Bronx investment sales market sees dollar volume climb in 1H17, contrasting citywide trend - by Marko Agbaba and David Baruch

August 15, 2017 - New York City
Marko Agbaba,
Ariel Property Advisors

 

David Baruch,
Ariel Property Advisors

 

The Bronx captured real estate investors’ attention in the first half of 2017, becoming the only New York City sub-market to notch a rise in dollar volume versus the second half of last year. Prices rose across the board in the borough, with gains particularly pronounced on multifamily assets. 

Sales, however, slipped year-over-year, echoing a trend seen throughout the city in 1H17. Transactions slowed amid an abundance of factors and events, from a new presidency and rising interest rates, to revisions to rent regulation and the new iteration of the 421-a tax abatement. In addition, the rental market continued to feel downward pressure and some owners offered price reductions instead of concessions. 

During 1H17, The Bronx saw 139 transactions consisting of 208 properties totaling $968 million in gross consideration. Compared to 2H16, transaction and property volume decreased 11% and 4%, respectively. Dollar volume increased versus 2H16, bucking New York City’s trend, rising 3% on a slew of sizeable multifamily deals. On a year-over-year basis, declines were significant and across the board, with transaction, property and dollar volume sliding 29%, 35%, and 24%, respectively, according to Ariel Property Advisors’ newly released “Bronx 2017 Mid-Year Sales Report.”    

Caution was pervasive during the first half and investors took a more careful approach in their decision-making. That uncertainty, however, abated during the latter part of the second quarter and investors have started to re-engage, with recent bidding activity indicating a pick-up in the second half. 

The southwest Bronx was the most active quadrant of the borough, with more than 54% of transactions and 50% of dollar volume attributed to these neighborhoods. That was followed by northwest Bronx, which comprised 23% and 31% of transaction and dollar volume, respectively.  

Accounting for roughly 70% of total dollar volume, the Bronx’s multifamily market continued to attract the most interest amongst investors, with dollar volume leaping 22% compared to 2H16, which can mostly be attributed to large portfolio deals. There were 69 transactions that took place in 1H17, a 25% decrease in volume compared to the previous period. Property volume followed a similar pattern, falling 8% versus the same time period. 

Despite the drop in sales, demand for multifamily properties continued to outpace supply, causing pricing metrics to increase across the board. Compared to 2016 figures, the average price per s/f climbed 7% to $197. The average price per unit also increased 7%, reaching $174,693, while the average gross rent multiple (GRM) rose to 11.82 from 11.06. Even more impressive, the average cap rate dipped below 5% to a record low of 4.92%, and sharply below 2012’s level of 7.92%.

The largest multifamily transaction of 1H17 was the $78 million purchase of 2862-2864 Park Ave., which consisted of 520 units and 150,000 s/f. Another notable transaction was the purchase of Prana Associates MF BX Portfolio by Emerald Equity Group for $49.3 million, a reported 5.26% capitalization rate. 

With many hospitals, nursing homes, and schools making headlines in 1H17, the special purpose product type saw a 163% increase in dollar volume, a 75% jump in transaction volume, and a 33% rise in property volume year-over-year. The past six months have seen numerous medical facilities trade hands, led by Beth Abraham Health Services, located at 612 Allerton Ave., which sold for $25 million.

Meanwhile, the Bronx’s industrial and development market saw moderate growth in the borough for 1H17, accounting for 33% of the transactions in the borough. 

With many businesses expanding their presence in the borough, along with several new entrants to the market, the industrial asset class is growing rapidly. Several unique sales and a transactional western half of the Bronx drove sizable growth in the asset class.

Nevertheless, the 47 development sites that sold for $135 million in 1H17 represented a decrease of 9% in dollar volume compared to 2H16, due largely to the sale of smaller properties, which dominated 1H17 transactions. However, with the introduction of the Affordable New York Housing Program, an iteration of the former 421-a tax-exemption program, transaction volume for development sites increased by 18% and property volume increased by 11% compared to 2H16. 

The borough saw a modest increase in average price per buildable s/f to $65. Notable transactions include 2050 Grand Concourse and 213 East Burnside Ave., which sold for $77 per buildable square feet, as well as, 6161 Broadway, which achieved a price of $74 per buildable s/f.

Looking ahead, while we are holding out for the possibility of a modest pickup in the second half that will carry into 2018, our baseline expectation is for investment sales volume and pricing to remain stable at current levels through the end of the year.

Marko Agbaba is a director – investment sales and David Baruch is a  senior analyst – investment research at Ariel Property Advisors, New York, N.Y.

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