Harlem Real(i)ty Check: Still Hot, But Less So

Posted by jeff

Fri Jul 11th, 2008 09:08 AM

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Last summer I wrote a piece called "Why Harlem is Hot Hot Hot" which cataloged the significant demographic and psychographic changes taking place in Harlem and mapped out the many planned condo developments uptown. At the time I opined that "the Harlem Renaissance is for real, it's here to stay and things will only get better from here. While in a downturn Harlem like other "growth" areas, could get hit hard."

I followed up with a piece in the spring called Real(i)ty Check - Harlem", in which I checked in with a number of brokers to see how the spring selling season had kicked off and what the prospects were for the absorption of all those new condo units. In the piece I noted that I had written previously on Urban Digs that "I am bearish on the boroughs and Harlem in the intermediate term, due to new supply trends and my feeling that improving Manhattan values will keep more people in midtown and downtown. I also feel that certain markets like Harlem and Long Island City will offer great long-term appreciation potential to those who take advantage of the expected price correction." But I concluded the piece by noting that "My take on Harlem is that so far it is holding up better than I expected considering deliveries from the pipeline of 1,345 condo units from 2007 and some portion of the 1,506 units that were started in 2006. It speaks to Harlem's attractiveness as an up and coming neighborhood."

So where is the Harlem market today? In a lot of ways, the fundamental underpinnings of the Harlem Renaissance continue. Retail and shopping opportunities are improving. In particular, the eventual opening of East River Plaza, which now finally looks on track for September 2009, is expected to be a boon to East Harlem, which has lagged behind central and West Harlem in gentrification. The new Target is seen as a central attraction and becoming a selling point with brokers, but Best Buy, Marshalls and Home Depot (or Costco) will also be important additions to the neighborhood. The luxury Dancy Power Automotive Group car dealership, opening in the ground floor of The Lenox Condominium at West 129th Street, is another example of what is possible in the new Harlem. And according to New York Real Estate blog Curbed,Starwood Hotels recently confirmed the development of an Aloft Hotel is a go at 2296-2308 Frederick Douglass Boulevard, with a targeted opening date of June 2010. Note as a counterpoint, however, there is strong community resentment to local businesses getting priced out of Harlem and there is a risk to Harlem losing some of its historic and cultural appeal if some protections are not instituted, Last month's upzoning/rezoning of the 125th Street corridor provides both risk and opportunity for the neighborhood, as noted recently in the New York Times.

However, recent media coverage of the Harlem condo market confirms my initial supposition that the absorption of new condo units could be problematic. According to a recent CNBC article, the developer of the The Fitzgerald, a condo renovation project at 257 West 117th, is offering below market mortgages to buyers of the property condos. Certainly this is a sign of a developer straining to boost the velocity of sell outs in a building. In the case of The Bridges condo in East Harlem, the developer caved on trying to sell the 18 condo units, deciding to reposition the property as a rental building. According to a recent article in The Real Deal, which examined data from Street Easy on price adjustments of new condo developments, "Upper Manhattan fared the worst in terms of the number of price reductions with 75, compared to only 14 increases. Harlem had 52 price decreases and six price increases." The article goes on to note:

"People who wanted to be on the Upper West Side were getting priced out and went farther north," said Sofia Kim, vice president of research at StreetEasy. So developers started building aggressively to meet demand. At the same time, current market conditions are putting pressure on prices in fringe outlying neighborhoods including Harlem.
The slowdown and softening in the market is evidenced in a recent article in Crain's stating that "the average price of a Harlem apartment fell 2% during the second quarter from the year-ago period to $652,000 while the number of units sold plunged 49% to 158," according to data collected and compiled by Corcoran and Property Shark.

I checked in with a couple of brokers on the ground in Harlem and got the normal optimistic feedback about the long-term prospects for the market, but I also got some straight talk about current market conditions, for which I thank them. According to Willie Kathryn Suggs of the eponymous residential brokerage firm, "We are in the summer doldrums, but make no mistake market activity is down significantly year to year. Showings are down 50% and inquiries are way down. There is no fluff left in the market, the buyers who are out looking are not here to drink Starbucks and window shop, they want and need to buy and they aren't fooling around. We still have a few sellers who are being unrealistic, but they are starting to see that buyers are driving the process." Suggs specializes in townhouses and avers that prices are holding in this market, the highest sale price recently was $2.89 million. There are several brownstones listed at $4 million she thinks will have a hard time selling, but she sees a bunch selling in the mid 2s this year and one or more for over $3 million. The real trouble is at the low-end where mortgage availability becomes an issue and FICO scores rule, the subprime option is gone and even those with decent credit have to clean it up to pristine levels to get loans. Suggs has been avoiding showing much in the way of new construction condos due to some issues with quality she has seen.

I was able to grab a still busy Shimon Shkury (I consider him Mr. Harlem on the development and investment property sales end), who said, "The market is softening, but not as much as one would think. This is because product uptown is very cost competitive with the rest of Manhattan. We don't do residential sales but we monitor it closely and condos in the $450 to $700k range are selling, even above these levels, we see $1MM product selling on 114th on the West side and 113th on the East. Larger apartments at higher prices are slowing. There is no new construction so you can expect that the product available will be absorbed without much new competition." This lack of future competition is key as Shimon also noted that there is a low inventory of development sites for sale. He says "Owners have no debt and have sat on these properties for years so they don't have to sell until the market is better. Most of the sales we are making are to business owners and users and the occasional long-term bullish developer and in many cases we are getting the prices a condo developer would be paying. The opportunity in Harlem today is to understand pricing in the next 5 years, not in the next 2 years." Shimon believes as I do that some of these user/buyers will eventually develop these sites or sell to developers and make a nice return. In terms of the rental market, Shimon noted that rents have gone up, but oil and taxes are up too and this has held back income growth. Still he says multifamily is still the investment class du jour and values are still up.

Urban Digs says....Harlem is still coming on strong in a long-term sense. While some condo softness has arrived, as expected, it may have something to do with individual projects and quality issues, so be careful if you are looking at one of these bargains. Long-term, land values in Harlem will be going up and will move the market along with them, especially in light of the significant drop off in development activity.


From the Blogosphere:

1595 Lexington Avenue - High Design Coming Uptown, East Harlem

Harlem Resisting Displacement

The Bridges Goes Rental











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