The Real Deal New York

The Queens’ craze: Lower land costs have prompted developers to rush into borough

While focus is on rental construction now, some say condo boom could be next

March 01, 2014
By Sasha von Oldershausen

From left:

From left: Justin Elghanayan, Andrew Barrocas, Mitchell Hochberg and Josh Zegen

While Brooklyn has rapidly gentrified in the last decade and become the trendiest of the outer boroughs, it looks like Queens is going to be next. “The East River used to be the ‘widest river in the world,’ ” said Justin Elghanayan, president of Rockrose Development. “But something has shifted, and now crossing the river is accepted.”

Indeed, it is not only accepted to cross the East River, but developers are now setting their sights on Queens.

With the recent opening of Kaufman Studio’s outdoor film set, the ever-popular MoMA outpost PS1, the extension of the 7 line, buzzed-about restaurants and new residential towers springing up, Queens is having something of a moment.

In this month’s Q&A, The Real Deal asked developers and brokers to weigh in on the Queens residential market — which projects will be market makers, which demographic groups are crossing over to the other side, which neighborhoods are getting the most attention (in addition to Long Island City), and the biggest challenges developers face as they turn to Queens.

As TRD reported in its October issue, the borough has some 60 large residential projects in the pipeline. But the majority of those are rentals because lenders are still not comfortable with issuing loans for condos.

In addition, this month some sources told TRD there are not enough big, family-sized apartments for the young professionals flocking to Queens now to grow into later. But both of those things may be changing soon.

For more on how pricing is holding up in Queens, what sorts of returns developers are achieving, and which new neighborhoods are likely to develop next, we turn to our panel of experts.

Justin Elghanayan
president, Rockrose Development Corp.

We know developers have been more focused on rentals than condos in Queens. But are you seeing that change at all?

Part of the reason you’re seeing so many rentals is that many of the sites being developed are very large, and larger sites are often more suitable as rentals than condos. I would expect more condos as the neighborhoods develop. As this population matures, there will be a greater and greater demand for condos.

What are you seeing in terms of residential rental rates? Are they up or down compared to the last few years?

Rental rates have increased dramatically in Long Island City. And now that we have solid comps, it is easier for banks to get comfortable with making stronger loans.

How much are prices for new development condos in Queens and how much is that up or down by compared to the last few years?

Condos in Court Square are selling for north of $900 per square foot, with individual units easily breaking $1,000 per square foot.

Which new projects do you think have the ability to be market makers in Queens? And which projects in Queens do you think are most exciting in general?

Hunter’s Point South is going to have an enormous influence on the waterfront area of Long Island City. It’s going to add a large population that will fuel an already vibrant retail strip along Vernon Boulevard. We opened Linc LIC, a rental building, this past year. That added 709 luxury apartments to the inventory in Court Square, and we have an additional 1,800 apartments planned for the area. Tishman Speyer’s future phases of Gotham Center will have a huge positive impact on the Queens Plaza and Court Square areas.

Who are the most typical buyers and renters of new development Queens’ projects today and have those demographics shifted in the last few years?

Young people are more adventurous and are attracted to the amenity-rich, mass-transit-heavy projects in Long Island City, as well as the diverse array of arts and culture. Now those people are marrying and are opting to stay in the neighborhood rather than move out to the suburbs when the kids come along. The more established a neighborhood becomes, the more expensive and generally the older the renters/buyers become.

David Maundrell
founder/owner, aptsandlofts.com

What are you seeing in terms of residential development in Queens today, and how does that compare to the last few years?

Queens has become as popular as ever. This is mainly due to Brooklyn prices soaring through the roof and a steady influx of residents from Brooklyn and Manhattan moving to Queens over the past five years for better value. There is a base there to create a comp set in many marketplaces.

Other than Long Island City, where are you seeing the most new residential development in Queens these days?

What started as mainly Manhattan developers looking at areas like Long Island City and Astoria have moved further in along the 7 train, to Woodside, Jackson Heights and Sunnyside. Another area with growing attention is Jamaica. Jamaica [has] some large pieces of land there, not to mention great transportation.

What is the most surprising thing about development in Queens today?

‘Why did it take so long?’ is really the question. If you follow Real Estate 101 and develop along major public transportation routes, it’s had a long time coming. Mainly because it’s not viewed as “hip” as Brooklyn is today.

Who are the most typical buyers and renters of new development projects in Queens today?

Drivers of today’s marketplace are young professionals, some with families or just new couples who are looking to invest in areas that are not only a great place to live and raise a family, but also close to Manhattan and possibly close to family who already live in Queens.

Andrew Barrocas
CEO and founder, MNS

What are you seeing in terms of residential development in Queens today, and how does that compare to the last few years?

There’s a little over 9,000 units being planned in Long Island City alone. You have a lot of demand right now in that marketplace. There’s definitely a great means of transportation into Manhattan, and you have a lot of Manhattan and even Brooklyn developers looking into parts of Queens. It’s really created a great rental market, where you can still buy properties for somewhere in the $150 to $200 per foot range. You see a lot of retail being filled in. Obviously, the developments that the Elghanayans have done have certainly caused a very nice reaction to other parts of Long Island City, as well.

We know developers have been more focused on rentals than condos in Queens. But are you seeing that change at all? Are lenders becoming more willing to issue loans for condos?

Since the majority of projects are rentals, there’s definitely a demand for condos. But people are leaning more toward rentals — there’s just less risk involved. The area is still growing. It’s definitely under-amenitized. I anticipate once the infrastructure develops, you’ll see the condo market grow.

