Redevelopment in Melrose Commons, the Lower Grand Concourse and the Bronx Civic Center — three adjacent areas of the South Bronx that the Bloomberg administration is looking to rezone — has taken a turn for the worse in the last few months.
While other parts of the South Bronx have seen small-scale investors pull out, these neighborhoods are seeing something slightly different because of both the souring economy and the growing uncertainty about the rezoning there.
In Melrose Commons, plans for mixed-income condos have been shelved, while in a 30-block area of the Lower Grand Concourse, which is slated to be rezoned as a mixed-use area that would include residential housing, speculators are losing their appetite for investing in warehouse properties.
Lastly, while the Related Companies is building a mega-mall in the Bronx Civic Center, there only are limited opportunities for residential development there. The proposed rezoning of an eight-block area there would clear the way for much denser residential development, but it has not yet been approved.
According to city officials, more than $3 billion in public and private investments have been made in various projects in the three areas during the last eight years. Those investments have clearly translated into progress: Since 2000, more than 2,300 units have been built or are under construction in a 63-block area of Melrose.
But now some plans to build for-sale housing in Melrose are stalled and many in the real estate community are pessimistic about the prospect for redevelopment in the Lower Grand Concourse neighborhood.
Lower expectations
Allison Jaffe, the owner of Key Real Estate Services, recently had a deal fall through on a warehouse building located at 370 Gerard Avenue in the Lower Grand Concourse.
Jaffe said the speculator who was looking to sell wanted her buyer to carry the expense of holding onto the building until the zoning change was approved and the site could be redeveloped as residential.
However, the deal died because the rezoning is still in question — and the buyer thought that the uncertainty should have brought the price down.
“Until the crisis hit, there were properties being sold and I think that a lot of it was based on speculation that the rezoning was going through,” says Jaffe, who is working with the buyer now, but was not directly involved in negotiations on the Gerard Avenue site.
“But it is exactly those kinds of people, the investors and the speculators, who are now having the worst time getting mortgages. They are the ones who are completely out of the market right now.”
Jaffe says the Lower Grand Concourse may still be attractive to deep-pocketed investors who can wait for the rezoning, but that not everyone falls into that category.
“My own cynical point [is that if] the mayor does get a third term, it is possible that this plan will get pushed through,” she says. “If he doesn’t, God only knows when it could get finished, given the economic situation.”
However, not all of those who own warehouses can even afford to sell. Many owners have been taking tax depreciations on their properties for years, and the capital gains taxes that they would have to pay after selling the properties could wipe out most of their gains on the sales.
“Some people have properties that they cannot afford to get rid of anymore, because they have been sitting on them for so long,” notes Les Bluestone, a veteran affordable housing developer in the area and a principal at the Blue Sea Development Company.
“We find that a lot of people have buildings that are boarded up, but because they have depreciated their property for so many years, they are in a negative basis and the tax hit they will take on selling it is huge,” he says.
Bluestone says the prospects for redeveloping for-sale housing in Melrose Commons, which is adjacent to the Lower Concourse, are the worst he’s seen in the 30 years he’s been in business.
The area is still largely renter-occupied, but since 1990 homeownership has jumped 83 percent.
“When I started, we were selling homes when the interest rate was 16 and 17 percent and we couldn’t sell them fast enough because credit was still available,” he notes. “But now you have the perfect storm, where the credit is gone and the economy is in the tank; the homeownership stuff is certainly a lot harder to do, because there is no end loan financing available.”
Bluestone is completing a 63-unit, low-income rental development called Melrose Commons 5 at 429 East 156th Street.
The project — which is going for the highest environmental rating of LEED Platinum — will be restricted to families whose income does not exceed 60 percent of the city’s average median income.
The tentative monthly rents are $782 for one-bedrooms, $943 for two-bedrooms and $1,089 for three-bedrooms.
Meanwhile, nearby, a 107-unit mixed-income condo in Melrose Commons that L+M Development Partners was slated to build under a city Department of Housing, Preservation and Development program has been canceled. Instead of condos, the developer will now build mixed-income rental units.
According to Mario Procida, the president and CEO of the Procida Real Estate and Construction Corporation, who has worked in the South Bronx since the 1970s, virtually all of the new housing in Melrose Commons has been built with heavy government subsidies.
“The reason you need to do it with a subsidy is that Bronx market-rate housing significantly lags other boroughs in terms of sales price,” he says.
The Orion, a mixed-use condo with ground-level retail — which Procida completed this summer in conjunction with L+M Development Partners, Melrose Associates and a community group called Nos Quedamos — is typical of the construction that was taking place in the Melrose Commons area before the economic crisis set in.
Subsidies for the nine-story, brick-faced development, which is located at Third Avenue and East 156th Street, came from HPD. Forty-six of the units were sold at reduced prices to buyers through a lottery.
The remaining 14 market-rate units started at $184,000 for a one-bedroom, $232,250 for a two-bedroom and $339,000 for a three-bedroom unit. Procida still has seven apartments to sell.
Also in Melrose Commons at 161st Street and Third Avenue, the Atlantic Development Corporation and Boricua College have teamed up and broken ground on a $300 million mixed-use development that will include the flagship campus of Boricua, roughly 50,000 square feet of retail space and 689 residential units.
Roughly 40 percent of the units will be reserved for low-income residents, and the rest will be rented at market rates.
Cutting-edge architecture is also coming to the area at the Via Verde, a 202-unit development slated to be built at Brook Avenue and East 156th Street. It will include 63 co-ops restricted to buyers earning under 130 percent of the city’s median income (about $70,000 for a family of four), and 139 rental units restricted to those earning between 40 and 90 percent of the city’s average median income.
Via Verde, which is slated for completion in 2011, should add to the aesthetic of the neighborhood, where drab developments stretch for blocks.
The project will feature low-rise townhouse buildings with connected roof-top gardens, a mid-rise duplex building and an 18-story tower with a roof garden for harvesting rainwater and growing vegetables.
A development team comprised of Grimshaw Architects, Dattner Architects and two prominent affordable housing developers, Jonathan Rose Companies and the Phipps Houses Group, is building it.
There also appears to be stiff competition to secure three remaining city-owned sites totaling about 5.5 acres at Elton Avenue near 162nd Street. A city request for proposals was due in December and called for a mixed-use, mixed-income project there. “We are working along with everyone else and their brother to get the remaining sites,” Bluestone says. “But it is certainly tougher to do something now than before.”
Despite progress in some areas of the South Bronx in recent years, city officials are facing a major challenge when it comes to selling it as a place to do business now.
Alejandro Baquero-Cifuentes, assistant vice president of development from the city’s Economic Development Corporation, recently returned from an Urban Land Institute Conference in Miami where “the three things that came up for developers were, ‘stay away from retail, stay away from emerging markets, and try and stay away from New York City because of the current woes with the market,'” he says.
Still, Baquero-Cifuentes insists there are investment opportunities in the Melrose Commons area for regional chains and smaller national retailers because of its population density. By 2010, EDC is projecting that expenditures in Melrose Commons will be 20 percent higher than the average in New York City on a per-square-mile basis.
“You have the population density here,” Baquero-Cifuentes says. “These are still cash economies; the numbers are there.”