Real estate investors continue to devour development sites in Queens, with their sights set on above-average returns. As land in some neighborhoods in NYC look pricey, builders will seek land in regions that are best positioned to appreciate, such as Jamaica, with an expansive rezoning and attractive land values destined to make it a developer’s dream. As the U.S. economy strengthened this year, so did the development market in the “world’s borough.” During the first three quarters, Queens saw 86 development transactions totaling $831.7 million in gross consideration, according to Ariel Property Advisors’ investment research division. Transaction and dollar volume were 30% and 110% higher, respectively, than the same period in 2017.
While the average price per buildable s/f in Queens decreased nearly 16% year-over-year to $203 per buildable s/f, prices were sharply above where they stood five years ago, the beginning of the current cycle, when they averaged $149 per buildable s/f.
It is no secret that sites in northwest Queens, which encompasses Astoria, LIC and Sunnyside, have been the most popular, and as result, the price per buildable s/f runs higher in these areas, at around $250. The price per buildable s/f is poised to rise sharply given e-commerce giant Amazon’s plan to build one of its second headquarters in LIC.
A developer, however, need only look a few miles southeast down Queens Blvd. to find a treasure trove of land in Jamaica, where sites fetch a mere $100-$130 per buildable s/f, one of the lowest in Queens. Just like the pioneers did during the “Gold Rush” of the 1800s, investors will flock to Jamaica in search of outsized rewards.
The region of southeast Queens – which also includes Hollis, Rego Park, Richmond Hill, and St. Albans - has already outpaced 2017’s 13 sales as well as 2017’s total dollar volume by 33%. This year investors have already taken heed, Jamaica recorded 10 development transactions totaling $111.81 million through September, accounting for 13% of the borough’s dollar volume for development. That’s more than half of southeast Queen’s total sales and a 75% share of the entire region’s dollar volume throughout the first three quarters of 2018.
Jamaica is dominated by blue-collar middle-class residents, so it is no surprise that residential projects far outweigh commercial endeavors. Of the 47 completed and 160 ongoing projects, 80% are designated as new residential developments, according to estimates from Recity. Rentals dominate the landscape, with 6,290 apartment units recently completed or upcoming versus 567 condos finished or in the pipeline.
This allure is partly the result of a massive rezoning that took place 10 years ago. In 2007, the NYC Dept. of City Planning rezoned an astonishing 368 blocks to allow for the creation of higher density residential buildings, as well as mixed-use properties. The plan allows for structures of up to 28 stories to be built around the main Jamaica Station transit hub, as well as residential buildings of up to seven stories to be built on Hillside Ave.
At the time of its inception, the economy was on the cusp of a major recession that was followed by a sluggish recovery. This suppressed demand for development for many years following, but the rezoning’s significance is once again at the forefront of investors’ minds.
The residential backdrop of Jamaica favors multifamily properties, which remain in high demand but in short supply. With the price per s/f for an existing building in Jamaica averaging around $350 and inching up, there is virtually no economic advantage to buying versus building a new structure. Indeed, with an average of $200-$250 in hard and soft costs required for new development are added to the $125 per buildable s/f for land, the weighted average is about the same for the two asset classes. Development is even more appealing when the benefits of Affordable New York are added in to the mix.
The popular tax incentive provides 100% tax exemption for the construction period, and another 25 years after the completion of a project. After that period, a builder can reap additional tax benefits for 10 years, with the exemption based on the percentage of affordable units in the building.
The Greater Jamaica Development Corp. (GJDC) is focusing their efforts on making downtown Jamaica a place for development and commerce, which has started or is about to commence on numerous sites. This burst of activity is bringing affordable housing (i.e. The Crossing at Jamaica, Norman Towers), retail and hospitality to Jamaica at an unprecedented pace and fashion. The GJDC has more opportunities in the works.
Jamaica is one of the most transportation-heavy neighborhoods in NYC. Jamaica station is a central transfer point for the LIRR, providing access to Manhattan’s Penn Station, Brooklyn’s Atlantic Terminal, and JFK airport via the AirTrainJFK. The E, F, J, Z and M subway lines run through the neighborhood and its bus network provides service throughout a multitude of rural and urban areas.
As land values in historically strong markets get loftier, developers will increasingly pursue the next, up-and-coming neighborhood that has not yet reached its full potential. Whether it be its massive rezoning, affordable real estate, plethora of transportation options or ongoing demand from established Queens investors, Jamaica’s development sites are well-positioned for growth over the near-term as well as the years ahead.
Alexander Taic is a director - investment sales, and Drew Chartash is an analyst - investment research, New York, N.Y.