How much more can Harlem real estate rise? That’s the key question concerning area developers and investors who have been flocking to Harlem since the mid-aughts, during both the last real estate boom and again during the current development craze.
This month The Real Deal talked to residential brokers who specialize in Harlem to get a sense of what kind of growth is really left in a neighborhood that has become a destination for more affordable condos and brownstones (where more exist than in Manhattan).
Our sources insist prices have not yet peaked and that there’s plenty of room left for growth. They also argue that as long as residential real estate in Harlem can be had for a discount, prices will continue their upward trajectory.
“As long as Harlem is viewed as a bargain, meaning prices are at least 25 percent or more below a similar unit south of 110th Street, Harlem condo prices will continue to rise,” said Willie Suggs, owner of Willie Kathryn Suggs Licensed Real Estate Brokers.
Robb Pair, president of Harlem Lofts Inc., echoed that point.
“You can come to Harlem and get a three-bedroom apartment for less than a one-bedroom on the Upper East Side or Upper West Side,” Pair said.
And some predict that Harlem will experience an even greater boost when Brooklyn, where prices are quickly catching up to Manhattan, is no longer the “discount option.”
The neighborhood is, of course, already a magnet for hot restaurants like Red Rooster. And former Time Warner CEO Richard Parsons has now revived the bebop and jazz mecca known as Minton’s Playhouse, as well as its accompanying restaurant, the Cecil. Plus, brokers say more restaurants and small shops, which form the backbone of Harlem, are opening weekly.
That’s in addition to the Whole Foods that’s slated to open on 125th Street and Lenox Avenue next year and Columbia University’s massive expansion, which is having a spillover effect on the entire area.
Nonetheless, some areas of Harlem are doing better than others on the real estate front. And brokers say that like much of the city, Harlem’s main challenge is its lack of inventory.
For more on which areas of Harlem are performing best and worst, which projects insiders are watching and what other challenges the area is facing, we turn to our panel of experts.
Willie Suggs
owner, Willie Kathryn Suggs Licensed Real Estate Brokers
How much is sales activity in Harlem up or down by compared to last year?
This year our office is twice as active as it was last year. The problem is inventory. There are not enough units to sell at all price points. There are some income-restricted units and ultra-high-end condos, but the mid-price range pickings are slim for condos and townhomes.
TRD recently reported that the price per square foot for residential properties in West Harlem has jumped 17 percent since 2007. Do you expect condo prices to continue rising in Harlem, or is there concern that they may have peaked?
Condo prices have not peaked. There is a segment of homebuyers who want the convenience and security of a staff that comes with high-end condo buildings, even if it means paying as much as twice per square foot [more than they would] for a private townhome. As long as Harlem is viewed as a “bargain,” meaning prices are at least 25 percent or more below a similar unit south of 110th Street, Harlem condo prices will continue to rise. We will never match Downtown prices because we are simply not Downtown.
What can you tell us about the differences between East Harlem, Central Harlem and West Harlem when it comes to prices and activity? Which of those areas is performing best and worst?
The best performing part of Harlem for the past five or six years is the area of Central Harlem from 110th to 125th streets, from Fifth Avenue to Morningside Park. This encompasses the neighborhoods of Central Park North, Manhattanville, and Mt. Morris Park. Buyers love the tree-lined blocks of row houses off the parks and the easy access to the rest of the city. You can also dine out every night for a month and still have more places to go. New [restaurants] seem to open every week. The opening of Whole Foods at 125th and Lenox next year is the last remaining piece the neighborhood needs. West Harlem, which includes Hamilton Heights, has equally beautiful housing stock, three major parks — Riverside, Riverbank and St. Nicholas — but it’s still building its stock of dining establishments and shopping options. Plus it’s another stop or two on the subway. East Harlem is popular with people who already live and/or work on the East Side, [but] while the housing stock is improving, it’s seen as too isolated for those who do not live or work that far east.
The demand for townhouses is up citywide, and many people who are getting priced out of the Upper West Side are moving to Harlem. What’s going on with the Harlem townhouse market?
Townhouse prices in Harlem have rebounded. There are numerous examples of townhouses in need of substantial work closing well over $1 million. Paying $1 million for a four-story row house in need of total renovation was once unheard of — but not anymore. Two 16-foot-wide homes on West 113th Street each closed at $1.95 million this past January. Two others on West 141st in the Hamilton Heights Historic District closed at $2.4 million. Buyers we talk to are hoping to spend no more than $2.5 million. [But] everyone is waiting for the first home to close for over $4 million; the $3 million barrier fell in 2006.
Which new groups are moving into Harlem these days?
