Tighter monetary policy and the stagnant economy have dealt severe headwinds to national real estate but The Bronx has fared better than most markets in recent months. The BuyTheBronx.com valuation benchmarks have been updated to reflect the current market of sale and lease transactions in the context of longer trends. The strong have held onto record values, as weaker sectors bear the brunt of macro pressures. The improving benchmarks outnumber those we cut, but even more remain unchanged at this time.
Our valuation benchmarks result from a qualitative analysis of public and proprietary sale and lease data that excludes non-arm’s length and related party transactions. Every deal is unique so we don’t simply follow an average. We try our best to minimize skews from anomalous data to provide a true sense of the market. Following are the latest updates to our Bronx real estate benchmarks.
Residential Sectors
The Bronx gold coast in Riverdale maintained robust Single Family home pricing with the fourth quarter averaging a little lower than prior quarters but above our $600/sf benchmark. The example pictured above at 727 Ladd Rd. sold in September for $1.88 million or $678/sf. Some Gold level homes also sold near the Long Island Sound in Country Club in line with the benchmark.
Silver level Single Family homes had a similar story where the fourth quarter’s average price per square foot declined from prior quarters but remained above the $400/sf benchmark. The softening trends and premium mix warrant maintaining the benchmarks for each level.
Rising rates and a more challenging market are impacting the Bronze category which had already been trading below the benchmark. Owners seemed willing to cut some of these properties loose before the market weakens further. We don’t want to chase deteriorating valuation due to a poor mix but the market is speaking clearly enough for us to lower the Bronze Single Family benchmark to $300/sf, reflecting the 20% decline in this category’s average pricing.
The residential Multifamily sector was a better story for many of the reasons laid out in our October post about the sector. Buildings with 2-4 residential units make up the overwhelming majority of Bronx real estate tansactions. Similar trends appeared here too where Silver and Gold strengthened in the fourth quarter but Bronze weakened. A late year turn in the market suggests rising rates and regulations could be bringing the high end down with the rest of the market. All three categories are averaging at or above their benchmarks which remain unchanged at this time
Single Family
| Asset Class | Price / SF |
|---|---|
| SF Bronze | $300 |
| SF Silver | $400 |
| SF Gold | $600 |
2-4 Unit Multifamily
| Asset Class | Price / SF | Price / Unit |
|---|---|---|
| MF Bronze | $250 | $240,000 |
| MF Silver | $345 | $340,000 |
| MFGold | $400 | $425,000 |
Commercial Apartments
The Commercial Multifamily market is far more complex with wide valuation disparities driven by property specific issues. Pegging our benchmarks to the averages would miss these important variables that drive transaction values. There could be unseen issues with boilers or asbestos but many are visible from the street, such as the condition of windows, doors and fire escapes.
The fourth quarter sales mix of Walk-Up apartments skewed towards higher quality but values weakened as macro forces began to bite. Stated cap rates ranged between 6% and 8% (where numbers are available) while the average price per unit fell more than 20%. Our benchmarks may have been too high going in. So, our 23% reduction to $250/sf overstates the quarterly decline in that metric. Similarly, the 25% benchmark reduction in price per unit to $225,000 falls below the 9 month average but remains above the fourth quarter.
Institutional money supported the Elevator Apartment sector where values fell by single digits in the fourth quarter. We reduced the price/sf and price/unit benchmarks by low double digits which brings them closer to the current market, again, below the 9 month average but above the fourth quarter.
With our Apartment benchmarks slightly above the most current market, we should expect further deterioration if interest rates and regulations continue to rise.
Commercial Apartments
| Asset Class | Price / SF | Price / Unit |
|---|---|---|
| Elevator Apartments | $200 | $175,000 |
| Walk Up Apartments | $250 | $225,000 |
Other Commercial Sales
Many landlords are looking for Mixed Use properties to mitigate the residential regulations. Our benchmark price/sf was above the market which rose by 20% in the fourth quarter. We are hesitant to chase a rising sector facing such market headwinds so we have raised our benchmark by 10% to $275/sf. Unlike apartments, this is above the 9 month average but below the fourth quarter. Reporting a price/unit benchmark is complicated by the differeing values between residential and commercial units. Our benchmark values for those asset classes prove instructive for Mixed Use values too.
Retail properties vary widely from neighborhood bodegas to shopping districts around transit hubs, making the sector very difficult to benchmark. The former types trade below $200/sf while the latter above $1,200/sf. Looking at the middle of the market to set the benchmark, we raised it to $475/sf. The 50% increase matches the deal flow of middle market retail properties that sold in the fourth quarter. Many will be developed into other uses but they are part of the market.
We try to screen out redevelopments from our Industrial sales to get a purer benchmark for that sector. Our Industrial Focus posted in October highlighted the exciting trends in this vital Bronx asset class which continued throughout the fourth quarter. The limited supply of properties is enjoying healthy demand from operators, investors and developers. We increased the benchmark to $325/sf which is still below the most recent averages which may be skewed by redevelopment plans.
America’s third densest county doesn’t have a lot office properties and what it does varies widely. When we look beyond the extremes, a smoother picture emerges of a market that peaked in the summer and held that level in the fall. The most recent deal was an anomalous low and hopefully not indicative of the market. We raised the benchmark to $325/sf, which is below the sample average but above that recent print.
Specialty asset classes are also difficult to benchmark due to disparate uses and unknown redevelopment plans. Our $400/sf benchmark is below recent averages that have spiked upwards due to such factors but it remains in line with the broad market of Specialty class properties. It remains unchanged until we get better visibility into any sector trends that develop.
Our land benchmark has similar obstacles but we have seen enough to reduce the low end after a series of double digit transactions in the fourth quarter. The $75/sf low end reflects the market headwinds while the $1,500/sf upper bound is still below the highest valued transactions.
other Commercial Sales
| Asset Class | Price / SF |
|---|---|
| Industrial | $325 |
| Mixed Use | $275 |
| Retail | $450 |
| Office | $300 |
| Specialty | $400 |
| Asset Class | Low P/SF | High P/SF |
|---|---|---|
| Vacant Land | $75 | $1,500 |
Leasing Benchmarks
Unlike sales filings, lease comps are not publically available, but our industry associations and subscriptions provide enough data to construct benchmarks for Industrial, Retail and Office properties, with the last two categorized at Bronze, Silver and Gold levels.
Industrial assets might be more popular with investors than users as lease rates have been stable throughout the summer and fall. Recent months have seen a slight drift towards $21/sf but we are leaving the benchmark unchanged at $20/sf.
Retail leases have displayed the familiar strength at the top that’s absent in the lower tiers. Recent comps have come in above our Silver and Gold benchmarks. So, we raised each by $5/sf to $50/sf and $60/sf respectively while maintaining the Bronze benchmark at $40/sf.
We wonder why more people don’t set up shop in Bronx office space to avoid the Manhattan hassles. Despite the success of the Hutchinson Metro Center, it remains a nascent asset class in the borough. Gold level space can be leased at Hutch for $45/sf, below our $50 benchmark while other Gold spaces ask up to $70/sf. Recent comps and current offerings support our Bronze and Silver lease benchmarks at $35/sf and $40/sf respectively.
Gross lease rates
| Asset Class | Price / SF |
|---|---|
| Retail Bronze | $40 |
| Retail Silver | $50 |
| Retail Gold | $60 |
| Office Bronze | $35 |
| Office Silver | $40 |
| Office Gold | $50 |
| Industrial | $20 |
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