High demand for multifamily housing pushes progress on Long Island

Developers have cleared hurdles for many new projects, but apartments are still in short supply

Mar.March 01, 2017 07:00 AM

From left: Michael Gigliotti, Jeff Simpson and Sean McLean

Multifamily housing is finally beginning to make major inroads on Long Island, with projects that lingered in seeming purgatory finally coming to fruition. More and more communities are welcoming the new downtown-oriented developments as a way to attract younger residents, and even looking forward to the amenities the projects bring with them.

These developments are popping up all over the Island, in the downtown areas of Mineola, Farmingdale, Ronkonkoma and dozens of other communities that sit along the Long Island Rail Road. Concerns over increased density and height have delayed many of these projects, but that is changing.

“There was always the fear that urbanization brings a deterioration. But we’ve turned the fear on its head. It wasn’t quick. It’s been a journey,” said Eric Alexander, director of Vision Long Island, a smart-growth planning organization.

While the pace of development represents a boom for Long Island, it may not be enough to keep up with enormous demand for apartments from millennials who have been reluctant to buy houses.

Industry sources tell The Real Deal that Long Island continues to face a serious shortage of apartments, especially compared with the surge of supply that has hit the markets in Manhattan, parts of Brooklyn and Queens and New Jersey’s so-called Gold Coast.

Out of the estimated 17,300 apartments that will be delivered this year and next in suburban New York (defined as a 50-mile radius from Grand Central that excludes New York City), fewer than 1,000 will be located on Long Island, according to CBRE.

Developers blame Long Island’s limited sewer capacity and the seemingly unlimited red tape that keeps the building process moving at near-glacier speeds. “The barriers to entry are unlike anything else I’ve seen in the country,” said Michael Gigliotti, senior managing director at commercial real estate firm HFF.

With so much change on the horizon, Long Island real estate experts tell us about what works, what doesn’t and what to expect as many towns and villages get a taste of an urban overhaul.

Sean McLean
Vice president of planning and development at Plainview-based real estate firm Renaissance Downtowns

There are a number of multifamily projects underway in suburban Long Island. Do you have the sense that the current pace of development is the right amount based on demand, or will there be too little/too much supply? I think we have an undersupply. The amounts of entitlements being achieved aren’t satisfying the market and are not helping to keep monthly rents down at a sustainable level. For market-rate multifamily, the rents remain very, very strong.

What about land pricing on Long Island? Is it more or less expensive right now than it has been in past years? The price of land is all over the place. I know that out in Riverside, there is a bunch of land that is in the midst of transacting at around $20,000 per residential unit. When you get into Nassau County, there are other developers that have spent considerably more than that — as much as $70,000 a unit. What we’ve seen is that developers who don’t want to take any risk will pay more money for property that fully has entitlements, has building permits and has all municipal approvals in place. There is a direct correlation to risk.

Which projects do you think will have the most impact? Are there any you are paying particularly close attention to? I think Heartland will be a very interesting study in building a new downtown, similar to what happens in other areas of the country but rarely happens here on Long Island. That certainly will have an impact — I think to the benefit of the quality of life and availability of quality rentals. I have been paying close attention to the Greybarn in Amityville. That seems to be a very high-quality project that the community has embraced for the most part.

What are the biggest roadblocks to building multifamily projects on Long Island? Certainly, infrastructure — sewer and water — is always an issue. So is the perception that it will be a detriment to the school district.

One of the biggest and hardest-to-solve obstacles that we’ve run into is parking. You can’t have huge amounts of surface parking and still have a comfortable pedestrian-oriented community. But the cost of efficient structured parking really hurts the ability to build multifamily in downtown-type setups.

How legitimate are the concerns about sprawl and congestion, particularly in areas not used to having a downtown feel, where some citizens feel it’s being thrust upon them? The traditional suburban way of living causes traffic. You have to drive from your house to the grocery store to the bank to the post office to the gas station and then back to the house. In a more compact environment you can drive, park once and satisfy three of those four stops without getting back on the roads.

What kinds of retailers are you seeing situated near these multifamily developments, and what are the types that end up doing the best? We have found that locally owned businesses will attract a more loyal following than national brands. The larger-format pharmacies are also playing a larger role in the downtowns because they don’t just have a pharmacy operation, they sell home goods and groceries. They are a great anchor for the mom-and-pop shops around them.

Do you think the mix of rental and condo units is balanced? Is there more interest from buyers or renters? There isn’t a huge demand for condominiums. Younger people are choosing not to buy. They don’t want the inflexibility of purchasing. Once the multifamily market is established, I believe you’ll have a much greater push towards condominiums. And there will be more buyers in the market. For instance, in Mineola I could see condos or attached townhomes starting to do well there because there is so much high-quality multifamily already built, and it’s activating the area.

