Metrics prove it is time to “think differently” about real estate in the Bronx - by Scot Hirschfield

Scot Hirschfield, Ariel Property Advisors

Over the first half of 2015, the Bronx sustained the upward momentum displayed in the second half of 2014. Multifamily transactions dominated the investment sales market, accounting for nearly 65% of overall activity, while the sale of several large development sites, particularly in the South Bronx, continued to demonstrate the insatiable appetite of investors for development opportunities in the area.

According to Ariel Property Advisors’ Bronx 2015 Mid-Year Sales Report, in the first six months of 2015, the Bronx saw 215 transactions representing a 25% increase year over year and a 17% increase when compared to the second half of 2014.

More telling of the borough’s continued growth is the steady and consistent increases in asset prices. On the multifamily front, values are up by every available measure. According to the mid-year report, since the second half of 2014 average cap rates throughout the borough have compressed from 6.16% to 5.93%. Other borough wide average metrics that have strengthened since the second half of 2014 are price per s/f which reached $148 per s/f, price per unit which increased 20k to $128,000, and gross rent multiple which averaged out at 9.52, but in many cases came in over 10. With a positive long term outlook for rental growth and asset appreciation, investors are willing to pay higher prices, yielding lower immediate returns.

The borough continues to command the attention of institutional capital, as demonstrated by Related Companies recent purchase of 2001 Story Ave. in Castle Hill, a 355-unit former Mitchell Lama property for $66 million or $186,000 per unit.

Recent transactions by our firm bolster this case and show significant appreciation in the small to mid-size space as well. Our firm recently put in contract the Continental Portfolio, which consists of 13 multifamily buildings containing 612 units and 553,000 gross s/f. The offering received significant attention from private and institutional investors and was put in contract after only six weeks on the market.

Appreciation on the lower end of the market was recently seen in our sale of 868 Faile St., a walk-up property for $2.75 million that was sold previously in 2013 for $1.976 million, representing a 39% increase. We also closed the sale of 51 Bruckner Blvd., a mixed-use property in Mott Haven for $1.8 million, which represented $360 per s/f and is double the $900,000 paid for it back in 2007.

Dollar volume for development site sales nearly doubled on a year-over-year basis and prices are climbing steadily as the average price per buildable s/f surpassed $50 this half. The South Bronx appears to be at the cusp of a transformation akin to what happened in Williamsburg and Long Island City. Similar to those neighborhoods, waterfront properties, as a result of several recent re-zonings, are playing a lead role as The Chetrit Group and Somerset Partners completed their assemblage adjacent to the Third Ave. bridge with a $26 million purchase of 2401 Third Avenue, and announced plans to build two 25-story mixed-use towers.

Film studios in particular are establishing a major presence in the firm’s industrial sector. Plans were recently revealed for York Studios for a 300,000 s/f production facility and Silvercup Studios purchased a warehouse located at 295 Locust Ave. in Port Morris, where they will open a 115,000 s/f studio complex.

Additionally, 150 Bruckner Blvd., a 50,000 s/f vacant building in Port Morris, was purchased by SICIS North America, an Italian company that makes high-end furniture and jewelry, in March for $14 million, translating to $286 per s/f.

In December, The Harbor Group purchased two commercial properties at 305-315 East Fordham Rd. in the Bronx for $34.6 million. The Harbor Group then purchased a storefront and office building in April, at 301 East Fordham Rd. for $12 million. Both purchases on East Fordham Rd. translated to over $1,200 per s/f.  Currently, Ariel Property Advisors is marketing a Wendy’s location with considerable air rights on East Tremont Ave. in Parkchester, and have found that investors are very interested in purchasing a triple net property with a blue chip tenant in this particular area of the Bronx.

As Bronx borough president Ruben Diaz Jr. mentioned at Ariel Property Advisors’ Coffee & Cap Rates event in July, it’s time to “think differently” about the Bronx. This half saw the opening of the historic High Bridge, the Marriott Hotel at Hutchinson Metrotech and the Trump Links golf course at Ferry Point, all which are contributing to a very bright outlook for Bronx real estate. 

Scot Hirschfield is a vice president at Ariel Property Advisors, New York, N.Y.