Short-Term Supply Glut Not Lowering Long-Term Expectations For Queens Builders
There is no denying the Queens market is grappling with some challenging factors. Thousands of new rental units are hitting the market, which is slowing absorption and pushing up concessions rates. But Queens players say the future is promising.
“In prior years, buildings would do 25 to 30 rentals a week, now the same buildings are doing 25 to 30 a month,” ModernSpaces CEO Eric Benaim said. “It was scary in the last half of the year ... [but] it’s starting to look a lot brighter now.”
Certainly, a building boom has led to a flood of new development luxury rentals hitting the market all at once, and landlords are now lavishing prospective renters with incentive packages at record levels.
Last month, 65.1% of new leases signed in Northwest Queens featured some form of concessions, according to Douglas Elliman, an increase from 45.4% the previous year.
This issue of new development supply, the borough’s burgeoning office market and locking down financing for projects in the area were all topics speakers addressed at Bisnow’s Queens State of the Market event Tuesday.
Around 200 people were at the event, which was held at Melrose Ballroom in Long Island City. The speakers included the Durst Organization's Helena Durst, RXR Realty’s Seth Pinksy, Kaufman New Ventures' Fred Leffel and Greater Jamaica Development Corp. President and CEO Hope Knight.
Panelists said that despite a vast rental supply in the borough, there is still significant development and investment potential.
“All the projects that are happening right now are creating long-term value,” Benaim said, adding that there are still few condominiums in the area. “All the buildings that are opening … They are pumping millions and millions [of] dollars into advertising and marketing the neighborhood.”
Slate Property Group principal David Schwartz said that, in many ways, the statistics don’t show the full picture.
His firm recently closed on a 200K SF development site at 37-11 30th St. in Astoria. It is also developing a 150K SF site at 69-65 Yellowstone Blvd. in Forest Hills.
“I think that the problem we have is people don’t look beyond the statistics,” Schwartz said, pointing out that many of the units in Elliman's report are concentrated in Long Island City.
He thinks it is still a good time to acquire land, because, by 2022, all the units currently on the market are going to be filled.
“It’s the biggest misconception that [renters and buyers] are focused on Long Island City," he said. "People are focused where the product is.”
It is not just about the location, but the type of product that is available. At the Durst Organization’s Hallets Point Development, for example, Helena Durst said the company is expecting to lure tenants with a higher level of amenities than in other parts of the borough.
“I think we are going to see a lot of people moving to Astoria because they have the higher amenities,” she said. “Right now in Astoria, you don’t have any buildings that have landscaped roofs.”
Meridian Capital Group Senior Managing Director Morris Betesh said he believes that Queens is only seeing its “first wave” at the moment, and there is still a lot of room for more retail development before Queens neighborhoods will match places like Williamsburg and Greenpoint.
“Those retail amenities drive demand for condos and rents significantly higher,” he said. “There will be a second wave when the absorption occurs and retailers will be a little more pioneering.”
He added that many traditional lenders don’t understand the complexities and breadth of Queens, which means he takes extra care in bringing them to sites to educate them on the merit of projects and submarkets.
Investment sales in the borough jumped in the first quarter, with a total of $1.07B sold, according to Cushman & Wakefield. That figure is a 32% increase from the same period last year.
An increasing population, ad a growing number of rentals and condos to meet the demand are having an impact on the growth of the office market in the borough.
Normandy Real Estate Partners, along with Keystone Equities and GE Capital, closed on the $39M purchase of an industrial building at 25-11 49th Ave. in Long Island City earlier this year. The group is planning a 238K SF office building there, having secured an $81M mortgage from Deutsche Bank, The Real Deal reported.
Normandy partner Gavin Evans told the audience that while his firm is a great believer in the future of the Manhattan market, Queens offers spectacular space and a much lower cost.
He said New York state’s Relocation and Employment Assistance Program that offers businesses a tax credit to move jobs to the boroughs is an enormous draw for Queens.
“You have great space in Manhattan at $90 a foot, [but] a tenant can come to Long Island City and get a $20 a foot for 12 years benefit from the state,” he said. “Then they are netting $25 a foot, relative to $90 and they are able to give their employees spectacular space.”
For RXR’s Seth Pinsky, however, it is not just about money.
In the past, he said, you couldn’t pay companies to move to the boroughs, even with the REAP incentive. But with an increasing population in Queens, companies are taking the area seriously.
“Brooklyn and Queens attracted residential population. But it’s not just any residential population, it’s a population with the talent base that the fastest-growing companies in the New York region are looking for,” he said. "Economics are obviously important, [but] nobody ignores the bottom line. They are willing to try and find the right space for their employees.”