Real Estate Bubble Brewing in The Bronx?

Illustration by Lexi Pilgrim for The Real Deal

Between 2010 and 2016, the feeding frenzy by developers and investors of Bronx apartment buildings totaled a record $9.6 billion in transactions with many properties sold at speculative prices as all eyes turned on the borough as the last frontier.

Now, The Real Deal reports

“In over half of apartment building transactions between 2009 and 2016, market prices grew at least three times faster than building net income – a disconnect pointing to investor speculation that the fundamental value of buildings will catch up to their sticker price as rent rolls in the borough increase. The assumption, though, may not pan out, and depending on the terms of investors’ debt, overpriced acquisitions may put investors in a difficult position.”

Many of these investors and developers are hoping that rents continue to increase in our borough, something which will just push displacement and homelessness in our borough up as well but the question remains if the market will continue to support every increasing rents in The Bronx.

The Real Deal continues:

“But some community groups are concerned for how this speculative buying will impact tenants in a borough where a majority of apartments are rent-stabilized and incomes rest at citywide lows. The fear is that all the activity could displace the area’s residents and landlords might resort to predatory behavior in order to boost returns.

The average speculative transaction between 2010 and 2016 comprised buildings where 83 percent of residential apartments are now rent-stabilized, according to June 2016 property filings. Rent-stabilization laws limit the amount landlords can charge tenants, and in the last two years the mayor-appointed board tasked with setting annually allowed increases opted to freeze rents for stabilized tenants signing one-year leases — although a preliminary vote last month suggests increase are coming this year.

Landlords can also raise rents after making improvements to the apartment or building – or after a tenant moves out. Some community groups argue these exceptions provide an incentive for landlords to push tenants out to increase rents.

Sheila Garcia, deputy director of Bronx-based tenant organizer Community Action for Safe Apartments (CASA), said she has seen cases of landlords trying to “intimidate people in order to displace them.”

Community groups like CASA refer to speculative purchases and subsequent tenant removal techniques as “predatory equity.”
Last June, Bronx city Councilmember Ritchie Torres introduced a bill that would create a watch list for so-called predatory equity landlords, partially defining the practice as taking on more debt than the building’s income can initially support.

“We’re seeing landlords still try to go to extremes to be able to push the limits of the law and illegally harass tenants out of their apartments as well,” said Alejandra Nasser of Stabilizing NYC, a coalition of tenants’ rights groups. Speaking at a public meeting last month in front of the Rent Guidelines Board, Nasser said that the coalition has worked in what she defined as “predatory equity buildings” throughout the city.

Predatory or not, investors continue to speculate on the Bronx, and judging by the trades in the first quarter, are likely to keep upping their bets. But to what end?

“Everybody’s looking for the next Williamsburg or Bushwick,” said David Schwartz, a principal at Slate Property Group, which said it intends to steer clear of the Bronx for now. Williamsburg saw sales prices double from the second quarter of 2008 to the second quarter of 2016, from $668,956 to $1.3 million, according to Miller Samuel data. In that same period, average monthly rents in Bushwick jumped 70.6 percent, to $2,643.

Investors may be hoping that Bronx neighborhoods follow a similar trajectory and push property values skyward.

“I don’t know if that’s the right assumption,” Schwartz said.

Read the full story: The Bronx is bubbling: Investors are placing huge bets on the borough – but the numbers may not pencil out

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