Which developers are you most surprised to see coming in and what is their financial calculus for moving into Queens?

You can buy land below $200 a foot. You can get rents in the mid-$50s, which is very appealing. There’s nobody who’s not looking in Long Island City, from the biggest developers to some of the newer ones. Everyone has their eyes on Long Island City. There’s the proximity to the city, the views, it being a safe area. Related is obviously doing the Hunter’s Point project. And if Related is there, everyone wants to be there.

Which new projects do you think have the ability to be market makers in Queens? And which projects in Queens do you think are most exciting in general?

The most exciting project that’s going to happen — hands down — is 5Pointz. It’s gotten a tremendous amount of publicity. The developers are people who are long-time holders and really market makers, so I think that project is really exciting and has a lot of potential to change that marketplace.

What are the biggest challenges to developing projects in Queens today, and how does that compare to the recent past?

The biggest challenge is really getting [developers] over the hump of doing condos as opposed to rentals. People want to stick a flag in that area but there is a shortage of condo inventory. You have homeowners who want to purchase, there’s just no inventory there. In addition, Long Island City doesn’t really have three-bedroom apartments to really grow into, creating a situation where people are outgrowing their two-bedrooms, and there’s just nothing that exists.

Mitchell Hochberg
president, Lightstone Group

What are you seeing in terms of residential development in Queens today, and how does that compare to the last few years?

We’re seeing an exponential increase in residential development in Long Island City over the past few years. The focus is primarily for multi-family. And because the waterfront is mostly built out, the development is starting to gravitate more inland.

What are the biggest challenges to developing, selling and renting residential projects in Queens today?

The biggest challenge is still that Queens is not Manhattan. That is being substantially ameliorated by the growth of restaurants and retail and the establishment of communities like Long Island City.

What sort of returns are developers expecting on a Queens condo or rental today, and how does that compare to the recent past?

Rental developers are building to a mid-6 percent return untrended, when previously they were looking for at least 100 basis points more.

What is the most surprising thing about development in Queens today?

The pace of absorption has now matched or exceeded Manhattan projects.

Josh Zegen
co-founder, Madison Realty Capital

Why are so many developers who have traditionally stuck to Manhattan moving into Queens?

If you look at land prices in Queens versus Brooklyn, Queens is cheap while Brooklyn has run up substantially. Queens is also running up now but not at the numbers you have in Brooklyn. For example, two years ago, in Williamsburg, you had $150 to $200 per foot for land. And Queens was $100 a foot. Now, it’s $350 to $400 per foot in Williamsburg. And the Queens market is around $200. Things have increased for both, but things have increased faster in Brooklyn.

We know developers have been more focused on rentals than condos in Queens. But are lenders becoming more willing to issue loans for condos?

I think there is comfort in certain markets for condos, like in Long Island City. I think lenders are becoming more comfortable with demand and feel there is enough momentum in the market. That’s probably true in Astoria, as well. It’s really a function of the fact that they’ve done so many trades supporting pricing that it’s given lenders more comfort in the condo market.

What sort of returns are developers expecting on a Queens condo or rental today, and how does that compare to the recent past?

I think developers are typically looking for mid-20s returns, and they’re looking to double their return within three or four years. If anything, they’re willing to take some lesser returns for some more mature institutional markets. If you’re building in Queens, you want to build to a 7 percent cap rate. In Williamsburg, you’re lucky if you can get a 6 percent cap rate. And these are in more primary-related markets.

We’ve written about the shortage of one-bedroom Manhattan apartments. What mix of apartments are developers building right now in Queens?

It’s so diverse. If it’s Long Island City, you have ones and twos. If you’re talking about Flushing, a lot of people like smaller apartments. It just depends on where you look.

What sector of the residential market in general is struggling most right now in Queens?

There were some areas where during the downturn [Queens] was more jobless than other places. In Jamaica, there definitely was a problem with people losing houses, and foreclosures. In some of the poorer areas, you had that problem, but now with the economy improving, that’s been improving, too.

What are the most exciting non-residential additions to Queens that are attracting newcomers to buy and rent there today?

In Astoria, there’s Kaufman Studios. There’s the Museum of the Moving Image. Things like that are kind of exciting. The Paper Factory is a brand new hotel in Long Island City — really it’s on the border of Long Island City and Astoria. Also, a lot of big retailers are moving to the boroughs. It’s happening in Brooklyn, it’s happening in Queens. H+M just moved out to Jamaica. In Long Island City, you see the impact of new, interesting restaurants.

Rick Rosa
executive vice president/managing director, Douglas Elliman

What are you seeing in terms of residential rental rates in Queens today?

The residential rental rates are north of $50 per square foot in both the waterfront and the Court Square area. What’s interesting is that there isn’t a large differential in those markets.

How is the new development market in Queens doing compared to the resale market?

New development is what’s shaping the market. It’s leading the price per square foot in both the rental and sales arena. The resale market is a hair below.

What mix of apartment types are developers building right now in Queens?

In the condo arena, there is a shortage of three-bedrooms in an area with growing families. The three-bedroom homes in recent developments are on the small side [as a way to make them more affordable], but they need to be larger.

What are the most exciting non-residential additions to Queens that are attracting newcomers to buy and rent in Queens today?

The Cliffs Rock climbing gym in Long Island City, the M. Wells Restaurant in Long Island City, and the Hunter’s Point South waterfront. The absorption is stronger then ever because of the increased demand.

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