The “roach” approach: Developers swarming over emerging neighborhoods
From Queens to Fort Lee, developers are targeting “affordable” price points: panelists
What’s a New York developer to do when renters are priced out of neighborhoods? Turn to emerging areas in Queens, the Bronx, New Jersey, Westchester and Long Island.
“We’re like cockroaches, we try to figure out what’s needed next,” said Jan Burman, president of Long Island-based Engel Burman Group, a developer of assisted living properties.
He was speaking Wednesday at a panel on residential real estate trends hosted by the newly-launched Fordham University real estate program. Moderated by Madison Realty Capital’s Michael Stoler, Burman was one of 10 panelists assembled, along with Madison’s Josh Zegen; Benjamin Stacks of Capital One Bank; RXR Realty’s Seth Pinsky; KABR Group’s Kenneth Pasternak; Kushner Companies’ Laurent Morali; Jeff Levine of Douglaston Development; SJP Residential Properties’ Allen Goldman; the Beechwood Organization’s Steven Dubb and TD Bank’s Roy Chin.
“Prices have increased dramatically in core areas, pushing people out to areas that were formerly peripheral,” said Pinsky, who is heading RXR’s investment in “emerging markets” like New Rochelle and other suburban enclaves. “If we want to get ahead of this problem, the ultimate solution is to have supply meet demand.”
That “solution” could boost the confidence of lenders, who’ve been reluctant to give construction loans and financing.
Stacks said Capital One likes to see 35 percent cash equity from developers on rental projects. For condominiums, 40 to 45 percent is ideal, he said. “That’s due to the current view in the market that there’s a lot of product out there,” he said. “In the multi-family world, we look at cash flow,” said TD Bank’s Chin. “The numbers clearly have to work.”
Zegen said Madison focuses more on basis than some banks. “We’re sponsor agnostic and more focused on dollar exposure,” he said. Big banks’ reluctance to lend in recent years has given non-traditional lenders like Madison an opening. “There are some well located and planned properties that are ready to go vertical,” he said.
In particular, Zegen said Madison is investing in Queens in neighborhoods that are cheaper than Astoria, where some renters are feeling pinched by escalating prices. Madison is also targeting supply-constrained markets, which he said are slightly more immune to the market slowdown. At 1 Great Jones Alley in Noho, for example, he said sales are averaging $2,800 per square foot. “Areas like that, product is still moving,” he said.
Likewise, Morali said Kushner Companies is bullish on Jersey City after seeing its own tenants in Manhattan and Brooklyn seek less expensive rents. “We’re very focused on affordability,” he said. Even though rents in Jersey City are rising, “We’re still at 50 percent of what [we’d] get in Manhattan.”
For his part, Goldman said the lack of available land in Manhattan has forced the hand of some developers.
In Fort Lee, New Jersey, SJP built a 450-unit rental tower and is developing another tower on a 16-acre site near the George Washington Bridge that lay fallow for 35 years. It is also developing condos at the former site of the Lincoln Square Synagogue in Manhattan. “There are so many constraints in so many neighborhoods that it’s hard to find properties to develop, or redevelop, from the ground up,” Goldman said.
Levine — an early investor in Williamsburg, where Douglaston built the Edge condo — has also turned an eye to Fort Lee. “I love to go to markets where the competition is somewhat limited,” he said. In Staten Island — which is “still a pain in the ass to get to” — Douglaston is building affordable housing for seniors, and the developer is also building affordable rentals in the Bronx.
Levine stressed he’s not ready to invest in market-rate projects in the Bronx, however. “At some point market-rate development will occur in the Bronx, but I’m not putting my money there now,” he said.
The conversation was charged as panelists sparred on 421a, with Pinsky — the former head of the city’s Economic Development Corporation — raising questions about the cost of lengthy tax abatements. “What will we not be able to afford to do because we don’t have those tax revenues?” he asked.
“When you talk about 421a being a band-aid to failed tax policy, that’s the true problem,” Levine fired back. “The concept that the city is losing money when they give tax abatements is just upside down,” added Allen.
Pinsky said he’s not opposed to 421a. “It’s something we should do with open eyes,” he said.