The Bronx — and the South Bronx in particular — has spent the last couple of years poised to assume the title of the comeback kid of New York real estate.
But all may not be completely rosy in the city’s northernmost borough. Despite gentrification, brokers say the rising specter of foreclosures, low returns on investment properties and slowing development in previously active areas like Riverdale pose challenges.
Yet with the reputation the Bronx earned during the 1970s and ’80s hard to shake, the borough may still be underrated.
The Bronx has benefited from institutional investors who have begun to feel more comfortable pouring money into the borough, and more artists are arriving in the South Bronx from Manhattan areas like Harlem and the Lower East Side.
“The Bronx is consistently seeing increases in property values, but that increase is much slower than in the [Manhattan] market,” said Adrian Thompkins of the Corcoran Group. The Real Deal spoke to Thompkins and other brokers entrenched in the borough to get their thoughts.
Marco Lala
managing partner, Massey Knakal
What is the most interesting trend in the Bronx residential market right now?
I focus primarily on investment sales. There are pockets of the Bronx like Riverdale, Pelham Parkway and Mosholu Parkway, along with some retail corridors along Fordham Road and Third Avenue in the East 150s, where on the surface, the prices are showing little or no returns for the investor for several years. For a borough where one could be assured a double-digit return, those days are far behind us.
What is the most positive trend?
There is still quite a bit of new construction going on right now, although most of it is targeted toward affordable housing units. Most developers have based land acquisition costs on rental units as opposed to some unrealistic [condo] sellout value. As long as the tax benefits remain, we will still see a healthy trend of new construction.
What is the most negative trend?
I wouldn’t call it a negative trend, but I am noticing banks underwriting deals more carefully. If banks start tightening their belts, it will trickle down to more conservative expectations from investors and ultimately translate into lower purchase prices. But for right now, there still is a lot of money sloshing around.
What is the most underrated area of the Bronx right now?
If anything, I would consider the whole borough still underrated. It is one of the only frontiers left for someone to see their investments significantly grow over the next few years.
Which neighborhood is the most improved compared to five or 10 years ago?
There is the area around Third Avenue and the 150s where the Related Companies is going to build retail, commercial and residential.
I also see the area around Fordham University, called the Little Italy of the Bronx, turning into a college town as students from all over the tri-state area and beyond are signing up. Fordham just constructed a parking facility that houses 10,000 cars on their campus and student housing is in short supply. There are four-family frame houses brimming with students, along with whole apartment buildings all along the side streets in and around Fordham Road.
What emerging areas are you seeing for market-rate condo development?
Because of the desirability, Riverdale was always a great submarket for condo and co-op development, but downzoning put a stop to that booming area. Unless the land or conversion property can be acquired cheaply, there are limited submarkets that justify acquisition and construction costs.
What sort of sellers are you seeing that you didn’t in the past?
There are owners who told me five or 10 years ago that they would never sell. Now they are disposing of thousands of apartments. I’m handling the sale of one property that was in the same family for 103 years. It’s taken me about 48 hours to get multiple full-price offers on it. It’s located in the heart of Little Italy in the Bronx.
As far as buyers, besides the usual family operations, more and more institutional money is floating into the Bronx. Companies like Blackstone, Apollo and Blackrock are buying up thousands of apartments in the Bronx as well as the other outer boroughs.
Adrian Thompkins
sales associate, the Corcoran Group
What is the most negative trend you notice right now?
The consistently high rate of foreclosure in a few Bronx neighborhoods such as Throgs Neck, Highbridge and Soundview is cause for concern and investigation. I am almost certain it has to do with subprime lending: buyers not fully understanding the terms of a subprime mortgage; already being on a tight budget with a low margin for error; and perhaps some miscalculating the going rate for rental units in their properties. In those buildings all you need is one tenant not paying rent. For a 50-unit building it’s not going to make much difference if one or two tenants don’t pay their rent, but a three-unit building with a high interest rate to begin with makes it very difficult.
Some buyers are not screening their tenants properly. I see buyers come with mortgages from companies I’ve never heard of, and it makes me a little nervous. A lot of the major banks are involved in the Bronx, so I don’t understand how they go to some of these local companies.
What is the most underrated area of the Bronx right now?
The Longwood historic district has a cache of architecturally important buildings. I’m surprised that there isn’t more activity, interest and investment in that area.
Which neighborhood is the most improved compared to five or 10 years ago?
Hands down, Mott Haven has seen the most dramatic improvement in terms of appearance, property values and quality of life.
How is the Bronx doing in relation to the rest of the New York City market?
