SIX TIMES RENT ROLL
Forum Discusses Rising Bronx Real Estate Trends

Update: Read the final report, A Real Estate Bubble in the Bronx?

A forum sponsored by University Neighborhood Housing Program on November 8th, 2001 discussed the trend of rising sales prices of multifamily real estate in the Bronx. The event, held at Fordham University’s Lincoln Center Campus, brought together over 50 lenders, regulators, owners and managers to discuss this pertinent issue.

The forum was organized by UNHP in response to accounts of buildings in the Northwest Bronx selling for as much as six times the rent roll, where traditionally a feasible price for a buyer would be closer to three or four times the rent roll. Reports of these sales triggered memories of the late 1980s when Freddie Mac was financing building sales for similar amounts prior to a sharp downturn in the Bronx multifamily real estate market.

As part of the forum UNHP presented research on pricing trends in the Bronx market. The first step in our research was to investigate whether there was in fact an empirically identifiable change in real estate pricing. To do this, the staff of UNHP took on the task of gathering, analyzing and graphing sales price data for buildings (with six or more units) in the Bronx over the last 15 years.

The graph shown here depicts our findings on pricing trends. The data was obtained from First American Real Estate Solutions, and shows the changes in sales price per unit annually since 1985. The graph shows that there indeed has been a sharp increase in sales price per unit since 1996.

We also examined data on other market factors that relate to the cost of housing, including inflation and net operating income (data on the latter has been compiled by the Rent Guidelines Board). Changes in average net operating income per unit and the rate of inflation both show slow and steady growth, unlike the changes in sales prices.

We then began to examine factors that affect the economic viability of the Bronx housing market. Using 1998 Housing and Vacancy Survey data compiled by the Citizens Housing and Planning Council (CHPC), we saw that the percentage of substandard housing was higher in the Bronx (over 20%) than in any of the other boroughs.

Also, we sought to examine the capacity of the existing Bronx rental market to absorb higher rent levels to support potential increases in expenses and costs that might accompany higher prices. Data from the U.S. Department of Commerce showed per capita personal income in the Bronx was the lowest among the five boroughs in both 1996 and 1998, and that the percent increase between those two years was also the lowest in the Bronx.

In addition to this fact, CHPC’s research on median rent-to-income ratios in New York City for 1999 shows an inverse relationship between income level and rent burden. This means that those with the lowest incomes pay the highest percent of their income on rent, and vice versa.

The presentation of the research findings was followed by a panel discussion. The panelists included moderator Dan Nissenbaum of Morgan Community Development Corporation, Dick Conley of the Community Preservation Corporation, Shirley Bresler of Dime Savings Bank of New York, and Tom Webler of PWB Management.

The panel discussed the possible meanings and implications of this research based on their extensive experience with the Bronx housing market. Dick Conley pointed out the possible disconnect between rising market values and existing rental subsidy and rehab loan programs.

Shirley Bresler discussed the due diligence procedures that banks such as Dime employ when underwriting loans. Also, to the extent that rising prices reflect a genuine increase in value in the Bronx market, Bresler noted the positive aspects of current investment trends. She added, however, that if there are instances where unsound lending practices are being employed, further research and investigation into those areas of the market would be useful.

Tom Webler, speaking from his experience as an owner and manager, cautioned that overpriced properties will be more vulnerable to increased costs associated with fuel, interest rates, insurance and lead abatement.

The event concluded with an open discussion involving the entire group. A number of issues and questions were brought up, including the effect the 1997 rent stabilization changes have had and will have on the rental market, as well as the extent to which rental subsidies affect the ability of Bronx residents to support building costs and prices.

UNHP has already begun to continue the research into areas brought up in the forum, including tracking interest rates over the last 15 years, and comparing the number of units and buildings sold each year.

One of the next steps will be to meet with CHPC about collaborating on a more advanced statistical analysis of the relationship between pricing and such factors as geographic location and building condition.

Additional investigation into the rise in fuel costs will also take place. Those who attended the forum were asked for their input as to where data on fuel costs and other areas of interest can be obtained.

UNHP is planning to continue researching the issue and drawing on the knowledge of the people at the workshop. A primary goal is to determine whether there are notable trends that would be useful in determining whether and/or when an increase in prices may represent a speculative trend.