Real estate investors continue to devour development sites in Queens, with their sights set on above-average returns. As land in some neighborhoods in New York City look pricey, builders will increasingly seek land in regions that are best positioned to appreciate, such as Jamaica, with an expansive rezoning and attractive land values destined to make it a developer’s dream.
(From left to right) By Alexander Taic, Director - Investment Sales; and Drew Chartash, Analyst – Investment Research
As the U.S. economy strengthened this year, so did the development market in the “World’s Borough.” During the first three quarters, Queens saw 86 development transactions totaling approximately $831.7 million in gross consideration, according to Ariel Property Advisors’ Investment Research Division. Transaction and dollar volume were 30% and 110% higher, respectively, than the same period in 2017.
While the average price per buildable square foot in Queens decreased nearly 16% year-over-year to $203 per buildable square foot, prices were sharply above where they stood five years ago, the beginning of the current cycle, when they averaged $149 per buildable square foot.
It is no secret that sites in Northwest Queens, which encompasses Astoria, Long Island City and Sunnyside, have been the most popular, and as result, the price per buildable square foot runs higher in these areas, at around $250. The price per buildable square foot is poised to rise sharply given e-commerce giant Amazon’s plan to build one of its second headquarters in Long Island City.
A developer, however, need only look a few miles southeast down Queens Boulevard to find a treasure trove of land in Jamaica, where sites fetch a mere $100-$130 per buildable square foot, one of the lowest in Queens. Just like the pioneers did during the “Gold Rush” of the 1800s, investors will progressively flock to Jamaica in search of outsized rewards.
The region of Southeast Queens – which also includes Hollis, Rego Park, Richmond Hill, and St. Albans - has already outpaced 2017’s 13 sales as well as 2017’s total dollar volume by 33%. This year investors have already taken heed, Jamaica recorded 10 development transactions totaling $111.81 million through September, accounting for 13% of the borough’s dollar volume for development. That’s more than half of Southeast Queen’s total sales and a remarkable 75% share of the entire region’s dollar volume throughout the first three quarters of 2018.
Jamaica is dominated by blue-collar middle-class residents, so it is no surprise that residential projects far outweigh commercial endeavors. Of the 47 completed and 160 ongoing projects, 80% are designated as new residential developments, according to estimates from Recity. Rentals dominate the landscape, with 6,290 apartment units recently completed or upcoming versus 567 condominiums finished or in the pipeline.
This allure is partly the result of a massive rezoning that took place 10 years ago. In 2007, the New York City Department of City Planning rezoned an astonishing 368 blocks to allow for the creation of higher density residential buildings, as well as mixed-use properties. The plan allows for structures of up to 28 stories to be built around the main Jamaica Station transit hub, as well as residential buildings of up to 7 stories to be built on Hillside Avenue.
At the time of its inception, the economy was on the cusp of a major recession that was followed by a historically sluggish recovery. This suppressed demand for development for many years following, but the rezoning’s significance is once again at the forefront of investors’ minds.
Bang For The Buck
The heavily-skewed residential backdrop of Jamaica favors multifamily properties, which remain in high demand but in short supply. With the price per square foot for an existing building in Jamaica averaging around $350 and inching up, there is virtually no economic advantage to buying versus building a new structure. Indeed, with an average of $200-$250 in hard and soft costs required for new development are added to the approximately $125 per buildable square foot for land, the weighted average is about the same for the two asset classes. Development is even more appealing when the benefits of Affordable New York are added in to the mix.
The popular tax incentive provides 100% tax exemption for the construction period, and another 25 years after the completion of a project. After that period, a builder can reap additional tax benefits for another 10 years, with the exemption based squarely on the percentage of affordable units in the building.
Meanwhile, the Greater Jamaica Development Corporation is focusing their efforts on making Downtown Jamaica a place for development and commerce, which has started or is about to commence on numerous sites. This burst of activity is bringing affordable housing (i.e. The Crossing at Jamaica, Norman Towers), diverse retail and hospitality to Jamaica at an unprecedented pace and fashion. The GJPC has even more opportunities in the works.
Lastly, Jamaica is one of the most transportation-heavy neighborhoods in New York City. Jamaica station is a central transfer point for the Long Island Rail Road, providing easy access to Manhattan’s Penn Station, Brooklyn’s Atlantic Terminal, and JFK airport via the AirTrainJFK. The E, F, J, Z and M subway lines run through the neighborhood and its bus network provides service throughout a multitude of rural and urban areas.
As land values in historically strong markets get loftier, developers will increasingly pursue the next, up-and-coming neighborhood that has not yet reached its full potential. Whether it be its massive rezoning, affordable real estate, plethora of transportation options or ongoing demand from established Queens investors, Jamaica’s development sites are well-positioned for growth over the near-term as well as the years ahead.