The Bronx: NYC’s ‘Last Frontier’ for Investment
Real Estate In-Depth | October 2018
The Bronx is booming! Real Estate In-Depth talked with local real estate experts Sarah Jones-Maturo, president, RM Friedland and Kathy Zamechansky, president, KZA Realty Group, who recently announced a new alliance, to find out why investment has been picking up in the borough.
Real Estate In-Depth: What main factors contribute to the borough’s commercial property boom?
SJ-M: Economics and proximity to Manhattan are the key drivers. From a developer and investor perspective, the Bronx is considered to be the last frontier in New York City. People have been substantially priced out of Manhattan, Brooklyn and Queens.
Real Estate In-Depth: What recent and current projects showcase the advantages of the Bronx?
KZ: Major developments are taking place in almost every corner of the borough, with mixed-use residential leading the way. This includes the South Bronx. La Central, a 992-unit mixed-income, mixed-use project that will revitalize The Hub, and in Mott Haven, new mixed-use developments are home to hip restaurants and pubs, including Lit Bar, the borough’s first bookstore and wine bar, and Beatstro, a hip-hop restaurant on Alexander Avenue.
And, the Bronx is now a film and TV production hotbed. York Studios is developing a $100-million facility on a 10-acre site in Soundview, joining nearby Kaufman Studios and the new $40-million Silvercup Studios in Port Morris.
As more people shop online, retailers and investors looking for “last mile” distribution centers with access to a large population are drawn to the Bronx. Jet.com signed a deal for a new 200,000-square-foot warehouse at 1055 Bronx River Ave. in Soundview and the Hunts Point Produce Market is as busy as ever. In addition, the flower market and the relocated Fulton Fish Market have added an extra jolt.
The borough’s proximity to major highways and public transportation, along with the new Soundview Ferry and the addition of four Metro North stations, will make the commute to Manhattan easier and spur development.
Real Estate In-Depth: How and why are public/private partnerships important for commercial real estate projects in the Bronx?
KZ: Public-private partnerships are instrumental to ensure that affordable and special needs housing projects succeed. Affordable housing projects like La Central and Tremont Renaissance will attract further community investment.
Public benefit projects, like the Fresh Direct facility in Port Morris, received $127 million in subsidies, allowing the company to build a distribution center, convert its truck fleet to green energy and create more than 1,000 new jobs.
Real Estate In-Depth: Can you give us an overview by category of retail, mixed-use, industrial and office space in the Bronx?
SJ-M: In general, retail developers aim to maximize the borough’s waterfront land. This surge in activity and optimism about the future have boosted retail activity; average rental rates continued to climb for the third straight quarter. We’re not seeing this kind of bullish market in other parts of the Tri-State area.
Mixed-use, including multifamily, is the current darling of the commercial investment sales market. Even in a higher interest rate environment, investors are anticipating future potential or “value-add” management. In most rental surveys, the Bronx is still showing year-over-year growth in many submarkets, particularly in Mott Haven, Port Morris and High Bridge, unlike prime Manhattan, Brooklyn and Queens spots, so there is a lot of upside potential.
Industrial demand is high, but supply continues to diminish; many properties are being demolished to make way for grander mixed-use developments. Right now, the availability rate is below 10% and most inventory consists of low-ceiling B and C product. From an investment perspective, industrial buildings can sell for more than $300-a-square-foot.
In the office market, driven by non-profits, medical tenants and charter schools, a well-located, well-priced building will see positive demand. Despite its extensive transportation infrastructure, the Bronx has yet to attract the attention of corporations for back-office alternatives, like in Brooklyn and Jersey City. Investment sales activity in the office sector is limited, with typical leases ranging from the low $20s to high $30s for a Class A building.
Real Estate In-Depth: How long can the Bronx maintain this tremendous rate of growth?
SJ-M: Much of it hinges on the overall economy of the New York City market. If the fundamentals remain strong in the other boroughs, urban developers and investors will continue to look to the Bronx.
Real Estate In-Depth: What challenges do you see in the future for economic development in the borough?
KZ: Now that the Bronx is being seen as the “last affordable borough,” some of the benefits that brought that forward movement, like low land prices, reasonable rents and more areas available for development, are changing. Growth depends on keeping land costs down and attracting new retailers. As the borough evolves and new projects emerge, the future is bright.