Issue 69 – Transit Oriented Development

These days, it’s difficult to avoid reading commentary on the pricing pressures facing NYC real estate right now. While I think some of this banter is a bit overdone and many of the naysayers may be late to the party at this point, I find it interesting that sometimes pundits immediately default to the “usual suspects” as the drivers of current conditions. If the market is weakening, it must be due to a stronger dollar and greater disclosure requirements are dampening international buying, the finance industry is shrinking and adjusting to new regulations, new development supply in the City is on the rise, and global economic conditions are less than robust. Of course, when NYC home prices were rising to record levels post crisis, it was the reverse of many of these conditions coupled of course with record low mortgage rates and recovering equity prices. Are many of these same factors driving current market conditions?  Absolutely.  After all, these are among some of the most fundamental pillars of real estate valuation.

Sometimes, however, it’s worth taking a closer look at less publicized trends that may, too, have a marginal impact on real estate conditions in the City.  In isolation, the impact of these peripheral factors may not be market movers. However, when coupled with the larger drivers mentioned above, they can have an impact on overall supply-demand, renting, and purchasing dynamics. One of these trends came to my attention as I drove down I-95 into Connecticut. If you’re familiar with the Constitution State, you may know that as you drive through Stamford, it is hard to miss the explosion in brand new, full amenity residential buildings. Furthermore, most are quite full. Given many companies have downsized materially in Stamford (RBS, UBS, GE), I was curious to understand this trend a bit better.

What I found was very interesting. Not only have new rental buildings been popping up along the water in Stamford for several years, but there are massive projects now planned in the downtown area as well.   The “Stamford Downtown” website indicates that “more than 1,500 units are planned for construction in the next three years . . . downtown residents are a very desirable demographic with 65% in the 25-34 age group, who are earning a median income of $108,000 a year.” It is important to note another interesting fact about Stamford—virtually every one of these developments is within a mile of the express train to NYC. I began researching other new development in easily commutable suburbs, and no surprise, there is broader trend developing. Dubbed by some as “transit oriented development,” projects are planned in downtown semi-urban areas in close proximity to train lines all across the Lower Hudson Valley. New Rochelle, for example, plans to potentially add 5,500 residential units, while the rezoning plan for the surrounding grid of Mount Vernon West’s train station envisions the creation of more than 3,000 new units. Thus, while supply in the City certainly is most relevant, competing supply across City borders cannot be ignored.

The logic for this trend is simple, even if it’s gone unnoticed by many of those living in the City. A number of former residents and incoming NYC professionals have been priced out of NYC given the rapid rise in prices.  In some cases, for half the price renters can get more space, as well as amenities such as washer/dryers and swimming pools. Thus, while the grind of the commute can take its toll, developers are hoping the perks awaiting their customers upon arrival home in part will make up for it. In addition, while NOTHING comes close to replacing NYC when it comes to urban living, the legislators of many of these outer cities also are trying to encourage the opening of new restaurants and shops. This is all in an effort to give a semi urban feel to suburban living.

So what does this mean? Probably a bit of pressure on Manhattan’s mid-priced rental market first and foremost. We all have seen trends in one segment have an effect on others, however, I think it’s too early to assume that will occur in a material way in this case. While this trend has accelerated and no doubt has become more compelling, suburban options have existed in different forms for some time. My view is those that enjoy the amazing opportunities NYC offers will continue to stretch in price and/or sacrifice in size to maintain a home here. And, in a world where there aren’t enough minutes in the day, a shorter commute offers more time to spend with family and friends.  In addition, as Miller Samuel’s CEO Jonathan Miller points out, “New York City is a bowl of water spilling over its edges. Population growth is five years ahead of census projections and employment levels are growing at a record pace with the highest number of employees currently working in New York City in its history.” Nevertheless, this is non-helpful trend worth noting, and one I rarely see mentioned under the heading of “competing supply.”

Have a great Summer!