Queens takes the throne
Last July, Madison Realty Capital ventured as a buyer for the first time into Rego Park, a middle-class neighborhood in the heart of central Queens that has of late seen a flurry of upscale developments. The high-profile investor-lender partnered with Midtown-based investment firm Arel Capital to ring up a $136 million purchase on a 419-unit rental building called Saxon Hall.
The buy turned out to be a record-breaker. Not only was the deal the largest ever transaction in Rego Park, it represented the fourth-largest Queens sale in 2016.
“We thought it was undermanaged compared to what we think we can do,” Madison Realty’s Josh Zegen told The Real Deal last month. “It’s one of those opportunities to get and deliver a renovated, great product that can be a Class-A product at a significant discount.”
He added: “People think there’s still value in Queens.”
Along with A&E Real Estate Holdings and Benedict Realty Group’s $133 million purchase last month for a 10-building portfolio concentrated in Woodside, Jackson Heights, Sunnyside and Elmhurst, Madison Realty’s Rego Park deal suggests that the eternal search for value is leading big-time investors deeper into Queens, past the well-trodden development hotspots of Long Island City and Astoria, where firms like Rockrose Development and the Related Companies have been building megaprojects. Overall, amid a dour year in which investors pulled back the throttle and investment-sales volumes plunged, the city’s geographically largest and most-diverse borough shined: investment sales totals for the borough ended the year at $5 billion, up roughly 26 percent above 2015’s total, according to Cushman & Wakefield. By comparison, the New York City market as a whole saw dollar volumes drop 25 percent, with Manhattan and Brooklyn declining 34 percent and 2 percent, respectively.
At the same time, deals in Queens have gotten much bigger: the number of transactions over $20 million grew from five in 2011 to 42 in 2016, according to Ariel Property Advisors.
Topping the list on last year’s largest sales was Savanna’s $257.5 million purchase in December of the Falchi Building, a 658,000-square-foot office building in Long Island City. The private equity and asset management firm, which is planning on pumping $35 million in infrastructure upgrades, is no stranger to Queens. Back in 2014, Savanna bought a controlling interest for an undisclosed sum in One Court Square, also known as the Citigroup Building, which at 1.5 million square feet represents the biggest office building in Long Island City.
The firm has also undertaken renovations with properties like the Schlitz Brewery in Bushwick, Brooklyn and Bruckner Building in the South Bronx similar to its plans for the Falchi Building, where it is looking to secure rents of $42 per square foot. Between 2013 and 2016, asking office rents in Long Island City nearly doubled to $38.02 from $19.25, according to JLL. The area is home to companies such as Uber, J. Crew’s Madewell label and JetBlue.
In comparison to other submarkets like Williamsburg and Downtown Brooklyn, Long Island City “probably has the most runway,” said Savanna’s managing partner Chris Schlank.
That was clearly the case with Westbrook Partners and investor Andrew Chung’s $195 million purchase last year of a 656,000-square-foot warehouse at 24-02 49th Avenue, which ranked second on the list of top sales. The building’s current tenant, the New York City Housing Authority, is reportedly paying $9 per square foot in rent.
And just last December, the Durst Organization, whose main project in the borough is its $1.5 billion Hallets Point residential development in Astoria, laid out $175 million to buy the Clock Tower development site, which allows for 1 million buildable square feet at the eastern end of Queensboro Plaza. The prior owners Property Markets Group and the Hakim Organization had been planning to develop an 800-unit apartment building but failed to secure a construction loan.
Big players rush in
Long-time owners in the borough have traditionally been reluctant to sell. But Matt Fotis, a broker with Marcus & Millichap, said that’s changing as institutional buyers have started coming in. “Queens as a whole is a pretty low-velocity market,” Fotis said. “There’s probably a third as many transactions that occur in Queens on average compared to Brooklyn. It’s mainly been a local market for so many years, and now finally people from outside are making their first-time purchase in Queens.”
The biggest example is the private equity giant Blackstone, which in mid-2015 paid $400 million to buy the retail portion of the Sky View Parc complex in Flushing.
In 2016, the Asian enclave at the end of the No. 7 Subway line has continued its hot streak. Flushing’s biggest trade of 2016 — the sixth largest in Queens overall — came in December, when active developer Chris Jiashu Xu paid $100.9 million to buy a barren 3.7-acre development site on the edge of the neighborhood next to Sky View Parc. Xu’s plans for the property are not yet clear, but a previous design for the site called for 450 apartments with a hotel and retail space spread across 757,000 square feet.
But among the more significant trends is the growing activity in the multifamily market.
Eric Benaim, CEO of the Long Island City-based residential brokerage Modern Spaces, said that in the further-flung areas of Queens, a developer can purchase a multifamily property at a cap rate of 4 to 6 percent, compared to a 1 or 2 cap they’d pay in Manhattan.
“Right now, if you were to buy a multifamily building in Manhattan, there might not be that much of an upside at the end of the day. In Queens, you can take an older building and renovate it and probably raise rents significantly,” he said.
And, as renters grow increasingly willing to expand their horizons beyond Long Island City, investor interest is now peaking around the largely blue-collar and immigrant neighborhoods of Sunnyside, Woodside, Elmhurst, Jackson Heights and Corona, which are well-positioned along the No. 7 train line. A one-bedroom apartment in Jackson Heights rents for $1,879 per month compared to $2,751 per month in Long Island City, according to MNS.