For the most part, developers held out for government subsidies before building new rental properties in Harlem.
But as the Manhattan rental market picks up once again, some major property owners are jumping into the market-rate bracket above 110th Street after deciding it’s the best part of town for growth of their rental portfolios.
“A critical mass has been reached in the renaissance of Harlem,” according to Chris Halliburton, head of Warburg Realty’s Harlem office. “There is a greater inclination by developers to buy and hold or build and hold.”
Harlem has proven itself to be stable, and there’s still room to grow, making it a better long-term value than most of the rest of Manhattan
Developers figure, says Halliburton, “I don’t need to build a building and take all the money out of it. Let me build it, rent it out and hold on to it.”
CGS Builders, a Brooklyn-based developer, built mostly condominiums in its six-year history. One of its projects, Senneca Terrace, at 324 East 112th Street, sold its apartments for the highest price in East Harlem to date — about $600 a square foot. But its latest project in the neighborhood is a rental, the Stamford, at 414 East 120th Street between First Avenue and Pleasant Avenue.
“I decided I wanted to divide my production,” says Cheskel Schwimmer, principal of CGS Builders, “to do some of it for immediate cash out and some of it long-term. And I believe this area over the long term will appreciate a lot.”
Schwimmer, who bought the site for the Stamford two years ago, prefers East Harlem, he says, “because the cost of land is lower relative to the west side of Harlem. And the retail coming up on 116th will add value to the neighborhood as well.” Costco and Home Depot will anchor a shopping mall on East 116th Street and the F.D.R. Drive.
According to the Corcoran Group’s Valerie Dominguez, the leasing agent for the six-story Stamford building, “We had our first showing July 23 and we rented all but four [of the 12 units] in two weeks,” to a clientele that’s very new to East Harlem: “We have a doctor, consultants, teachers, an MBA from Yale.” The building was fully leased by mid-August.
The project has amenities rare in Harlem: a roof deck, stainless steel appliances, nine-foot ceilings and a washer/dryer in every apartment. Apartments start at $1,900 a month for a 677-square-foot one-bedroom with home office and small balcony. First-floor duplexes have landscaped gardens and the studio penthouse has a 300-foot terrace with unobstructed views.
CGS Builders is planning another small development of around 20 units, which will probably also be a rental, on East 119th Street between Second and Third avenues.
Small projects are typical in Harlem. According to Joseph Tahl, co-principal of Tahl-Propp Equities, a major Harlem property owner, “When you hear of a new project Downtown, it’s a 40-story building with 500 units. When you hear about a new project in Harlem, it’s a six-story building with 22 units.”
Tahl says the limited supply of luxury-class rental units in Harlem makes new rental construction a good prospect.
“The rental market in Harlem is incredibly strong, because every day there’s a huge number of additional people who consider living here,” he says. “But the supply of high-end market-rate housing is tiny. I bet you don’t have 500 units that are truly market-rate.”
According to Tahl, at least 95 percent of the housing in Harlem is “affordable,” including rent-controlled, rent-stabilized, tax credit, HUD, low-income and moderate-income.
“So little of it is market rate, granite countertops, stainless steel appliances — and the demand for that is growing so fast that any of it you put up gets rented out immediately at very good numbers,” he says.
Tahl-Propp just bought two six-story rental buildings on Fifth Avenue at 111th Street with 150 apartments and 50,000 square feet of retail for $28 million. Almost all of the units will be tied up in income-restricted programs for many years.
Another important Harlem developer, Artimus Construction, is currently marketing a boutique rental building, the Metro, at Frederick Douglass Boulevard and 116th Street, a gentrifying section of Harlem just east of Morningside Heights. The building has 12 market-rate apartments, fitted out in high style: cherry hardwood floors, high ceilings, stainless steel kitchens, granite countertops and marble baths.
The apartments range from $2,000 a month for a one-bedroom to a three-bedroom penthouse with private roof deck for $4,000. Prudential Douglas Elliman’s Michelle Mizrahi, sales agent for the Metro, says the penthouse rate shows the boost in pricing in the area. “Three years ago, the same apartment would have rented for $2,500.”
Artimus is about to begin construction on a hybrid condo/rental building, the companion to its Manhattan Court, a 123-unit mixed-income rental building at 444 Manhattan Avenue between West 118th and 119th streets, now fully rented. The new building, called Susan’s Court, will allow Artimus to charge market rates for a higher percentage of the apartments — 20 percent versus 10 percent at Manhattan Court.
Ken Haron, president of Artimus, prefers working with government programs for his larger rental projects.
“Rentals are very strong,” he says, “but I wouldn’t build a 120-unit, all-market-rate apartment building. Right now, Harlem is not at the point where the rent can carry the cost of acquisition, construction and mortgage without subsidies. But we’re optimistic it will be soon.”