Defining and analyzing Northern Manhattan’s hottest neighborhoods - by Victor Sozio

Northern Manhattan continues to be a premier destination for commercial real estate investors seeking to deploy capital. Year-over-year growth, overall and especially in specific sub-markets, has consistently exceeded the expectations of even the most optimistic investors. Each of Northern Manhattan’s most active submarkets—which include Central Harlem, East Harlem, Morningside Heights and Hamilton Heights—have unique intrinsic neighborhood characteristics that are driving such valuable appreciation. Central Harlem is among the most active submarkets in Northern Manhattan. Year-to-date, the area has seen 48 transactions, which is in line with the number of transactions that occurred in 2013 and 2014. The area’s $248 million in dollar volume so far this year is 45% higher on a year over year basis, confirming the area is seeing bigger, more expensive transactions. Loosely defined as 110^th St. to the Harlem River and 5^th Ave. to St. Nicholas Ave., the area has seen tremendous appreciation since 2013 in every metric. The most impressive increase since 2013 is the average price per s/f which, at $422 per s/f, is up 69% over the last two years.  Other metrics remain strong with the average price per unit at $310,000, cap rates hovering at an average 4.42% and Gross Rent Multiple (GRM) at an average of 15.9. Driven by new condominiums that are achieving an average price per s/f of $968, development sites are also seeing new highs. The current average price per buildable s/f in Central Harlem is   $220, but sites are more frequently seeing values north of $300. Central Harlem’s unique mix of established landmark destinations and imminent projects in the pipeline will continue to drive economic and real estate growth in the near future. Frederick Douglass Blvd.’s trendy retail and dining scene, Lenox Ave.’s upcoming Whole Foods and a host of new developments on 125^th St. will keep the neighborhood thriving for the foreseeable future. While less transactional than other neighborhoods, East Harlem is commanding some of the strongest metrics in Northern Manhattan. Bordered by the Harlem River, East 96^th St., the East River and 5^th Ave., East Harlem has seen both the average price per s/f and price per unit spike by more than 50%, reaching $426 per s/f and $364,322 per unit. The development market is starting to see sales consistently achieve prices over $200 per buildable s/f, which suggests developers are ready to pursue condo projects throughout the area. While condo sellout prices are achieving an average price per s/f of $739, recent new product is starting to see values break $900. East Harlem is simply one of the last and most accessible places in Manhattan where you can consistently buy condominiums under $1,000 per s/f—but we don’t expect that trend to last too long. Other pricing metrics show growth as well. Cap rates have compressed by a 100 basis points since 2013 and average rent multiples have increased to 15x from 11x in 2013. The Second Ave. Subway’s eventual arrival and City Hall’s pending re-zoning of East Harlem will play a major role in the area’s continued growth. Our recent sale of 124-128 East 107^th St. is a great example of East Harlem’s recent appreciation. The building is a 20,395 s/f multifamily building containing 36 units which sold in October for $9.15 million, or $449 per s/f. This marks a 140% increase from the last time in sold in 2012 for $3.81 million. Morningside Heights is bordered by Morningside Dr. to the east, Manhattanville and Harlem at 125^th St. to the north, Manhattan Valley at 110^th St. to the south, and Riverside Park at Riverside Dr. to the west. In 2013, Morningside Heights was already showing relatively strong condo metrics at an average $876 per s/f, however then the prices have since skyrocketed to $1,441, a 46% increase. Coupled with land prices that, on average, are at $264 per buildable s/f, Morningside Heights is a clear standout in terms of Northern Manhattan pricing. The neighborhood benefits tremendously from its proximity to Central Park North and the highly anticipated 17-acre Columbia University expansion. Hamilton Heights, a neighborhood bordered by 135^th St. to the south, Riverside Dr. to the west, 155^th St. to the north, and Edgecombe Ave. to the east, has been the breakout star for Northern Manhattan. Commanding an average price per s/f of $386 and an average price per unit of $346,000, this neighborhood has been on a consistent uptick for several years. Since 2013, rent multiples have risen from less than 11x to well over 14x. Growth in this neighborhood is a result of a number of factors including access to transportation, a plethora of recreational spaces, the available building inventory for investors and its unique prewar and architecturally stunning buildings. As a prime example of the area’s pricing, Ariel Property Advisors sold 680-684 St. Nicholas Ave., a 117-unit multifamily property for $41 million, which translates to $350,427 per unit and a sub 4% cap rate. This represents a 73% increase from its 2012 price tag of $23.625 million. As these Northern Manhattan neighborhoods continue to evolve, they offer an interesting value proposition to investors concerned about an eventual market adjustment. One can argue that the in-place fundamentals, the continued growth of the area’s infrastructure, and the relative bargain on purchases compared to replacement cost, will be able mitigate a change in market conditions. With each neighborhood offering its own defining characteristics, as well as major development initiatives, the area is poised to remain a high priority for investors. Victor Sozio is the executive vice president of Ariel Property Advisors, New York, N.Y.