When Carnegie Management converted a former piano factory in the South Bronx into residential lofts in 2002, the firm was way ahead of the curve.
Fast forward more than a decade, and Carnegie is at it again, with a second planned residential tower at the corner of Lincoln Avenue and East 134th Street.
But this time the firm is not alone.
Developers and investors searching for the next “it” neighborhood are clamoring to get in on the ground floor before the South Bronx takes off.
But while the buzz about the Bronx is reaching an all-time high, investing there comes with some significant challenges — air, land and noise pollution chief among the concerns, particularly in areas such as the South Bronx, where the borough’s vast network of highways loudly deposits trucks onto local roads every few minutes. Given the heavy traffic, childhood asthma rates in the Bronx are the highest in the city. And in the South Bronx, 50 percent of students live within two blocks of a truck route or highway, according to a New York University study.
When it comes to ground pollution, two-thirds of Bronx development sites are considered Brownfields, meaning they likely require environmental cleanup.
Beyond the economic forces that derailed the Bronx’s renaissance the last time around, there are other concerns, as well.
For one, not all property owners are ready to cash in on their suddenly hot assets, particularly those who’ve owned sites for generations.
“If they’re running their business out of the property, more than likely they will stay there,” said Eastern Consolidated’s Martin Ezratty, who represented the seller of 101 Lincoln Avenue, which Somerset Partners and the Chetrit Group bought for $32 million.
Cushman & Wakefield’s David Simone said that’s especially true when property owners intend to relocate their business. “Even if the [property] values have skyrocketed, they have businesses there. To sell an industrial site in the Bronx, where are you going to go?” he said. “It’s more expensive to go to Brooklyn or Queens.”
In recent months, a chorus of local voices has expressed concern about residents and businesses being priced out of their homes and offices as the neighborhood gentrifies.
Many of those complaints have been lobbed toward the decidedly pro-development borough president, Ruben Diaz Jr., who told The Real Deal that he doesn’t subscribe to the notion that gentrification has to be about forcing one community out to make way for another. Diaz also argued that current residents are not being displaced by rezoning efforts. Instead, elected officials are carving out new residential neighborhoods from former industrial and manufacturing sites.
“I don’t want to lose our population or our flavor as a borough,” he said. “But with that said, I also need to create jobs. There are some parts of the Bronx that need to be developed because they’ve looked the same way since I’m an adolescent.”
In addition, the Bronx still faces an uphill battle when it comes to attracting major institutional capital and foreign investment.
Foreign funds, in particular, prefer to place their money in prime assets and are still several years away from feeling comfortable in the Bronx as an investment, according to representatives from several foreign firms who declined to be named.
“Funds have to get money back to the investor in seven years, so they can’t do the long-term play,” said Nancy Packes, founder of new development-marketing firm Nancy Packes Inc. “In the Bronx, you’re not going to see Westbrook or other funds going in. You’ll see real estate families and individual developers who buy to hold for the long term.”
Even local investors don’t all agree that the housing market today supports large-scale development. The median residential price was $356,000 during the second quarter, a 1.7 percent increase from the prior year, according to data from the Real Estate Board of New York.
“The tipping point hasn’t come for market-rate housing yet,” said developer Daren Hornig, who is converting a former warehouse in the South Bronx into commercial space. “You typically need higher rents to justify underwriting, based on construction and land costs. The rents aren’t there today, but they should hopefully be in the not-so-distant future.”
And while the perception of crime-addled streets has largely been dispelled — crime is down 75 percent since 1990, compared to an 83 percent drop in crime in the southern half of Manhattan — not all investors are eager to throw their chips down in the Bronx. Even Somerset Partners’ Keith Rubenstein, who is developing multiple residential buildings on the waterfront, acknowledged a lingering stigma.
“Once you get people over the fact that once they cross the Harlem River, they won’t fall off the world,” he said, “they open their eyes and say ‘Wow, this is unbelievable.’”