Why The Bronx Is Going To Heat Up In 2016
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After trying to repair its image for decades, the Bronx is turning a corner and attracting some impressive investment in 2016. According to data from CoStar, the bureau saw 469 multifamily, retail and office transactions totaling $2.03B in 2015.
While commercial and retail projects—like the redevelopment of the Bronx General Post Office into an open-air food market by Youngwoo & Associates and the conversion of the Kingsbridge Armory into an ice-skating complex—have radically changed the borough, the real moneymakers are multifamily properties. Not only did these developments make up $1.6B of the year's transactions, but the borough is also slated to see 8,000 new residential units come online in the next few years.
No deal proved the Bronx’s potential or its preference towards multifamily more than Related’s $112.5M purchase of a 20-building portfolio in the borough. (Shown above: 1065 Jerome Ave, an elevator building with 58 apartments that is part of Related’s purchase.)
According to The Real Deal, the package—containing 737 apartments and rent-stabilized units spread throughout the North, West and South Bronx—was the largest sale in the borough in 2015. Brokered by Bisnow partner Besen & Associates executive director Amit Doshi (below, right) and chief marketing officer Ron Cohen (left) along with Rosewood Realty Group president Aaron Jungreis, the units are to be preserved as workforce housing in a long-term hold, according to a Related spokesperson.
This isn’t the only Bronx deal that Besen has been involved in. Just recently, Amit—who is consistently one of the Bronx’s top brokers—and senior director Lynda Blumberg also signed an $8M contract to sell a 224k SF affordable housing development on a 51k SF site in the Westchester Village.
According to Amit, proposed plans call for an eight-story building with 152 apartments, with an option to build up to 300k SF in 200 units. Besen also sold a 311k SF development site in Parkchester (pictured below) for $14.7M last year.
But what has changed? Why has a neighborhood known for urban decay and arson become the next New York development frontier? At first glance, it seems obvious: although only a quick Subway ride away from New York’s pricier districts, the Bronx is still relatively untouched by many developers and has plenty of strong (and comparatively cheap) development sites available.
According to Cushman & Wakefield, more than 75 development sites have been sold throughout the Bronx through Sept. 30, 2015, in deals totaling more than $146M.
Amit, however, says it mainly comes down to land price and financials. While prices in Manhattan ($638/SF), Brooklyn ($233/SF) and Queens ($168/SF) are reaching ridiculous heights, the Bronx’s prices are dirt cheap in comparison, averaging below $50/SF. Besen’s Westchester Village, he tells Bisnow, equated to only $35/SF, while the Parkchester averaged at $47/SF.
“The Bronx continues to be a value play, and now it’s on the radar more than ever,” Amit says. “While there are many investors who have recognized this for quite some time, it’s attracting new capital, which find the metrics much more palatable.”
While in Manhattan, he explains, the land prices force developers to build pricey condos and take huge risks, the Bronx’s low basis allows for investors to pencil out market-rate rental and affordable housing properties without the heartburn.
But this frontier is already undergoing some radical price hikes as more buyers and developers recognize the Bronx’s potential. The average value of a multifamily unit has risen from $94k in 2013 to $128k.
Big-name developers and institutional investors are also eyeing the Bronx for larger, pricier developments and assemblages as these rental projects find some success.
Related, for example, has not only deployed one of its equity funds to purchase workforce housing throughout the neighborhood (as previously mentioned), but it also paid $66M for a 355-unit rental building in 2014 and bought up a portfolio of 35 rental buildings for $270M in 2013. And Gary Barnett’s Extell Development purchased the former Whitestone Multiplex Cinemas for $41M from David Lichtenstein’s Lightstone Group. Few could blame them for moving in, but their involvement could mean that Bronx’s time as the frontier for affordable land and housing could be coming to an end.
When asked about the Bronx’s future, Ron doesn’t necessarily expect the Bronx to be the next Brooklyn that everybody has been searching for. Simply put, the Bronx’s values have historically grown at an “incremental pace”—as opposed to the exponential growth of Manhattan and Brooklyn—and he expects that slow and steady pace to continue for the foreseeable future.
“But,” he concluded, “if the borough sees even one-tenth the amount of growth that Brooklyn has had, that would still amount to handsome returns.”