The Bronx is consistently seeing increases in property values, but that increase is much slower than in the [Manhattan] market.
What surprises you most about the current market?
I find increased interest in Bronx real estate from Manhattanites surprising. I’m seeing more and more buyers from Manhattan, particularly Harlem and downtown areas like the Lower East Side, eager to buy property in the Bronx. On the other hand, I’m surprised that I’m not seeing even more Manhattanites coming to the Bronx.
Aaron Jungreis
executive vice president, GFI Realty Services
What is the most interesting trend you see in the Bronx residential market?
For me it is seeing all the pension and hedge fund buyers coming in. A lot more of the companies from New York City that you wouldn’t expect to be buying are buying 10-, 20-, 50-building packages. I recently sold a package, the Eastchester Gardens, that I had originally sold for $97 million to one fund. It just resold for $240 million to another fund.
What is the climate like right now for investors in residential multifamily buildings?
[Despite the pension and hedge fund buyers], it’s pretty thin. It is very hard to get a double-digit return, but if you are comfortable with getting high single-digit returns, then you can invest in the Bronx.
What is the most overrated area of the Bronx?
The North Bronx north of Fordham Road is overrated. To me it doesn’t make a difference if you are North or South Bronx, it is still low- to middle-income.
How is the Bronx doing in relation to the rest of the New York City market?
Not as well, but still doing fine.
Will prices rise or drop in the Bronx this year, and why?
I continue to see prices rising. Port Morris, Mott Haven and Highbridge are going to do the best. A lot of yuppies are moving from Manhattan. A lot of artists are moving over there, which is always a first sign of neighborhood restoration.
What emerging areas are you seeing for market-rate condo development?
None. The construction costs are so high. That’s why you don’t see that much new construction in the Bronx. You have to build to rent, and to do that these days is very unaffordable.
Allison Jaffe
broker, Key Real Estate Services
What is the most positive trend you see now?
I see this all over, but especially in the South Bronx where I work more regularly: There is a big switch from investment property to owner-occupied multifamily buildings. They typically buy a house, make a unit for themselves and have a rental or two, or convert a two-family house to a one-family. There are still [pure] investment properties, but they are typically larger buildings.
What is the most negative trend?
The middlemen — the speculators are all over the place. These are guys that are doing incredibly shoddy renovations and flipping the building, taking advantage of unsophisticated homeowners who are selling their properties because they think $250,000 is a lot. Some people don’t know that it is really worth $350,000 to $400,000. They are preying on both the people that they buy from and the people they sell to, if the buyers are not sophisticated buyers.
What is the most overrated area of the Bronx?
In Riverdale prices continue to go up. The irony is, in a city that depends on mass transit, most of Riverdale is poorly served. Shopping is limited, and parking is a problem.
The other area is Throgs Neck in the southeast corner of the borough. Anybody who can get their hands on a lot with a building that has some lawn around it is tearing down and building a two- to three-family home to the outer edge of the lot if they can. Prices have gone bonkers there, even though it is really isolated. People love the residential middle-class neighborhood, and it is perceived to be relatively safe by the people who have lived there their entire lives. A new construction two-family home is $750,000. A condo can be that expensive, but even if it has a view of the Throgs Neck or Whitestone bridges and the Long Island Sound, it seems overpriced.
What is the most underrated area?
Bedford Park along Mosholu Parkway probably doesn’t get the due it’s entitled to. It has lovely apartments along the upper concourse with good shopping and access to public transportation. It is a great location at the top end of the Bronx with great access to parks and highways, access to Westchester and the George Washington Bridge to New Jersey.
What emerging areas are you seeing for market-rate condo development?
The first condo loft conversion is happening in the South Bronx. In Mott Haven, specifically the 10454 zip code, there are no condo units whatsoever, despite the impression of people who contact me after reading media accounts. Articles make it sound like every empty loft building is being converted, but it’s not true. There is an offering plan being submitted for the first loft condo conversion. It will happen this year, and it is a relatively small building. Also, loft condos that the Jackson Development Group built went on sale in Highbridge.
What sort of buyers are you seeing that you didn’t in the past?
The buyers I’m working with are coming from other boroughs, typically a couple or young family who is looking for their next home, larger than what they have, and they can’t afford to buy in their neighborhood or borough. They are exploring this unknown world of the Bronx.
What are biggest hurdles that remain for the Bronx to catch up to other boroughs in the city?
Reputation more than anything else; it’s the last place everyone thinks of unless they were born and raised here. For some in some areas, the presence of a lot of public housing puts them off. I would direct them to observe the lessons of Brooklyn especially.
