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Commercial Property News
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March 01, 2005
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| The Remaking of Harlem |
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| By Suzann D. Silverman |
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While Harlem has been undergoing a transformation for a number of years now, with residents and retailers alike flocking there in search of new opportunity, demand has passed a new litmus test.
"The biggest change in the last 18 months has been a willingness among financial institutions to loan here almost without exception," observed Chris Halliburton, executive vice president of Warburg Realty Harlem, the office that the brokerage firm opened in the submarket in mid-October.
Three to four years ago, Halliburton noted, it was difficult to obtain financing without a certificate of occupancy. But with demand so strong, lenders now will finance even before that point is reached. And why not? Prices for residential space, while still below those for Manhattan neighborhoods south of its borders, according to a recent study, have reached $400 to $600 per square foot for condominium space and $250 to $550 per foot for townhouse space, he said. And while leased retail space on the main corridor of 125th Street was $25 to $35 per foot three years ago, now a retailer is lucky to pay $70 per foot.
"It's allowing a lot more people to get into the market and thus a lot more deals to close," Halliburton said.
On the residential side, the number of condo and co-op sales skyrocketed to 177 last year from 35 the year before, with many purchasers moving from other areas of Manhattan, viewing Harlem as a place where they can afford a three- or four-bedroom apartment, according to the recent study, produced by Miller Samuel Inc. for Prudential Douglas Elliman. In response, developers have announced a steady stream of new projects. "It's probably the highest concentration on the island of new construction," observed Jonathan Miller, president & CEO of real estate appraisal company Miller Samuel.
"There's a whole new class of investors (in Harlem as elsewhere in New York City) that has not invested in real estate before," added John Cicero, managing principal of Miller Cicero L.L.C., a partnership with Jonathan Miller that focuses on apartment rentals." He estimated that cap rates for apartment buildings are at 5 to 7 percent in Harlem, following a decline over the past three years from what used to be 9 to 12 percent.
And residential activity is taking place everywhere, though much of it is south of 125th Street, with disagreement among real estate players as to the extent of effect it is having on the demographic mix. While much of the condominium development (little is co-op) taking place is on vacant lots or replacing abandoned buildings, old brownstones are undergoing renovations and being made available with special low-financing options but are seeing a fast increase in their prices. And as units in some of the rent-controlled buildings are vacated, they are being gutted, Cicero acknowledged, so the new landlords can rent them at market rates.
The ongoing shift in retail away from the mom-and-pop shop to national brands is contributing to this change in residents. But developers are striving to create distinctive character in various neighborhoods, noted Matthew Gorman, a vice president in the retail group at CB Richard Ellis Inc. "A lot don't want to put in traditional fast-food; developers don't want to make (their block look) like every other block in Harlem."
Gorman's own deals in the active areas along Frederick Douglass Boulevard, Lenox Avenue and Third Avenue have included a mix of what he terms "local flavor" like the Harlem Vintage wine store and an as-yet-unidentified upscale local fashion designer together with national retailers.
Transportation's Draw
While new condominium buildings are creating opportunities for new retail, though, the biggest concentrations of change are occurring, as they traditionally do, along the transportation corridors. The greatest attractions have been the subway stops on 125th Street between Third and Lexington avenues on the East Side and, farther west, between Fifth and Lenox and where St. Nicholas Avenue intersects 125th Street, with a combination of luxury, mid-level and service retailers. To a lesser degree, 116th Street around Lenox has also seen activity, as have 135th and 145th streets. "Retail will tend to flourish where the subway stations are," observed David Rosenberg, executive vice president with Robert K. Futterman & Associates.
Already, available space is tough to come by on 125th Street, Rosenberg noted. There is one development site at Lenox Avenue due to break ground this spring, with 30,000 square feet of retail on three levels and apartments above it.
On 116th Street, the ground-floor retail underneath condos and rental apartments is filling in with national service retailers. Among them, the Store 24 Cos. is planning to enter the market, he said.
A challenge for such national retailers, though, is the tight spaces mandated by the size of Harlem buildings, something Halliburton warned the market will have to grapple with.
But a different sort of opportunity will be available on 125th Street as Majic Development Group and 1800 Park Ave. L.L.C. build Harlem Park, a $236 million mixed-use project that broke ground in February on the southeast corner of 125th Street and Park Avenue, adjacent to the 125th Street Metro-North commuter rail station. That project will include a 204-room Courtyard by Marriott hotel, along with 167,000 square feet of Class A office space, the 62,000-square-foot Shoppes at Harlem Park and 100 residential units (either co-ops or condos), along with a number of other amenities.
Already, the project, which is striving to attract higher-end retail, has committed Starbuck's, and at press time was well into negotiations with Brand Jordan, according to Majic chairman Michael Caridi. The developer, he said, has also attracted the interest of a home-goods and a telecommunications store.
But the office and hotel components are perhaps even more noteworthy. The hotel is the first with a national flag in Harlem since 1966, according to the developer, though Starwood Hotels & Resorts Worldwide Inc. is among those in the running to redevelop the Victoria Theater, with hopes of making it a W hotel. (Other contenders include retail and entertainment providers.)
As for Harlem Park's office space, Harlem has traditionally attracted government and non-profit tenants rather than major corporations, Caridi noted. But Caridi is designing his project to win Fortune America and is already getting good response, he said. For example, he listed telecommunications, music and entertainment companies as possibilities he is talking to, along with some financial service companies, since Harlem's being on a separate electrical grid from greater Manhattan makes it an attractive alternative that is also closer to the main business district than other possible markets. The city is also providing incentives in Harlem that further reduce rents that are already significantly lower than Midtown's.
Caridi envisions more office users moving to Harlem in the future, but with a study on 125th Street now under way and no existing supply, he predicted it will be two to three years before he has any real competition. Said Caridi: "I think this project is going to set the pace."
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Copyright 2005 Commercial Property News
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