The Bronx’s new burn

It’s been a long time since the Bronx was actually burning. But these days, parts of the long-blighted borough are catching fire — or at least producing sparks — with real estate investors.

The market is still not back to its pre-recession levels, and sources say investments in the borough are far riskier than they are in other parts of the city. But brokers and developers interviewed for The Real Deal’s Q&A this month said that development, especially on the large-scale retail front, is on the rise.

For example, a 780,000-square-foot mall recently broke ground at the intersection of the Hutchinson Parkway and I-95. And the former Stella D’oro cookie factory is also being converted into a shopping center.

Those projects join the Related Companies’ highly publicized (and now highly successful) mega Gateway Center, which opened in 2009.

And retail is not the only sector that’s buzzing in the Bronx.

Developer Jonathan Rose recently opened the Via Verde, a low- and moderate-income co-op/rental hybrid. And former City Council speaker Gifford Miller got the green light late last year to move forward with a $350 million project that calls for 10 mixed-use buildings, including 1,325 units of housing in the Crotona Park East/West Farms sections of the borough.

Meanwhile, Fresh Direct recently made headlines when it announced plans to build a new headquarters in the South Bronx rather than in New Jersey. (The city and state threw in $127 million in incentives to sweeten the deal.)

Still, brokers say development and investment is limited to certain sectors and to targeted geographic areas, largely in the South Bronx.

And while the Bronx is experiencing an increase in multifamily building sales, for example, the prices for those properties are substantially lower than prices in other boroughs.

For more on which investors are becoming more active in the Bronx, which areas have seen the most growth and what kinds of government incentives developers are taking advantage of, we turn to our panel of experts.

Shimon Shkury

Shimon Shkury

president, Ariel Property Advisors  

What types of projects are developers generally going after in the Bronx these days? 

Since the Bronx is under-retailed, several planned developments will provide much-needed retail services. Developers recently broke ground on the 780,000-square-foot enclosed Mall at Bay Plaza at Hutchinson Parkway and I-95, which will have a new Macy’s and an existing JCPenney. A 162,000-square-foot shopping center is planned for the former Stella D’oro factory and a 61-room Bronx Opera House Hotel is planned for East 149th Street in the Hub shopping district, a commercial corridor [that] continues to attract the interest of retailers. We’ve also seen office development around the Grand Concourse, Yankee Stadium and the courthouse area.

How are prices for commercial leasing and for building purchases holding up in the borough?

We’re seeing a slight increase in the value for mixed-use buildings. Most of the retail in the Bronx is still mom-and-pop operations, however. In strong areas along major corridors we’re seeing a big jump in rents — to $45 to $50 a square foot. But in most areas of the borough, retail rents aren’t changing much and continue to hover around $20 to $30 a square foot.

Jonathan Rose’s firm recently launched sales at a new Bronx residential development called Via Verde and Gifford Miller’s Signature Urban Properties recently got the green light on a $350 million mixed-use development. Do those projects represent a new confidence in the Bronx among developers? 

We’re seeing private investment in large retail developments and public investment in affordable housing developments in the Bronx. Incentives from the city and possibly tax credits are providing the financing needed to support affordable housing and development. In addition to [those two projects], the Crotona Park Apartments, a 64-unit, low-to-moderate-income project recently opened, and developers recently broke ground on La Preciosa, an affordable housing project in the Morrisania section of the Bronx.

Which investors are active in the Bronx these days?

Multifamily investors that have traditionally invested in real estate in Queens and Brooklyn are now looking for product in the Bronx. Large, family-owned operators and syndicators looking for yield are active in the Bronx market. These are investors willing to take on buildings that are management intensive.

Which areas of the Bronx have seen the most growth in recent years?

[In] the six months that ended on April 30, the neighborhood of Bedford Park was by far the most active market with 13 buildings that traded for $53.5 million. Overall during this period, the Bronx had 65 building [trades] valued at $249 million. Mott Haven, Melrose, Longwood, Highbridge, the Hub, White Plains Road, Grand Concourse and North Broadway are [also] active.

Are there any statistics that illustrate what’s going on with Bronx real estate?

The Bronx captured 20 percent of the multifamily buildings sold in the city, but only 11 percent of the city’s multifamily dollar volume in April 2012. Our research also shows that multifamily buildings in the Bronx were selling for an average of $90 per square foot in the six months that ended on April 30 — up from $75 a square foot from the beginning of 2011. That’s far lower than Manhattan below 96th Street, which was at $504. [It’s also lower than] Northern Manhattan ($177), Brooklyn ($186) and Queens ($160).

