In Uptown Manhattan And The Bronx, The Demand For Value-Add Opportunities Grows
A little TLC can go a long way when it comes to NYC real estate.
Oversupply of luxury units in New York’s top neighborhoods has caused the market to slow, dampening rent growth in boroughs like Manhattan and Brooklyn. Move-in-ready properties at market value can no longer return the same level of investment seen in previous years, and rising prices have sent tenants searching for cheaper submarkets. Prospective property owners have followed this shift, looking northward to Uptown Manhattan and the Bronx, where value-add demand has grown in areas that still offer development potential.
Seth Glasser, a multifamily broker at Marcus & Millichap specializing in investment sales in Uptown Manhattan and the Bronx, has experienced firsthand the increase in value-add investment. “Everyone wants to be in the value-add market, and I think that is just the way most deals are being made right now,” Glasser said. “There is money being raised by a syndicator of some sort, and if there is not a value-add opportunity, you cannot get the money.” Glasser predicts in the coming months that already renovated properties will draw less interest. “The finished product deals, where there is no work to do — most of the building is already turned and the rent is already at market — there is less demand for that.”
Continued migration of prospective tenants northward will fuel value-add success Uptown and in the outer boroughs. StreetEasy’s 2017 list of the top NYC neighborhoods listed Kingsbridge, Bronx, as No. 1. Rent growth will increase by 3.7% overall in the borough, the strongest change across the four referenced in its report. Value-add investors are behind the growth, renovating properties in areas that have yet to fully gentrify. “If you look at how many units came online in the last couple of years, even if most of them are not in upper Manhattan and the Bronx, those neighborhoods are continuing to gentrify and people are more willing to move to other parts of the city for more space and cheaper rent,” Glasser said.
Build it and they will come. Better amenities make people more willing to explore these neighborhoods for potential apartments. “People who are living on 115th or 120th street, maybe they are willing to go to 130th Street, because there is still transportation and it is a new building,” Glasser said. For investors, getting into these areas earlier and putting work into a space is now the best way to make a significant return on investment.
Glasser warned that while value-add has grown in popularity, the steps required to update these properties have become more challenging. “I think the days of — OK, in 2013 I bought a building and 18 months later I can sell it without having to do anything because the market is taking off — I think those days are gone,” he said.
In 2017, the real estate market has stabilized, making it ideal to invest in riskier value-add properties. In the search for value-add properties, Glasser and other Marcus & Millichap brokers — who operate without territorial restrictions — can serve as expert guides.
To learn more about this Bisnow content partner, click here.
