jet.com is also set to open a fulfillment center in the borough this fall, and Gilbane Development Co. is working alongside Hudson Cos. to develop the Peninsula, the former Spofford Juvenile Detention Center, into a campus featuring 700 units of 100% affordable housing.
Companies like Taconic Investment Partners see the area as a safe bet. The firm owns Eastchester Heights, a housing complex on Seymour Avenue. It also bought more than 300 rent-stabilized units earlier this year from Related and plans to continue acquiring in the area.
Taconic Senior Vice President Dan McInerney said his company has had great success in rent growth, but some of the existing buildings they own have been poorly managed in the past.
“You never know what you will get … One of the biggest challenges we are having is the insurance rates on some of these buildings because of their history,” he said. “It’s really challenging, and it hurts the underwriting.”
Many said encouraging construction of market-rate rentals and condominiums will have a major impact on the area by creating homes for people who don’t qualify for low-income housing, but have been priced out of other parts of the city.
Hornig Capital Partners founder Daren Hornig, who previously told Bisnow that he is looking at a number of potential investments in the area for market-rate rentals or condos, said it remains challenging to convince banks to lend on a project while there are few comps to show them.
“When you are going out and building something new, all the lenders will say ‘where are the comps?’” he said. “That’s been the biggest challenge for us buying dirt in this market … if you are buying an existing building you can underwrite your cash flow …. When you are taking something out of the ground, really getting a good market comp is hard.”
As the market matures, and as Brookfield moves into the area, Hornig said a benchmark will be set.
Adding to the challenges, Nelson said, is that there are few services and there seems to be a ceiling to the price of rents that can achieved.
“I think a lot of us are hoping that Brookfield can crack the code,” he said. “When you build today, your break-even point is probably the mid-$40s per SF … that equates to a two-bedroom apartment for about $2,900.”
Many speakers at the event pointed to the growing amount of transit in the area and the changing demographics as a positive. This week, for example, the city opened a new ferry stop that connects Soundview to Wall Street. Four new Metro North stops in the borough are also expected to have a major impact on development.
Meridian Investment Sales Managing Director Mark Steinmetz said there has been a stigma to the Bronx that is starting to fade away.
“[People need to] actually come to the Bronx and see what is going on here," he said. "Brookfield will help with that."
CORRECTION, AUG. 16, 6:46 P.M. ET: Hodges Ward Elliott data indicates the Bronx has only delivered one new unit for every 15 residents that have moved into the borough over the past two decades. An earlier version of this story misstated the data. This story has been updated