Eric Alexander
Director of Vision Long Island, a smart-growth planning organization

What’s your outlook for the coming year in terms of supply and demand for multifamily housing? Do you think there’s enough interest in these developments on Long Island? We’re bullish about 2017. Downtown mixed-use, transit-oriented development, particularly on the rental side, is filling up, even at luxury or market-rate levels. They’re putting development up, leasing it, and it’s gone in short order. There is still room there. Roughly 12,000 units have been approved for transit-oriented development. But only about 15 percent are affordable housing units. The next wave will have more.

How much does it cost these days to buy land on Long Island? It’s almost impossible to answer that. We’re so many submarkets. We are seeing an uptick in property values, particularly in downtowns where there’s been a revitalization. For example, Farmingdale property values went up 7.5 percent a year over the past two years due to the revitalized Main Street. But it’s almost silly to look at Long Island as a region. It’s more like a state.

What are the biggest obstacles to developing multifamily projects? I’m going to question the premise a bit. Fifty of the last 64 transit-oriented development public hearings had more support than opposition. Fifty-seven of the 64 were approved. And a couple of them are still floating out there for potential approval. The challenge is to ensure the largest voices in planning are local in nature: local civics, local property owners. Home rule is very important.

How are residents reacting to the changes? What kinds of concerns do they have? People used to be fearful that “Oh my God, tall buildings are coming …There goes the neighborhood.” But those complaints have been pretty much debunked. People are seeing that the best way to fill my main street with good restaurants and bars and keep the tax revenue flowing is to actually allow a little growth and rehabilitate those old buildings.

I’m exclusively speaking about 40 Long Island downtowns that are approving projects, and another 20 that are approaching that.

Of course, there are another 40 downtowns that don’t have plans — and don’t have plans to have plans. That’s okay. That’s how they want to be.

What kinds of businesses work well alongside multifamily developments? Are there types of places that do better than others? Basically, things you can’t do online. Restaurants and bars and anything associated with food has really been driving the local downtown retail space for some time now. Then associated services like pharmacies, dry cleaners, nail salons. There’s also another category of experiential retail. The art gallery where you can paint and drink wine or a specialized tea shop. Or places that are tied to art, music and culture. Music halls are starting to pop up and be successful on the Island. Traditional retail is struggling, not just in the downtowns but in the outlet malls and regional malls. Pretty soon people will be able to order something through Amazon and get an Uber driver to bring it over within the hour.

Michael Gigliotti
Senior managing director at commercial real estate firm HFF

Do you think there are too many multifamily projects in the works on Long Island? How does the Long Island market compare to other areas in the Greater New York region? I don’t think there will ever be enough supply of multifamily on Long Island to catch up to the demand. Long Island, in my opinion, is the most underserved multifamily market in the country. Roughly 20 percent of the households on Long Island are rentals, compared to approximately 33 percent in southern Connecticut and Westchester. The supply of apartment units on Long Island has grown by only 5 percent since 1999. Also, the existing supply is primarily old and under-amenitized. So if you take a look at the supply of quality Class A apartments that the demographics of Long Islanders can afford, it is even further limited.

Which projects are you keeping tabs on? The Hub at Ronkonkoma Master Development, being developed by Tritec Real Estate Company, is one of the most exciting projects on Long Island. Unlike many towns that have resisted the redevelopment of their downtowns, Ronkonkoma reached out to the developer community to cooperate with the revitalization of the area around its train station into a new transit-oriented, live/work/play downtown neighborhood. The first phase of multifamily buildings is nearly underway, and the future will hold additional residences, office and retail. The train station at Ronkonkoma is the highest-trafficked train station in Suffolk County, so the Hub is a prime example of a transit-oriented development.

The next development I’m keeping a close eye on is the Garvies Point Master Development being built by RXR Realty. The transformation of a once-blighted waterfront into a dynamic mixed-use community will be very exciting for Glen Cove and the surrounding towns. With over half of the space (nearly 28 acres) reserved for publicly accessible open space (including parks, promenades, a natural beach and a marina), the town will be able to develop its cultural assets while supporting existing local economic activity.

What do you think the impact of the new retailers will be on the area? Long Island is just starting to systematically recover from the domination of national chains and big-box stores that have taken the traffic away from historical downtowns and to commercial thoroughfares such as Jericho Turnpike and Sunrise Highway. Restaurants, entertainment, necessity-based retail within walking distance of apartment communities will make Long Island more attractive to both young people and empty-nesters.