Harlem has always had the student crowd, thanks to Columbia University and City College. But the neighborhood is attracting even more students now because on-campus housing has jumped so much in price; it’s cheaper for students to find a roommate and rent off campus. Harlem is [also] attracting more new city residents, the foreign born, and increasingly older people who are retiring.
How long are residential condos staying on the market in Harlem these days, and how does that compare to the last few years?
Unless there is a special circumstance, such as a short sale or foreclosure, residential condos are on and off the market in less than 90 days.
There is a spate of new residential projects underway in Harlem. Which are you most excited about and which do you expect to be market game changers?
The East River Plaza development’s plans to add residential units will propel East Harlem where it needs to go. The Sugar Cube on West 155th [an affordable housing project being built by Broadway Housing Communities and designed by architect David Adjaye] is especially welcome. That’s the northern border of Harlem, which was always the stepchild of West Harlem. The addition of sorely needed affordable residential housing, combined with art galleries, is a godsend for the area.
Some people have pointed to the under-construction Harlem Whole Foods as a key to the changing neighborhood, but earlier this year it seemed that Harlem retail was stalling. What planned retail do you think could have the biggest impact?
The Whole Foods cannot open soon enough. One new, large business such as Whole Foods will bring in more foot traffic for other existing stores and attract new ones.
What do you think the neighborhood still needs in terms of drawing residents from south of 96th Street to the area?
Different parts of Harlem need different things. For example, West Harlem, particularly Hamilton Heights, could use its own version of restaurant row. Hamilton Heights also doesn’t have a retail corridor comparable to West 125th where, come 2015, there will be an H&M, a Marshall’s and a Burlington Coat Factory.
What has been the impact on the residential market from the big project being built by Columbia University?
The Columbia expansion packed a wallop in West Harlem. We started to notice it as far back as 2010. The prices of townhouses shot up on the streets off Broadway. New commercial leases also take the Columbia effect into account.
Robb Pair
president, Harlem Lofts Inc.
Do you expect Harlem condo prices to continue rising, or is there concern that they may have peaked?
Prices have not peaked in Harlem — unless the entire real estate market turns because of some catastrophic event or an economic downturn.
What’s going on with rental rates in Harlem? By how much are they up or down compared to the recent past?
Harlem saw Manhattan’s largest year-over-year increase in average rent as of June 30. The average studio is now $1,500 a month — up from $1,000 at the lows. Average one-bedrooms just crossed the $2,000 threshold for the first time since we started recording rental data — up from around $1,500 at the lows. Average three-bedrooms are now over $3,000 a month.
What do you think the neighborhood still needs in terms of drawing residents from south of 96th Street?
The neighborhood is here for anyone that understands real estate as an investment opportunity. Speaking as a 15-year Harlem resident, I’m fine if the Upper West side community stays put. I don’t support Harlem becoming an extension of the Upper West Side, that’s just boring in my opinion.
There’s been a lot of focus on how foreign buyers are driving the residential market in New York. Are foreign buyers looking at Harlem?
Foreign buyers are 70 percent of our client base. They have the money and are excited about what Harlem offers.
What are the most surprising trends you see in the Harlem residential market today?
Live bands in multiple locations seven nights a week, multiple sushi and Indian restaurants, cool sidewalk cafes and coffee shops and high-tech workspace incubators. Harlem is a destination now, and not just for the Red Apple Bus Tours.
Sarah Saltzberg
principal broker, Bohemia Realty Group
What’s going on with the multi-family market in Harlem? By how much are prices up or down compared to the recent past?
Multi-family properties are probably the most sought after type of property right now above 110th Street. I haven’t seen almost anything under $1 million in probably a year, even [for properties] in distress. The most attractive types of deals for developers, or even end-users, are typically two- to four-family homes with a certificate of occupancy that need a gut renovation. These can be renovated and turned around fairly quickly.
By how much are rent prices in Harlem up or down compared to the recent past?
Rental prices have continued to climb, which is part of the reason many people are looking to buy condos — it is cheaper in many instances. South Harlem and Washington Heights have both climbed significantly in the past two years. … Clients love the prewar feel with the perks of new development amenities.
What planned retail in the area are you most excited about, when considering the real estate impact it could have?
The Whole Foods will certainly be a game changer. That said, I’m most excited to see the development of small businesses. Several agents in my office, through our contacts with landlords, have opened several coffee shops throughout Harlem. One of the incredible things about retail above 110th Street is that many small business owners are invested personally in these areas and live nearby.
Fabienne Lecole
licensed associate broker, the Corcoran Group
By how much is sales activity up or down compared to a year ago, two years ago, and during the last boom and the bust?
Sales activity in Harlem is 20 percent higher than last year, 25 percent higher than two years ago and 35 percent higher than four years ago.
