“The Bronx? No thonx!” poet Ogden Nash proclaimed in 1931, famously dissing the borough — and summing up an aversion that lingers in the minds of many New York real estate investors.
Today, however, investors are increasingly saying, Yes, please!, to residential rental properties in the Bronx. They are willing to spend tens of millions of dollars for large apartment portfolios, and are also snapping up smaller properties for a few million dollars.
After years of gangbuster price increases on Manhattan properties, investors are attracted to the Bronx because they see an opportunity for higher returns on their investments with lower purchase prices than Manhattan.
Residential rental properties in the Bronx now command price multiples between eight and 10 times the rent roll, compared to 12 to 15 times the rent roll for properties south of 96th Street in Manhattan, notes Wells B. Newell, partner at Reilly Mann Newell Realty Group. Because of strong demand from tenants, who are likewise seeking lower prices, investors see the potential to eventually raise Bronx rents, which often lag the market. They plan to do this by upgrading buildings that are now rent-stabilized and bringing them up to market rates.
SG2 Properties, a four-year old partnership between Stephen Siegel, chairman of global brokerage at CB Richard Ellis, and brothers Andrew and Jeffrey Goldberg, is in contract on a transaction for 4,000 apartments across the borough; sources value the deal at about $300 million.
“This is our first venture out of the borough of Manhattan,” says Siegel, whose affection for the Bronx dates back to his childhood on 174th Street and student days at James Monroe High School. “We are extremely excited about the Bronx in general; we have an appetite for more.”
Massey Knakal managing partner Marco Lala has the sale of 96 units, in the area just south of Fordham University known as the Bronx’s Little Italy, in contract for over $21 million. In April, Lala represented Related Companies/Sparrow Construction in a $48 million sale of 14 Bronx apartment buildings. He also recently brokered a $4.7 million deal for 2705 Colden Avenue, which has 40 apartments.
These deals for rental buildings follow Apollo Real Estate Advisors and nonprofit housing developer Housing and Services Inc.’s February announcement of their $100 million acquisition of 1,865 rental units in the Soundview section that will be converted to affordable co-ops for the residents.
Investors are also attracted to a borough where crime plummeted 71 percent from 1990 to 2005, according to New York City Police Department statistics, while major development, from the new $1.3 billion Yankee Stadium to the $500 million Related Companies retail complex at the former Bronx Terminal Market, is on the rise.
“Everyone knows how crazy Manhattan [prices] got, and people are looking elsewhere,” says Massey Knakal’s Lala. In the Bronx, he adds, “The owner is pretty much assured a chance to increase rent rolls by essentially working the building.”
Still, investing in the borough the Yankees call home does not guarantee a home run. The Bronx now attracts more institutional investors, wealthy individuals with syndicates, and operators who already own dozens of buildings in other parts of the city, rather than local players who already own one or two properties.
But Bronx newcomers used to investing in Manhattan must be aware that they will likely have to pour in substantial upgrade funds beyond the purchase price. Unlike in Manhattan, where a buyer can clear out free-market tenants and generate a huge profit with a condo conversion, many Bronx assets are small, older buildings occupied by stabilized, controlled, or Section 8 tenants, and require a vastly different approach.
“There is no ‘get rich quick’ process for the Bronx; this is about hard work and adding value in order to realize value,” says Siegel, noting that SG2 plans to invest about one-third of the rent roll in security improvements and upgrades to its Bronx portfolio over the next several years. “In general, people have to work a little more to improve the condition of the asset to increase occupancy and increase revenue. In Manhattan, it seems prices just rise automatically based on demand.”
Despite the extra work and costs, deals continue to percolate. Lala says he is handling about $200 million of inventory and has almost two dozen properties in contract in the Bronx. In September, he represented the buyer and the seller in a $5.15 million deal at 130 Van Cortland Park, which he says is the first sale of that building since it was erected in the 1960s. The gross rent multiple was 9.2, and the buyer was a Brooklyn-based investor.
Newell’s firm is also busy with deals for residential rental properties in the Bronx. In February, he closed on 212 West Kingsbridge Road, with 61 apartments and five stores. The price was $5.3 million, or nearly 10 times the rent roll. Newell notes that five years ago such a building would have commanded only half that price.