What are the amenities that were once considered exclusive to the top-of-the-line units but have now become standard?  I’m not sure if they’ve become standard, but developers need to insist on building communities, not just places for people to sleep. Club rooms, open event space, pools and other ways to make the residents’ lives more social within the community is the recipe for continued success of new multifamily development on Long Island.

What about the mix of condo units versus rentals? Do you think people are more interested in renting or buying? The interest is strong from both sides of the equation. Both rental and condo are far underserved on Long Island.  Garvies Point is bringing both options to its development, and Ronkonkoma is considering for-sale product in later phases. The success of the Ritz Residences by RXR Realty in North Hills has proven that even very high-end luxury condominiums are in high demand on Long Island.

Brian Terry
Team lead in Long Island for commercial real estate at TD Bank

Do you have the sense that the current pace of development is right, based on demand, or will there be too little/too much supply? The multifamily properties that are currently under construction will be absorbed quickly. With that in mind, we’ll continue to see a need for additional rental housing throughout the next year or so. 

What about land prices Long Island? Are they higher or lower than they have been in the past? There’s very little land that’s available for sale in Long Island. Many of the current multifamily projects have been in progress for close to six years, as they were existing buildings and the owners needed to ensure that they secured proper zoning.

How do you weigh concerns about development against the need to attract younger families and single people to Long Island? Millennials are leading a change in the way we live. It’s important for developers to understand how to appeal to this market. They continue to seek amenity-based housing that’s within close proximity to stores, transportation and restaurants. As this trend continues among millennials, it will be difficult for Long Island to attract this group. We have made some progress, but we’ll need to move forward with development plans. For example, Wyandanch Rising in Wyandanch and the Greybarn in Amityville are still working through their action plan.

What amenities are potential residents looking for in a multifamily building? Are there things that were once considered a luxury that are now standard? The quality and the number of amenities that a multifamily building can provide are endless. However, a few popular amenities include wellness centers, common spaces with technology, concierge services, outdoor space, package delivery management, storage and more.

What about the balance of rentals and condos? Is there more interest from buyers or renters? Historically, Long Island has always had a high homeownership rate, but rentals are currently in short supply. We’ve seen great successes in towns like Farmingdale and Mineola that have adopted favorable zoning plans for rental properties to help soften the demand.

Gene Pride

Senior vice president of CBRE Capital Markets

What are the biggest obstacles to creating multifamily projects in Suffolk and Nassau counties? Obtaining zoning approvals has been and continues to be a challenge for developers, along with real estate taxes. These are the primary factors limiting the pace of development on Long Island relative to other suburban markets.

How legitimate are the concerns about sprawl and congestion, and how do you balance that with benefits like tax income? Good planning will always remain critical in well-thought-out communities. Increased densities near transit seems to be the most effective tool to minimize congestion.

In terms of retail, what works and what are some of the pitfalls that multifamily developments might face? One frequent misstep in apartment development is an overallocation or municipal requirement for retail that is not sustainable. We all see the retail world changing quickly due to the internet. A small amount of service retail and restaurant space can be a nice addition, but only in locations where population is already dense and not reliant on the additional residents brought in by the new development.

What makes multifamily developments so appealing to people? Has there been a change in the demand for these kinds of apartments? It’s an extraordinary time to be a renter — most apartment communities offer state-of-the-art fitness centers, club rooms with internet access, swimming pools, covered parking and business centers. Units often feature granite counters, stainless-steel appliances, in-unit washers/dryers, energy- efficient design and open floor plans, all of which are highly desirable. In many cases apartment finishes are comparable to condo or home finishes. The demand to rent luxury apartments has never been higher as a larger portion of the population prefers to rent today than own.

Jeff Simpson

Head of Greystone Development

What are the biggest obstacles to creating multifamily projects in the suburbs? The factors can be more challenging when you build outside of New York City. This is all-encompassing, if you are developing multifamily or condo in a neighborhood where this is a unique type of dwelling, where, for instance, the norm may be stick-built homes, there is a certain adjustment period for the local agencies.

What are some of the design concerns of these kinds of developments? We aim to maximize the footprint for optimal light and air, ensuring the living space is commensurate to bedroom count, while also maintaining the appropriate proportions for the sleeping quarters. Those common spaces are especially important to a family, and we try to maximize space and design for all uses of the property.

What are some of the things you consider when determining the amenities that will be built as part of a new project? Has that changed over the years? There is a certain level of service and convenience that residents look for when they decide to live in a condominium or multifamily development in the suburbs. Additionally, we have found people appreciate and expect things like parking, a pool, gym and a lounge. These amenities lend themselves to creating a sense of community within the development as well. 

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