East Harlem experienced another robust year of investment property sales in 2015, accounting for nearly 17% of dollar volume and 19% of transaction volume for all of Northern Manhattan.

Multifamily and mixed-use buildings hit new price per square foot highs and capitalization rates compressed to record lows. Housing demand led development sites to see trades consistently take place above $200 per buildable square foot and some prime locations reach towards $300 per buildable square foot. Many properties that sold only two years ago traded at prices 50-100% higher in 2015—a testament to the strength of the market and growing demand for East Harlem assets.

Drawn to the neighborhoods many amenities and attractive price points, new condominiums are beginning to see values top $1,000 per square foot—a level well above the highs seen during the last cycle peak in 2007, which rarely saw prices break $750 per square foot.

Recognizing this neighborhood’s tremendous potential and underutilization, Mayor Bill De Blasio has wisely identified East Harlem as one of seven neighborhoods across the five boroughs for potential rezoning.

That process took a major next step forward in February with the release of The East Harlem Neighborhood Plan, a community-driven set of recommendations that was recently presented to the City Council. If implemented, could transform one of Manhattan’s most underdeveloped areas by substantially increasing zoning more housing density and affordability.

With layers of community and governmental approval still ahead, this plan will likely take several shapes before the final approvals are given. Major questions concerning remain as to whether the costs of the affordability requirements will be met through subsidies or by the private sector absorbing costs.

However, the scale of the proposed rezoning—which at this point is from the community—is ambitious in its scope and size. It clearly holds the potential to add thousands of units of badly needed housing and draw significant capital investment to one of the city’s most economically challenged locations.

Below is an outline of main zoning recommendations set forth in the plan:

Portions of 1st, 2nd and 3rd Avenues: Possible Upzoning from R8A to R9A
Of the areas targeted for rezoning, one of the most significant are the main retail corridors along 1st, 2nd, and 3rd Avenues from 97th Street to 124th Street. These portions would be upzoned from current R7-2 or R8A designations to R9A. The belief is rezoning of these wide commercial corridors will not only spur residential development, but also new commercial/retail spaces, as well, and encourage retail growth. This is especially true along Lexington and 3rd Avenues, between 103rd Street and 112th Street, which continues to have many underdeveloped buildings and vacant lots.

Park Ave Between 115th and 132nd Streets: Mixed Use Zoning, Mandatory Inclusionary Housing
Park Avenue between East 115th Street and East 132nd Street has also been identified as an area for possible rezoning - primarily to increase usability along the railroad viaduct. Currently Zoned R7-2, the proposed rezoning is M1-6, which would significantly increase FAR to 10 and allow for commercial/industrial development. In addition, this upzoning would trigger Mandatory Inclusionary Housing (MIH). As has been the case in parts of Queens and Brooklyn, this unique zoning mix lays the groundwork for more housing and, potentially, an economic engine to propel future job growth.

Lexington and Madison Avenues, along with East 116th Street: Upzoning to R8 or R8A
Portions of Lexington and Madison Avenues, along with East 116th Street between the two avenues, have been identified as areas for upzoning to R8 or R8A, increasing FAR to 6.02. These areas are key residential corridors with higher density needs, especially considering its access to the subway. Immediate blocks surrounding the 125th Street 6 subway station, the Metro North Station and soon-to-come 2nd Avenue subway stops have also been designated for upzoning and mixed-use zoning.

Public Sites: Proposed Upzoning to R8A or R10, 100% Affordable Units
The final sites outlined for rezoning include all public sites in East Harlem, which would be upzoned to R8A or R10, depending on street width, to allow for greater density. 100% of units constructed on these sites would be designated affordable.

Clarifying how the affordability requirements will be paid for is essential however—if the economic incentives are lacking, it will be difficult to finance the new construction the city needs. We’re very encouraged by this initial plan, produced with the support of the Manhattan borough president and the City Council speaking. We will closely be following how this process and plan as it evolves in the coming years.

Despite its great transportation via the 6 train and the upcoming Second Avenue Subway, East Harlem is one of Manhattans most underdeveloped and underutilized housing markets. The rezoning plan on the table is an important step towards positive change for New York City housing.