Ariel Property Advisors
Compared to other Northern Manhattan neighborhoods, most investment properties in Washington Heights and Inwood have consistently traded at a discount. Almost every investor and real estate professional has a theory as to why, with their reasons ranging from the area being too removed from prime Manhattan, to sub-par retail and outdated zoning.
For several reasons, investors should drop these preconceived notions and consider this often-overlooked market. Transaction data and several promising initiatives suggest major changes are underway for Washington Heights and Inwood. The recently approved Inwood rezoning and mayor Bill de Blasio’s waterfront initiative will transform these regions into more desirable residential destinations – which several developers have already caught onto.
As a whole, northern Manhattan’s investment property market held firm in the first half of 2018. A rising interest rate environment prompted many investors to seek the higher returns offered on the region’s assets, according to Ariel Property Advisors’ “Northern Manhattan 2018 Mid-Year Sales Report.” To view, click on: http://arielpa.com/report/report-APA-N-Man-mid2018-Sales-Report
Central Harlem and Hamilton Heights/West Harlem dominated development activity, together comprising 64% of Northern Manhattan’s transaction volume in the first half. This comes as no surprise given these areas have established condominium markets, and major institutional endeavors have become tangible, such as Columbia University’s Manhattanville expansion.
Comparatively, Washington Heights and Inwood encompassed 20% of transaction volume, a healthy proportion but lackluster given the area’s land mass as part of Greater Northern Manhattan. Meanwhile, development sites continued to trade at a substantial discount versus areas further south, which signals conservative underwriting for the product (i.e. rental plays and low confidence in condo sellouts) and a lack of supply.
In a bold move to make land more residential and development-friendly in Washington Heights/Inwood, the city is infusing more than $100 million into an endeavor that will rehabilitate existing waterfront infrastructure. Specifically, Mayor de Blasio’s administration is pledging $15 million for fixes at the Dyckman St. waterfront on the Hudson River and $88 million for upgrades along the Harlem River from Dyckman St. to West 155th St. This should translate into much more affordable waterfront residential buildings that will likely offer a host of amenities that will entice price-conscious, young professionals, as well as families looking to plant their roots.
Interestingly, Washington Heights is the home to more millennials than any other neighborhood in New York City, with 50,103 people aged 20-34, comprising 10% of the area’s total population, according to the New York Post. Millennials have arrived and will likely stay for the long-term.
Rezoning: A Respite For Rising Demand
Inwood’s outdated zoning has encumbered its growth, with low density and manufacturing zoning keeping much of the land in the area stagnant. The city council recently approved the rezoning of many Inwood areas, a plan that aims to bring 5,000 apartments to the neighborhood. The rezoning includes much of the waterfront, mirroring efforts along other riverfronts above 155th St.
The rezoning in some areas includes a Mandatory Inclusionary Housing (MIH) component that requires developers taking advantage of new density to devote at least 20% of the new apartments to one of several affordable housing options.
Perhaps one of the more surprising and experimental components of the Inwood rezoning is the introduction of “commercial rent control,” which caps retail rent increases and requires developers seeking financing from the city for new projects to sign long-term leases.
Developers have already begun to take advantage of the neighborhood’s growth potential within the radius of the rezoning. In fact, five development projects are either under construction or about to break ground in 2018, according to data collected by Recity. In total, 116,000 s/f of new projects consisting of 217 apartments are under construction or are planned to be developed this year.
Favorable pricing, meanwhile, has undoubtedly been one of the biggest draws for developers, with the price per buildable s/f in Inwood (and lower Washington Heights) averaging $160 in the first half, below Northern Manhattan’s average of $203 and significantly lower than other sub-markets.
The above-mentioned catalysts should prompt many doubters to reconsider, and the area above 155th St. is already starting to show signs of residential growth. Condos in the area are seeing strong sellouts and record pricing, such as at the “Highbridge” at 446 West 167th St., where condo sales are achieving $1,000 per s/f. Sales at this project initially sold for a more modest $850 per ft.
A good example of the direct effect on land values is a residential site that Ariel Property Advisors just put in contract at West 166th St. and Edgecombe Ave. This block-through, 120,000 buildable s/f site will trade at around record-breaking levels, suggesting a condo play with sellouts at similar or higher projections.
A strengthening residential market and dwindling supply of large-scale development opportunities in other areas of northern Manhattan are driving many developers to look north of West 155th St. This phenomenon, coupled with city initiatives, is increasingly attractive to developers and residents, which will make Washington Heights and Inwood premier residential markets in the near future.
Matthew Gillis is a director – investment sales and Remi Mandell is an analyst – investment research at Ariel Property Advisors, New York, N.Y.
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