What are you seeing in the office market, in terms of rent and vacancy, job growth and opportunities for development?
There are some really significant retail and commercial projects going on. The granddaddy project of them all is the new Yankee Stadium and Related’s Bronx Terminal Market, an enormous mall with big-box stores and waterfront access.
Vasco Da Silva
director of sales, Halstead Riverdale
What is the most overrated area of the Bronx?
The entire borough is underrated, but Riverdale has the best schools in the country, and Bronx Science is the only high school in the world whose alumni include seven Nobel Prize recipients. In fact, few nations can match that accomplishment.
What emerging areas are you seeing for market-rate condo development?
Riverdale has been the biggest candidate, where asking prices per square foot in the last 18 months range from $525 to $800; the latter being full-service luxury buildings. The 421-a tax abatement program looks to be continued in the Bronx and this will be huge for residential development in the borough, since Manhattan developers will no longer have access to the full 421-a. The effect could be more developers focusing on the Bronx.
What is the climate like right now for investors in residential multifamily buildings?
The rental market in Riverdale has lagged compared to the sales market. Rents have not climbed as quickly as sales prices have surged, and this leaves the prospect of being a landlord a negative experience if one is thinking of buying a new condo unit as an investment.
What sort of buyers or sellers are you seeing?
Local buyers tend to make an upward purchase in Riverdale and move from a co-op apartment to a house. Buyers coming from Manhattan are going for the new condo construction.
Joe Hasselt
owner, Hasselt Realty; and vice president, Bronx-Manhattan North Association of Realtors
What is the most interesting trend you see in the Bronx residential market?
It’s slowing. It has changed from a seller’s to a buyer’s market. Before, if the borrower was having difficulty, they could get out of a property by finding a buyer. If that borrower falls behind now, counting on property appreciation will no longer bail him out and he could end up owing more than it’s worth. Many have gone to renting rooms and basements to keep ahead of the game. Appreciation has gone flat and there is some depreciation in various segments. I think that we are moving toward a more balanced market but there may be a dip first.
What is the most negative trend you are noticing right now?
Lending options are becoming more restricted. Those programs that were more flexible on credit scores are being withdrawn and buyers are forced to come up with a 3 to 5 percent down payment, when it used to be up to 106 percent financed. There are fewer concessions on closing costs. The elimination of these products is more a reaction by banks because defaults are rising tremendously. It was just reported that from December to January there was a 16 to 20 percent jump in foreclosures.
What is the most overrated area of the Bronx right now?
New construction that popped up everywhere is overrated as a whole. Often, that new housing is severely overpriced in relation to square footage, location and selling price of existing housing. We have heard instances of new home buyers expressing problems with construction defects at a rate higher than one would expect considering the prices that were paid.
Which neighborhood is the most improved compared to five or 10 years ago?
Some of the South Bronx, parts of Hunts Point. Neighboring areas always do well when the more expensive areas become unaffordable. People looked in areas that weren’t as desirable. Now that it’s turning again, those areas will be the first to suffer.
What is the climate like right now for investors in residential multifamily buildings?
They are still there. But the 40 to 50 investors who buy foreclosed homes that I work with on a regular basis have pulled back on their offers. I have had a handful of broken deals where buyers were committed to buy and they elected to let the deal fall apart because they feel the market softening as well.
What surprises you most about the current market?
Not too many surprises out there after 25 years [in the business]. The surprise is that we didn’t get to this point sooner. Low interest rates kept this going longer than it normally would have.
Wells B. Newell
partner, Reilly Mann Newell Realty Group
What is the most underrated area of the Bronx right now?
The Yankee stadium area is very strong. I’m surprised there isn’t more activity there. A lot of people are looking for good North Bronx properties, especially north of Fordham Road, that have that upside potential.
Which neighborhood is the most improved compared to five or 10 years ago?
All around Fordham Road and north of Fordham Road has improved dramatically.
Will prices rise or drop in the Bronx this year and why?
Prices are holding steady. I don’t expect prices to drop unless interest rates go up significantly.
What are you seeing in terms of the office market?
It’s getting harder to find a good elevator building in a good Bronx location that’s priced reasonably. Everyone is complaining that it’s hard to find a good deal now. The average return on a transaction is 2.5 to 3 percent. Buyers are still purchasing with the expectation that their return will double in the next two to three years.
Everyone has been waiting for a correction for a long time. If there is a correction, the outer boroughs are the first that will feel the effects, then finally Manhattan.