Traditionally, upper Manhattan and the Bronx have been dominated by the multi-family asset class. The developing land sales market is also primarily focused on this asset class, with affordable and stabilized rental housing leading the market. While the Bronx has recently seen a huge surge in interest in industrial properties and northern Manhattan has a growing life science industry, affordable multifamily is still the primary indicator for the sales markets of. investment in these boroughs.
Upper Manhattan and the Bronx have not faced the same drastic vacancy problems as areas of the city considered prime markets. The high degree of stay of people in these areas and overall robust collection rates midway through 2021 are encouraging signs, although collection issues due to the moratorium on evictions have affected the sales market. The greater availability of lender capital has also played a crucial role in the overall market recovery.
âRight now, especially for lending agencies like Fannie Mae and Freddie Mac, affordable housing is a preferred asset class due to its relative stability,â said Victor Sozio, executive vice president of ‘Ariel Property Advisors. âRent collection typically exceeds 85% and there are long-term tax benefits for landlords. As the economy recovers, this can further help create more affordable deals in the pipeline. “
Already in the second half of 2021, Sozio and his team are seeing a major upward trend in transaction volume for the multifamily market as a whole.
âApproximately 6,000 multi-family units were traded across New York City in the first half of 2021,â Sozio said. âNow our business alone aims to close over 4,000 affordable housing units in the next few months alone. “
A nuanced asset class
In the affordable housing sub-segment, there are several aspects and degrees of assets encumbered by different regulatory agreements that present specific opportunities for different types of capital.
âWe recently closed a Sale of $ 25.3 million in Harlem for a 60-unit multi-family property, section 8, âexplains Sozio. âWhile the property was vulnerable to an open market conversion, the buyer negotiated a new 40-year deal with the city to preserve affordability in return for tax breaks. This is a testament to the value these types of products have for homeowners, especially mission-oriented homeowners trying to address the affordable housing shortage. “
Sozio noted that he has a contract inventory that currently includes five affordable housing deals. âAll are different in terms of what they offer to investors because this segment of the market is nuanced. Even within the same property, different units may be regulated differently.
More than 2,500 of the 4,000 homes mentioned by Sozio are subject to multiple regulatory agreements and benefit from subsidized rents through housing assistance agreements (HAP) with the HUD. About 1,700 of these dwellings are subject to regulatory agreements with various municipal and state agencies, which govern income and rent restrictions for the duration of the agreements.
Understanding the economics through nuanced regulatory arrangements is essential in order to find the appropriate capital for the proposed returns.
âInstitutional capital is eager and optimistic to deploy funds in this segment of the market. However, every chord and chord is different. Being able to explain how properties should be operated in the short and long term is an essential part of an effective marketing strategy, âsays Sozio.
Interest in affordable housing is one of the main reasons activity in upper Manhattan is rebounding towards pre-Covid numbers. According to data for the first half of 2021, this market recorded 32 transactions comprising 40 properties totaling $ 233.3 million in gross consideration. Compared to 2H20, figures released this year show a 10% increase in transaction volume as well as a 16% increase in dollar volume and a 14% increase in the number of properties sold.
Tellingly, most of these sales have been small to mid-sized, with some sales over $ 20 million in the first half of 2021. Smaller multi-family sales are currently experiencing a moment, with these assets attracting both money. institutional and private investment. The stability of affordable housing and tax incentives reduce exposure to the market, which is a big part of the growing demand from investors of all sizes.
Affordable housing development
When it comes to the development market, affordable and rent-stabilized housing are also major business drivers in the Bronx and upper Manhattan, although upper Manhattan increasingly has a more diverse market, in particular. particularly with a freer residential activity. Still, affordability is key, as there are incentives for developers to provide quality housing.
These include the low-income housing tax credit, a tax incentive to build or rehabilitate affordable rental housing, and Article XI tax credits, tax exemptions for new constructions belonging to the Housing Development Fund Company or the rehabilitation of affordable housing. These programs can benefit a range of deal sizes, including the recent example in June of a portfolio of 14 properties sold for $ 122 million to a number of HDFC co-ops.
âLinked to the affordable market, some of the Bronx’s biggest deals have been driven by the expansion of charter schools,â said Michael Tortorici, executive vice president of Ariel Property Advisors. âServing the residents of the region, recent developments in education show the ripple effects that increasing the number of affordable housing units can have on the market in general. ”
A striking example is 75 West Canal Street, a Mott Haven site formerly used as a taxi depot and garage, which sold for $ 21.7 million to KIPP Charter Schools in April 2021.
The North Manhattan submarket has also seen an increase in development site sales since the second half of 2020 (up 75%). Despite the small sample size, low price per buildable square foot, high lender enthusiasm, and low interest rates are currently creating a favorable environment. 400 West 219th Street, for example, is a 144,000 buildable square foot property that sold for $ 16 million, or $ 111 per buildable square foot, an attractive price for developers.
Economic market supporting multi-family
In addition to the multi-family dominance in upper Manhattan, there has been the ongoing commercial development of West Harlem, particularly in the life sciences area. Columbia University’s Manhattanville expansion and Janus Property Company’s Manhattanville factory district are spurring economic development and residential interest in the area. In fact, the Manhattanville Factory District’s Taystee Lab Building, a life sciences and office development on the site of a former Taystee bakery, is expected to be the city’s only prominent addition to its burgeoning market of life sciences this year.
A diversified commercial and research economy combined with an attractive residential environment is support investor interest in upper Manhattan. Harlem, and West Harlem in particular, shows how this submarket can carve out its own commercial niche. Recent rental activity in the District is an example of the growing attraction for businesses to locate in upper Manhattan, with its proximity to academic resources, talent pools, public transportation, parks and culture.
Meanwhile, in the area of ââeconomic development, the Bronx has done well in the industrial sector in recent years. This year was no exception, with the sector recording about a quarter of the dollar volume of investment sales in the borough. Just recently, Illinois-based CenterPoint bought 511 Barry Street in Hunts Point for $ 119 million. In June, Andrew Chung, CEO and founder of Innovo Property Group, bought 1110 Oak Point Avenue, also at Hunts Points, for $ 102.5 million. In other words, the district attracts a lot of attention for its location and its industrial potential.
Industrial growth could support the multi-family market by providing economic benefits, especially in the area of ââemployment, with significant tenants such as Amazon and Fresh Direct and large-scale institutional investments in the region. Overall, compared to the first half of 2020, the Bronx in the first half of 2021 saw an 86% increase in dollar volume – up to $ 843 million – and a 13% increase in real estate volume, which is encouraging.
This, combined with low interest rates, lender activity, and an inflationary economy that could generate more investment in real assets, should continue to support the Bronx, especially as industrial growth continues. to strengthen the overall economy of the district.
All of this points to increased stability in the North Manhattan and Bronx markets – and as investors seek less volatile asset types and markets, these two areas will continue to be attractive to investors and lenders. As fall approaches and beyond, investors should consider how the dynamic between affordable housing and economic development strengthens the outlook in these markets.