July 2023 - Lipton's Tea

During a 1977 World Series game between the New York Yankees and the Los Angeles Dodgers, the blustery sports broadcaster of that era, Howard Cosell, remarked that the “Bronx is Burning,” and he wasn’t being figurative. During the televised broadcast, an ABC aerial camera panned away a few blocks from the stadium where the roof and top floors of a nearby vacant building were ablaze. Today, it’s the rental market in the Bronx that is on fire as NYC residents are getting priced out of Manhattan and Brooklyn. Rents in the Mott Haven section have grown by nearly 31% since May 2019 currently at $2,950, according to StreetEasy. In addition, online traffic for Bronx rental listings in June 2023 ranked the highest for any location in the Northeast, increasing nearly 50% from last year, according to the apartment search company, RentCafé. To be fair, much of the new supply is along the Harlem River in the Mott Haven neighborhood where developers are pouring money into new buildings. The most notable projects are from Brookfield Properties and RXR, the former building seven (7) high-rise towers collectively referred to as the Bankside project, which will include nearly 1,400 luxury apartments, five (5) retail spaces and a public park along the river with a price tag of approximately $950 million give or take a few shekels. A bit more modest but not too shabby is the 27-story 200-unit RXR project.

What’s driving the development and renter demand in the Bronx? A few things in fact. First, the apartment inventory in Manhattan, Queens, and Brooklyn has been declining in 2023 leaving few options and, for most, a decision between the Bronx and the so-called Forgotten Borough is no decision at all (apologies to my brothers and sisters in Staten Island). Second, the median Manhattan and Brooklyn rents continue to smash records hitting $4,395 and $3,400, respectively, and there was no solace across the Hudson River either as the rents in Jersey City saw double-digit percentage hikes. Lastly, these new projects in Mott Haven benefit from coveted waterfront views and short commutes to Manhattan, and this duo is what people want (or more honestly, demand, if leaving preferable boroughs like Manhattan or Brooklyn). It turns out, however, that there are only a few concentrated pockets in the Bronx that are seeing rent growth. In addition to Mott Haven, it is neighborhoods with easy access to transit, such as University Heights, Pelham Parkway, Concourse, and Fordham.

A larger issue at play as well that should not be overlooked and undoubtedly another reason for rental increases across the city, including the Bronx, is the massive drop off in rental projects coming online across the city. With the sunsetting of the 421-a program in June 2023, rental projects no longer pencil for developers so they simply aren’t getting built and with an increase in housing demand, including nearly 80,000 migrants, NYC is simply running out of apartments. Thank your legislators in Albany and let’s not forget that these mistakes have long-lasting shelf lives as any “righting” of the ship has a three-year tail before newly completed construction projects come online.

Are we witnessing a rebirth or resurrection of the Bronx and is it sustainable? Probably not, every few years, the Bronx receives favorable media coverage only to fizzle out and largely be forgotten again by Manhattanites and Brooklynites so is this time different? Hard to say, but these projects by Brookfield and RXR are meaningful financial commitments, at least in one of the most desirable neighborhoods within the borough, and that’s a start. Though average rents in the Bronx may not be sustainable at current levels if Brooklyn and Manhattan rent cool over time as those boroughs are preferred by young professionals and hip artsy folks…at least for now. So maybe this piece should be retitled to something along the lines of Mott Haven Catches Fire While Much of Bronx Remains Lukewarm. Not as catchy though.

Eastland, M. (2023, July 17). This Bronx neighborhood is one of NYC’s hottest apartment markets. WSJ. https://www.wsj.com/articles/this-bronx-neighborhood-is-one-of-nycs-hottest-apartment-markets-27180870?mod=hp_featst_pos3

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It’s no secret that it’s slim pickings these days when it comes to finding compelling CRE acquisition opportunities. And with several expected interest rate hikes on the horizon, investors are wise to pause before pulling the trigger on their next acquisition as its value could fall further in the months ahead. But catching a falling knife or timing the bottom is a fool’s errand and as an investor, you invest. It’s what you do. So where are today’s opportunities? It turns out one of the few bright spots is multifamily housing geared to college students but not all schools are benefitting equally. Rents for student housing are expected to grow at top research universities and schools in the five highest-earning athletics conferences for college football while those smaller schools with lesser name recognition are and will continue to suffer. One reason you can bet your sweet baby is that athletic scholarships are here to stay and not go the way of affirmative action.

Despite rising interest rates last year, student housing sales reached a record high of $22.9 billion, according to CBRE Group. Furthermore, though multifamily rents increased by only 2.3% during the twelve months that ended in May 2023, student housing rents have been growing by 9%, according to RealPage, an online firm that tracks the apartment market. Institutional real estate owner and investor, Blackstone, clearly agrees as they bet big—$12.8 billion big—on the acquisition of the student housing REIT, American Campus Communities (“ACC”). ACC has over 200 properties with more than 140,000 beds, according to its 2021 annual report. Even for Blackstone, this is a significant purchase best explained by the co-head of America’s acquisitions, Jacob Werner, who said that “in good times, people go to school…[and] in bad times, more people tend to go to school.” And at least anecdotally I concur with Werner’s views as we all know our fair share of “professional student” types who delay adulthood and the workforce as long as possible by staying in school or those who return to school when the job market offers little opportunity.

Other tailwinds for student housing include lack of financing for developers to increase supply and, at many schools, a dearth of sites both of which allow landlords to continue to raise rents. Even the pandemic couldn’t torpedo the value of student housing as students preferred to live near their college campuses rather than shack up with mom and dad despite attending classes virtually. But it is a tale of two markets out there with certain college campuses thriving financially with increasing student enrollment and other universities suffering from weakened demand and, as a result, are suboptimal for investment. So be careful, and as always, do your homework as luck tends to happen when preparation meets opportunity.

Inline XBRL Viewer, www.sec.gov/ix?doc=%2FArchives%2Fedgar%2Fdata%2F0001283630%2F000128363022000031%2Facc-20211231.htm. Accessed 7 July 2023.

Month: July 2023

The Bronx is Burning, Again. Only This Time It’s a Good Thing

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