Why The Bronx Might Be The Last Bastion Of Affordability In NYC

The first signs of ground-up luxury rental projects in the South Bronx have put the borough on the multifamily radar. But speakers on the workforce housing panel at Bisnow’s Emerging Markets event on March 29 suggest the Bronx could be the last and best bastion of affordability in the city.

Nelson Management president Robert Nelson, who’ll be on the bill at our event, is no newcomer to the Bronx. His firm has been an owner of mostly postwar high-rises in several neighborhoods for about 25 years. He says the borough’s growth as an affordable alternative for moderate-income folks, in part at least, comes down to raw math.

With huge growth in the outer boroughs recently—a net gain of 19,000, 18,000 and 11,000 residents in Brooklyn, Queens and the Bronx, respectively, in 2013 and 2014, per the US Census Bureau—Robert asks a pretty compelling question: “Where do you put everybody?”

“New York is an environment where demand seems to always exceed supply,” he says. “And not everybody can pay $7,500 for a two-bedroom apartment.”

Robert tells us the demographic he’s seeing as tenants in his firm’s four Bronx buildings is made up of mostly folks in the $50k to $125k a year income bracket, in their late 20s to around 50 years old. But he’s noticed the start of a trickle of younger folks, some right out of college, who he says may be getting priced out of Brooklyn.

Building upgrades like new lobbies and elevator cabs, and aesthetic touches like blue lights on the roof have helped lure a new tenancy and get some pop on market rents, Robert tells us. But he also says longtime residents come up to him all the time, saying they’re grateful that the buildings have an inviting feel.

Ariel Property Advisors’ Vic Sozio, who’ll also be speaking, grew up in the Bronx until high school. He tells us he’s noticed the pool of multifamily buyers in the Bronx widen over the last three to five years, and says that’s helped institutional capital start flowing in. And about those development sites that have started trading in Mott Haven? Vic’s take is that those who’ve been following the money shouldn’t be surprised that big-time developers are starting to bust moves in the Boogie Down.

Among those deals was Treetop Development’s $6M pickup of a development site at 121-129 East 144th St that’s zoned for up to 91k BSF if affordable housing is included in the plans. Vic was on the team that repped the seller on that deal. (Treetop managing member Adam Mermelstein will be on the panel with Vic at our event.)

For those getting into ground-up development in the area, Vic notes that neighborhoods like Mott Haven are in a kind of sweet spot right now. Market rents approaching what you’ll find in Upper Manhattan are doable, and land is still cheap enough that you can make a project work as a rental—even in a market suffering from acute 421-a-itis. 

But for those who want to dip their toes in without sinking their shovels in the ground, a cautionary note from Vic: buyer beware. Of the local regulatory environment, that is. Since much of the borough’s existing multifamily stock—more so than in any other borough, he says—is subject to rent stabilization or governed by city or state regulatory agreements, you have to do due diligence and know what you’re getting into, or else you can come up against cash flow constraints you may not have seen coming.

Hodges Ward Elliot’s Daniel Parker, also speaking, points out that the demographic shifts in the Bronx come as the favored “hot” neighborhoods of Brooklyn begin to push the threshold of affordability.

“For some time it’s been a popular parlor game to guess the next big Brooklyn neighborhood,” he says. “And it feels like investors are throwing darts at a map of the L train to make that prediction.”

But while places like North Brooklyn continue to get more expensive and attract TAMI sector workers commuting to Midtown South, Daniel suggests the affordability bull's-eye may be shifting to the north—and for good reason, when you look at the numbers.

He points out that the median income for a family of four in the Tri-State area is $86,300, which equates to a monthly housing budget of $2,150 for a two-bedroom (30% of gross income is what's commonly considered affordable).

By that math, an affordable market-rate apartment is barely doable in Brooklyn, Manhattan or Queens anymore, Daniel says—but all of the Bronx offers high-quality housing affordable to median income wage earners.

And investors aren’t blind to the demand at that price point. This January, to give just one example, the borough led the city in multifamily transactions with 26 buildings trading over 16 deals—a 60% jump from a year earlier, according to The Real Deal.

And in February, Daniel was on the Hodges Ward Elliot team that brokered the sale of a 38-building portfolio made up of almost 1,000 units located in clusters all over the borough. "Since the sale was announced, all sorts of capital sources and investors are calling us to learn more about the Bronx."

At $140M, it was the biggest investment sale in the Bronx since 2013.

“The Bronx is a release valve right now," as he puts it. "While residents see much of Brooklyn and all of Manhattan become too expensive, anyone priced out of those neighborhoods is finding good value in the Bronx." 

We’ll see you bright and early at our event on March 29 at Irving Plaza, starting at 7:30am. Sign up here.