The Bronx: New York’s hippest office market
Just over a month ago in New York, a former industrial warehouse turned loft-like office space with 93 percent occupancy sold for $114 million. See if you can guess where the building is located:
- The Bronx
If you guessed 4) you got lucky, were involved in the transaction or are keenly aware of New York’s hippest new office market. The sale of the landmarked BankNote building, at 890 Garrison Avenue in the Bronx’s Hunts Point neighborhood, is perhaps the most eye-catching deal in a borough that’s rife with redevelopment.
According to The Real Deal, Bronx saw $1.3 billion in real-estate deals in 2013 and another $895 million invested in real estate and development, an increase of nearly 33 percent since 2010.
Similar to the fashionable locations in Brooklyn and Queens, much of the capital in The Bronx went to convert the industrial properties that dominate the landscape into residential, retail and office space that investors are betting will yield superior returns to traditional investment submarkets in New York City.
Yields in the Bronx and other boroughs are in the five to six percent range — as much as 100 basis points over typical Manhattan returns.
“Manhattan will always be in the conversation about top real estate markets, but investors are a bit frustrated with the growing global demand relative to opportunities in Manhattan,” says JLL Vice Chairman Scott Latham.
“Investors are expanding their reach to Brooklyn, Queens and the Bronx, seeking growth corridors at a more attractive basis.”
The timing and market fundamentals couldn’t be better. Led by the technology, new media and advertising sectors, office tenants have been seeking collaborative, open space in trendy locations. While the trend setting feel and camaraderie enjoyed in an off-center location appeals to many technology tenants, there also is a more practical factor driving the borders wider. And many smaller firms simply can’t afford Manhattan rents.
And it’s not just the Bronx’s office sector that’s seeing a flurry of activity. One of the appeals of the boroughs is a trendy, neighborhood vibe. This serves as a beacon to millennials — and fuels the office market because those younger also want to live near their work. Here again, prices for developers are far more appealing in the boroughs; the average price for land in Midtown and lower Manhattan is $595 per square foot compared to approximately $400 in Brooklyn and $300 in Long Island City in Queens, according to JLL.
After a $37 million makeover, the BankNote building, which used to print U.S. and foreign currency and securities, houses a collection of mostly government and non-profit tenants, including the Human Resources Administration, Business Outreach Center Network, Urban Health Plan, JVL Charter School and the office of Congressman José Serrano.
The 405,000 square-foot building features high ceilings and large arched windows that let natural light pour over through its open workspaces. Only the loading docks serve as a reminder of its industrial days. Asking rent is $30 per square foot, or about one-third the rent at a trophy asset in Midtown.
The building’s seller, Taconic, like a lot of developers betting on the boroughs, says the Bronx is a prime place for investors with foresight.
“We’re happy to go to the fringe because we think a lot of these areas are only a year or two away from becoming prime,” says Taconic’s Chief Investment Officer, Kevin Davis.
Other investors who traditionally focused only on the Manhattan side of the river that are now making bets on the boroughs include the Durst family, with their investment in the Hallets Point project in Astoria, which is slated to include nearly 2,000 multifamily units, a school and retail space; RXR Realty, which acquired 470 Vanderbilt in Brooklyn and a former factory at 3718 Northern Boulevard in Queens for more than $300 million combined; and a joint venture between Kushner Companies and RFR Realty that purchased a five-property office portfolio for $375 million in Brooklyn’s tech-centric Dumbo neighborhood.
“If someone would have asked me a year or two ago about institutional investors heading to the boroughs, I would have said those submarkets are not on their radar,” Latham says.
“Today, that is not the case at all. Investors are casting a wider net.”