Who are the most active residential buyers and renters in the Bronx right now?

The U.S. Census has some interesting data regarding the Bronx. One study showed that between 2005 and 2009, more than 16,000 people left Manhattan for the Bronx, and that in the 15 months that ended on July 1, 2011, the Bronx added more residents than Nassau or Suffolk counties. We have reports of middle-class professionals moving into buildings along the Grand Concourse where affordable co-ops are available for under $300,000. A yoga studio, farmers’ market and art galleries are opening to serve the new residents in the Grand Concourse area. Also, artists began moving into the Mott Haven section in 2002, a trend that has continued. And Kingsbridge is now being touted in the local media as an affordable and desirable neighborhood.

Robert Nelson

Robert Nelson

president, Nelson Management Group

How are prices for commercial leasing and for building purchases doing?

[Prices] took a big hit in 2008–09 like the rest of the country, but they are coming back. The rent-roll multiples, the price per square foot and the cap rates all took a big hit, but they are [also] starting to come back. I don’t think they are at the same level as where they were before. I think that is going to take some time.

What’s going on with residential sales?

The residential sales side is probably not going to get a jump start until banks are ready to jump in and stop scrutinizing buyers’ credit to the nth degree. Rentals are doing quite well.

What are the biggest challenges to working in real estate in the Bronx today? 

When you are a landlord of large apartment complexes and you decide to invest in your properties by putting in capital improvements, whether it be new windows, elevators, hallways or lobbies, the biggest challenge is getting the tenant base to respect the property they live in and recognize that this isn’t 10, 15 and 20 years ago where, when vandalism took place, the owner would just let it sit like that. Your hope is that when you put money into your properties that your tenants take care of it, respect it.

Neil Dolgin

Neil Dolgin

co-president, Kalmon Dolgin

Are you seeing a new confidence among developers in the Bronx?

A lot of the new housing that you are seeing up there is affordable housing. I’m not sure that’s going to be an asset for the rest of the area. [But] it does take away the blighted neighborhoods. It does put in new development. They are not going to build the projects of yesteryear; they are going to build affordable housing, which will be low-rises, which gives a much better appearance and security for the neighbors as well as for the tenants who occupy the property. … If you ask everybody who has bought in the residential market, it is the only thing making money. That is the only thing that is trading right now continuously throughout all the boroughs, because everybody needs a roof over their heads.

What types of projects are developers generally going after in the borough?

You are not seeing new buildings being built because the demand has to catch up with the outstanding supply. I do see the transformation of some of the loft buildings, which there’s an abundance of on the Bruckner on the way to Yankee Stadium. They are being transformed into office space and even hospitals are taking over some of that space. Healthcare is ever increasing and hospitals are expanding to a lot of those buildings, which were vacant before. Storage facilities have [also] taken over a lot of these buildings. Boutique hotels are very popular [in both] good and bad areas. In industrial areas, developers are now throwing a hotel in an older loft building and doing conversions. They don’t have to build new — it seems boutique hotels are affordable and with the transient groups that we have coming into New York City year-round from all parts of the world, they tend to land in a cheaper neighborhood, but a good protected area so [developers] are putting these hotels wherever they can.

Which investors are more active in the Bronx these days?

Simone has been very active. His name is synonymous with the Bronx itself, and Sepco for the affordable housing in the southeast Bronx — they keep expanding.

Which areas of the Bronx have seen the most growth in recent years?

The Bronx has seen growth in all areas. You can go from the South Bronx to the Grand Concourse to Riverdale and see growth because it was a borough that had blight throughout. I call the Bronx the Wild West because the area is wide open for anybody to come in and potentially make a lot of money. There’s a risk-reward factor there. It might be more risk than in some of the other boroughs, but it has much greater reward if you develop it correctly and take it slowly.

Which areas are seeing the most commercial activity?

Zerega, Bathgate, South Bronx, Bruckner and the Yankee Stadium area — they are viable. The new Columbia University development in Harlem has taken place and there are quite a few businesses that are moving into the Bronx [as a result] and buying property there.

Jerry Welkis

Jerry Welkis

president, Welco Realty Inc.

Which investors are active in the Bronx these days?

For years, the Bronx had many family and smaller operator-type investors. More recently, larger developers and REITs have [brought] their capital into the Bronx. Mall Properties … has done major releasing of their retail stores, bringing new chains into the Parkchester area. Vornado bought the Bruckner Plaza Shopping Center anchored by Kmart and Toys “R” Us.  Forest City built their retail development across from Bruckner Plaza. And, of course, Related made a major investment in the Bronx with its Gateway development.