What’s going on with the townhouse market? By how much are prices up or down compared to the recent past?
The price of a townhouse in Central Harlem and West Harlem is up 35 percent compared to 2009. There is no inventory on prime blocks, very few renovated houses, and when one comes to market, it sells extremely fast.
What is residential inventory like in Harlem in general?
There’s very little quality inventory. It’s definitely down compared to last year and recent years in general.
How long are condos staying on the market in Harlem, and how does that compare to the last few years?
If well priced, 60 days at most, very often less than seven days.
Are you seeing any impact on the residential market from the Columbia University expansion? How do you expect it to influence the surrounding area?
It’s had a huge impact on the residential market, as many students and professors look to be close to the university. When you are in Central Harlem, you are a 10-minute walk from the actual college though Morningside Park.
Sandy Wilson
executive director of sales, Halstead Property Harlem Office
By how much is sales activity up or down compared to the recent past?
Sales are definitely up from the first two quarters of 2014, but lower than the peak years of 2006 and 2007. Of course, that’s driven by the low inventory. The absorption rate in August 2014 was 3.3 percent as opposed to 4.6 percent in August 2013.
What price ranges are seeing the most activity for residential sales, and how does that compare to the recent past?
We are seeing the most activity between $700,000 and $900,000 and mostly for one- to two-bedroom apartments.
Multi-family buildings in Harlem have been trading rapidly in the past few months, and providing strong returns for the investors. Do you expect more conversions of rent-regulated buildings?
Not necessarily rent-regulated buildings, but what we are seeing are investors purchasing townhouses and converting them to condos or rentals. These investors are also increasingly foreign buyers who understand New York real estate will hold and increase in value.
Where are those buyers coming from?
From all over. Recently we have had foreign buyers from Italy, England, Israel, Germany and Argentina.
There is a spate of residential projects underway throughout Harlem. Which upcoming projects are you watching?
In Morningside Heights, 99 Morningside is a very exciting project. The plan is to have an 11-story building with 22 units. Also, at 92 Morningside, a 48-unit rental building is being considered. And of course, at the site of the old BP Station at 110th Street and Frederick Douglass, a 12-story condo building is planned.
What planned retail in the area are you most excited about?
The Columbia University Project on 125th Street is progressing at a very fast pace. The new hotel and rental building at the site of the old Victoria Movie Theatre and the condo development I mentioned, on 110th Street and Frederick Douglas Boulevard, just to name a few.
What new cultural ventures do you think are making an impact in Harlem now?
Harlem has always had a rich cultural scene. But [former Time Warner CEO] Richard Parsons has brought jazz back with the renovation of Minton’s Playhouse, and … trendy restaurant Cecil.
Jeffrey Schleider
managing director, Miron Properties
By how much is sales activity in Harlem up or down compared to the recent past?
At the Gloria NYC, we moved 16 apartments in 10 days at $50 per square foot. A year ago, the market wouldn’t even have borne those prices. Harlem doesn’t work in isolation. It’s all a function of what prime Manhattan real estate is trading for.
Do you expect prices to continue rising in Harlem, or is there concern that they may have peaked?
Market growth can’t hold forever. There’s going to be a correction. It’ll either flatline or drop. I can’t predict which. But the fundamentals are much stronger now than they were in the last boom. In the last boom, there was a lot of speculation. These neighborhoods, up the East Side and especially the West Side, have changed. Many long-time New Yorkers would be shocked to see the types of establishments that have opened up here.
What can you tell us about the difference between East, Central and West Harlem when it comes to prices and activity?
There is a part of East Harlem that’s basically an extension of the Upper East Side, where you’re seeing premium numbers on properties along Central Park, and even going up a little further. East Harlem proper is getting there, just a little slower. West Harlem, west of Broadway, has been nice for a very long time. But Central Harlem has hit its stride in a way that it never really has before. People have been moving into the neighborhood, and neighborhood services have finally hit. Red Rooster was a big part of that. In the previous boom, people were paying premium prices for a neighborhood that hadn’t gotten there. Now it’s gotten there.
Who is moving into Harlem’s higher-end residential buildings these days?
When Brooklyn is no longer the discount option, we’re gonna have a lot of people moving to Harlem. Even now, people paying the premiums are not people living in Harlem but people moving from elsewhere to Harlem. … We’re talking about a small sample size here, but demand has outpaced supply for new product. We’re working with developers who have had buildings there for 20 years; now it pays to renovate.
Some people have pointed to Whole Foods as a key to the changing neighborhood. What planned area retail do you think could have a big impact?
Equally important is the whole variety of indie restaurants and retailers that cater to the new audience.
What are the biggest challenges to marketing residential properties in Harlem?
I don’t have enough apartments.