Josh Orlander: The Emergence of the Bronx

With the Brooklyn real estate market overheated an...

With the Brooklyn real estate market overheated and real estate pricing in Queens quickly escalating, investors and developers seeking higher yields in the New York City metropolitan area are increasingly focused on the Bronx.

Demonstrating how attractive the Bronx market has become in a relatively short time, we at GFI Realty Services Inc. recently completed the sale of a multi-family building at 2036 Cruger Ave. in the Pelham Parkway section at a near record $152,000 per unit, as well as a five-building portfolio in Bronx Park South for $24 million, also at near-record pricing.

Multi-family product continues to dominate the market, with cap rates hovering around 5 percent in more stable neighborhoods and yields in emerging neighborhoods approaching 7 to 8 percent. Investors are being drawn to the relative stability of working-class neighborhoods such as Pelham Parkway, Fordham Road and the Grand Concourse, where average rents are approximately 20 percent below the overall market, and the borough continues to see an influx of renters seeking more affordable housing than what’s available in Manhattan, Brooklyn and Queens. Additionally, the South Bronx has experienced increased demand from investors who have been pushed out of gentrified areas in other parts of the city.

And multi-family is not the only attractive property type. Some high-profile examples of investor confidence include the joint venture acquisition of the BankNote Building in the South Bronx this past September by Perella Weinberg Partners and Madison Marquette for $114 million from Taconic Investment Partners, which paid $32.5 million for the 400,000-square-foot building in 2007.

In addition, The Mall at Bay Plaza, a 780,000-square-foot retail center with more than 100 stores and restaurants, opened in the Baychester section of the borough. The luxury Opera House Hotel opened in the Melrose section on 149th Street in the heart of the South Bronx, adjacent to one of the busiest subway stations in the city. And work began on the $350 million redevelopment of the Kingsbridge Armory into the Kingsbridge Ice Center, which will be of one of the largest ice facilities in the country upon its anticipated opening in 2018. FreshDirect is relocating its headquarters and operations center to nine acres in the Harlem River Yards in the South Bronx. There is also current discussion for a sweeping expansion of Metro-North Railroad that would add four stations in the Bronx: in Co-op City, Morris Park, Parkchester and Hunts Point.

At the same time, there has been increased interest from investors in development sites located within such key sections as West Farms and Mott Haven, where we currently have large parcels on the market at asking prices ranging from $50 to $70 per square foot. The demand for existing buildings has made development opportunities increasingly desirable for investors.

As the New York City economy strengthens and the employment numbers improve, the demand for housing will continue to drive rents upward, and investors seeking to take advantage of market timing are increasingly focused on opportunities in the Bronx.

The current landscape of investors includes third-generation family investors: high-net-worth individuals who for the most part are seeking long-term investments, with in-place stable cash flow, low vacancies and upside potential through capital improvements to the properties and bringing the rents up to market rate. Financing for investment is readily accessible, with ample capital available for well-located, quality buildings and strong sponsors. We are additionally seeing more institutional investors interested in entering the market.

The key to a continuing strong market is where the interest rates are headed. If rates tick upward, the compression on cap rates will neutralize any appreciable gains. However, we anticipate that with interest rates remaining relatively stable and as supply-demand fundamentals continue to improve, the Bronx will continue to emerge as a prime area for investment.

Josh Orlander is associate director of investment sales at GFI Realty Services Inc.