Fresh Direct recently announced plans to build a new headquarters in the South Bronx. What impact do you think its presence will have on the Bronx market? 

Major companies like Fresh Direct putting in a new headquarters in the South Bronx will, of course, help bring in new jobs and will encourage other major corporations to consider the Bronx for their headquarters. I think Fresh Direct must see a tremendous potential employee pool that they can tap into, and the strong public transportation and highway system must have also been a factor in their decision.

What are the biggest challenges to working in real estate in the Bronx today?

Being a retail commercial specialist who represents both tenants and landlords, I have found that, in the major retail hubs of the Bronx, there is such strong demand for retail space that many of the tenants have had to look at vertical merchandising, which would include two-level stores or stores on a second floor.

Gifford Miller

Gifford Miller

managing member, Signature Urban Properties

Do projects like your company’s planned $350 million development represent a new confidence in the Bronx among developers?

The reality is that the Bronx is a great place to live and work, and I think there is a growing recognition that the transit, educational and recreational infrastructure in the Bronx support new development opportunities.

What impact do you think Fresh Direct will have on the Bronx market? 

Bringing Fresh Direct to the Bronx is a great show of confidence in the borough as a terrific place to do business. Hopefully, other major employers will follow suit. Certainly, for businesses with logistical needs, the South Bronx makes an enormous amount of sense.

Phillip Morrow

Phillip Morrow

president/CEO, South Bronx Overall Economic Development Corp.

Do the latest projects by Jonathan Rose and Gifford Miller represent a new confidence in the Bronx among developers?

I think so. Via Verde was an RFP issued by the city that we applied for ourselves. They did a beautiful project there with low- and moderate-income housing that is for both ownership and rental. It has the advantage of being in the South Bronx, so it’s very accessible to everything in the city. It’s rounding out a major revitalization of new construction to the Hub and the Morrisania area. Next to it there are 650 units at St. Ann’s — a new 800-unit campus at Boricua College. So it’s a whole new neighborhood. I think it will keep going.

What types of projects are developers generally going after in the Bronx these days?

[Among other projects, there’s] a move toward residential along the Harlem River where there were a lot of illegal loft conversions that can be legalized because the zoning has been changed. There are some buildings that I think are going to be large residential developments in the next eight to 10 years — these underutilized warehouse buildings and manufacturing buildings along the Harlem River.

How are prices for retail/office leasing and for building purchases holding up?

Fairly well. There was a little decline for a while. Right now in the Hub, they are asking $50 to $100 per square foot for retail space. It’s bouncing all over the place, but the rents are coming back, the business is here. The city recently did a study that said there are 250,000 people a day who go through the Hub.

Which areas of the Bronx have seen the most growth in recent years?

It’s been the South Bronx, Mott Haven and Morrisania, where unit after unit has been built and a lot of the vacant land has almost disappeared. All of the South Bronx has been developing like mad, particularly the area around the Hub. There are thousands of new housing units built.

Who are the most active residential buyers and renters in the Bronx right now?

Generally speaking, they are pretty much the people who already live in the Bronx. It isn’t like there is a great gentrification happening. The only place where you might see that happening is along the Bruckner Boulevard area. If you go south of Bruckner, you have singles and yuppies moving in.

Karl Brumback

Karl Brumback

director of sales,  Massey Knakal Realty Services

Is there a new confidence in the Bronx among developers? 

There are a number of projects that point to confidence: the Mall at Bay Plaza will be the first indoor shopping center built in New York City in 40 years; the 225th Street Target is one of the chain’s top producers and will soon be joined by new retail centers at the former Stella D’oro factory and at the Economic Development Corporation lot on 230th Street. The Throggs Neck Shopping Center will add almost 300,000 square feet of retail, and the Hutch Metro Center is adding a new tower.

What are you seeing in terms of investor interest in the Bronx?

There’s plenty of interest and not enough inventory. Investment property turnover in the Bronx is very low — just over one percent of our target investment properties trade every year. That number is down from over three percent from 2006 through 2008.

Which areas of the Bronx have seen the most growth in recent years?

The Broadway corridor between 225th Street and Manhattan College has seen a surge in retail-oriented development. And the Webster Avenue–Bedford Park up-zoning is reaping benefits as a number of school and residential projects are underway or planned along Webster Avenue between Bedford Parkway and East Gun Hill Road.