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East Harlem Rezoning Could Increase Affordable Housing, Mixed-Use Development

If Approved, Mixed-Use Would See Boon and Ground-Floor Mixed-Use Floorplates Would Diversify District
November 29, 2017
With the East Harlem rezoning plan going to full City Council vote on November 30, many commercial real estate industry sources say they think the measure will pass. If the Council approves the plan -- which so far has secured more than $222 million in new investment - what's next for El Barrio?

Provided the zoning plan gets approved, the market should pay attention to what is going on in East Harlem, according to Michael Tortorici, founding member and executive vice president of the investment sales group at Ariel Property Advisors.

"The zoning plan would be a strong catalyst for new development in East Harlem. More mixed-use residential with retail or commercial office could result," says Tortorici.

Robert Shapiro, executive managing director at Cushman & Wakefield, noted, "We are very focused on and following the East Harlem rezoning. We now believe it is a strong likelihood that it will pass," adding that until the verdict, landlords have been in wait-and-see mode.

"When East Harlem rezoning does pass, it will lead to an uptick in development," Shapiro says. "The East Harlem rezoning will increase the residential density and include a substantial affordable housing component. Eventually it could spur more office demand in northern Manhattan."

The East Harlem rezoning plan has been noted for its purpose in elucidating the need for affordable housing.

In a 2016 HPD research report, it was determined that the median household income in East Harlem is about $31,000 annually, and in order to afford current market rents, one would need to earn about $80,000 for a one-person household or $100,000 for a three-person household. Meaning that more than one-half of all CD11 households are considered rent-burdened - spending more than one-third of their income on rent.

About 590,000 New Yorkers are served by NYCHA's public housing and Section 8 programs together, according to a July 2015 U.S. Census estimate. Together, NYCHA public housing residents and Section 8 voucher holders occupy 11.8 percent of the City's rental apartments and comprise 6.9 percent of New York City's population, according to NYCHA's 2017 Fact Sheet.

So what happens if these families are given a chance?

With Investment Follows Business

This year, development in Harlem has been stymied, relegated to central corridors by way of zoning regulation. But certain household names, including WeWork and Whole Foods, have both opened space along 125th Street.

"[During 2017] we've seen the opening of projects that have been in the works for a while. That includes the Whole Foods at 125th and Lennox and the Columbia University expansion," says Tortoricci.

"A high-enough level of confidence [functioned to deliver] a Whole Foods on 125; now it has opened and is doing well. Even WeWork has followed suit, opening up on 125th Street. WeWork read the tea leaves on what was happening in Harlem," according to Dean Rosenzweig, vice president and Jeremy Scholder, senior associate at CBRE. They note that Frederick Douglass Boulevard has been a major line of development.

"So far in this cycle, 2012-2015 marked a high period of trading. It tapered off somewhat in 2016. The market is taking a bit of a breather this year," Rosenzweig and Scholder noted, adding that multifamily pricing of course has felt the growth. "Pricing at $1,000-$1,200 per square foot for condo in Harlem is becoming the new norm; even in smaller brownstone conversions we are seeing pricing at $1,100 per square foot."

As far as ground-up development, larger floorplates have been quite appealing, according to Rosenzweig and Scholder, who say those types of spaces have done well.

"Mixed-use retail and food-related retail have been strong the past two to three years. Food is an active category taking space, and QSRs continue to eye the market," according to Scholder.

Right above Central Park, a number of new developments have been active along 116th Street in Harlem. CBRE sources note Levain Bakery, Harlem Tavern and Street Bird as examples. A short commute to midtown and below, plus access to services, encapsulate the area as having plenty to offer, they add.

As it pertains to Harlem development, interest remains high, but pricing is flat to down, noted Tortoricci. "Price per square foot this quarter is about $200, which is only $13 less than this time last year. That shows relative market stability," he adds.

Year-to-date 2017, about $77 million in development sites were sold with an average price as of right at $200 per buildable square foot, according to Shapiro.

"There was a 2016-2017 pullback in development pricing and dollar volume - borrowing costs for construction increased and the 421a abatement was expiring. Although a new version of the 421a was restored, it has been a period of absorption and digestion waiting for true comps as the condo market stabilized," Shapiro adds.

Although Harlem zoning currently is not very conducive to office, office users have found space along 125th Street.

"The zoning is more conducive to mixed-use residential. Recent rezoning initiatives and those on the table may change that. We have seen interesting office activity in Manhattanville, as an example of a business cluster changing the area," Shapiro says, citing the Mink Building, Malt House and Sweets Building as examples.

Although pricing has stabilized thus far this cycle, it remains relatively healthy in light of a dearth of development sites. Yes, pricing for commercial properties in Harlem has remained flat this year, but smaller development sites traded in 2017 compared to last year and generally not as many were put on the market, according to Shapiro.

Diana Bell, New York City Market Reporter  CoStar Group   
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