Multifamily Sector Update 11/1/2015

There are rezoning concerns in the Bronx about whether the new apartment buildings, meant to replace older auto-repair shops on Jerome Avenue, will be too expensive for the residents who live nearby. There are further concerns that the loss of the auto-repair shops will lead to a loss of local jobs as well. This re-zoning arose from Mayor Bill de Blasio’s strategy to improve poorer neighborhoods with “higher-density development” that will increase the number of affordable homes and improve neighborhoods. This strategy includes doubling the budget to $600 million per year in subsidies for developers to build affordable housing, and $1 billion for new parks and playgrounds. South Bronx residents are now protesting the new development, as a recent study taken claimed 80% of residents fear displacement due to rezoning. The Bronx Coalition for a Community Vision released a report asking the government to make a larger percentage of the apartments permanently affordable, to set aside 50% of the units for current residents of the neighborhood, and to both protect and create local jobs. In response, City Planning commissioner Carl Weisbrod made the valid point that housing can never be affordable to everyone who lives in a certain neighborhood, although they were trying their best.

The Stuyvesant Town and Peter Cooper Village complex, which consists of 11,200 apartments in multiple separate buildings, was inches away from foreclosure five years ago, with its value down to $3 billion from its sale price of $5.4 billion. This past Tuesday, however, Blackstone Group LP and Ivanhoé Cambridge (a Canadian pension investor) announced that they are in a deal to buy the 80-acre complex for $5.3 billion. Some investors have said this deal showcases the “remarkable recovery” of the Manhattan real estate market since the downturn, which can be explained by two main reasons. Firstly, investors who left during the downtown are hungry for anything in Manhattan, especially investors from Norway and Middle Eastern countries. Secondly, there is a growing demand due to a growing population. This, in turn, is driving average rent prices up to over $4,000 a month. Tishman Speyer, who purchased the property in 2006 and handed it over to creditors in 2010, over-projected the amount of income that would come in from converting rent-regulated apartments to market-rate. Now, about 45% of residents pay a regulated rent, down from 71% in 2006, which has led to a doubling in income since the ‘unregulated rent’ (market rate rent) is significantly higher. However, a large chunk is required to be rent-regulated for at least 20 years under government mandates. The deal is unusual in the fact that it is between Blackstone and New York City officials, instead of a real estate development firm like Tishman Speyer. Jonathon Gray, head of Blackstone real estate, has said they will not move forward until the tenants’ association, which wants to ensure that rents are kept affordable for current residents and those in the neighborhood, approves the deal.