Rezoning Injects Midtown East With New Redevelopments
Midtown East is undergoing a resurgence due to new rezoning legislation. Investment activity has increased in the form of redevelopment, according to a recent report by Ariel Property Advisors.
NEW YORK CITY – Midtown East is undergoing a resurgence due to the passing of new rezoning laws that have increased the allowable floor area ratios of blocks between East 96th Street and East 42nd Street in Midtown. As a result of the legislation, investment activity amid the 78 blocks spanning the legislation rezoning has increased, most notably in the form of redevelopment, according to a recent report by Ariel Property Advisors.
The recent rezoning of Midtown East has positioned it as one of the strongest Manhattan markets below 96th Street, data shows. The neighborhood accounts for 20 percent of the transaction volume and 46 percent of money spent, roughly $9.6 billion. The market is now contending with Midtown West, including Hudson Yards, which was a distant second with roughly half that spend, according to the preliminary numbers.
“There are not many transactions happening today,” Howard Raber of Ariel Property Advisors tells GlobeSt.com “There are a lot of opportunities in the city for revitalization and a lot of people are looking because where land costs have risen, new development requires a ‘different type’ of commitment level.”
Investors are realizing the potential, and are wasting no time to pursue value-add initiatives for existing properties. For instance, Marx Realty executed capital improvements to 10 Grand Central, renovating the lobby and common areas to increase rents. In addition, the MetLife Building is undergoing big capital improvements to compete with newer office stock.
Instead of pursuing ground-up developments, investors are taking existing stock and transforming it into something more modern, which is something the market can wrap its mind around, Raber said. “If you take a Class B or Class C building at $50 per square foot and get it up to $80 per square foot , it can be very appealing to investors,” he said. “Especially in Midtown East, these are buildings that don’t have the desired amenity pack, [..] floor plates are different and efficiency is different and they have expiring leases, its something investors are looking at.”
Over the next couple of years, with the significant increase in allowable floor area ratios, the zoning is expected to generate more than 6.5 million more square feet of office space in Midtown East. Added to this is the ability of landmarks to sell their unused development air rights, thus potentially adding an additional 3.6 million square feet.