The Full Nelson

Staten Island Loans Sell with over 30 Acres–Investing in NYC's Unknown Borough

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Acreage is not a term you hear often in NYC real estate. We typically measure in feet. Thus, when our office went to market on two Staten Island loans with over 30 acres of collateral it was a rare offering. And yet many of the investors we approached couldn't get us off the phone quick enough as soon as we mentioned “Staten Island”.

This borough is foreign to most NYC investors. Some say they've never set foot there, despite a free ferry ride which takes 25 minutes to reach Manhattan. For investors willing to consider, it's a difficult market to understand as there are few data points.

While The New York City Housing and Vacancy Survey tracks apartment rental vacancies in every borough, they cite that Staten Island as having too little information to report. When I searched for apartment rentals on Streeteasy, it came back with only 61 options averaging $1,300/month or $17/SF, as opposed to Brooklyn's 1,682 listings averaging $2,300/ month or $31/SF.

Meanwhile, condo offering are equally sparse with only 30 listed by Streeteasy for a median price of $642,000 or $482/SF versus Brooklyn's 1,671 with a median price of $539,000 or $634/SF.

How can this be in a borough which has 468,730 people which accounts for 5.7% of the NYC population? The argument becomes more extreme when considering that Staten Island has 58 square miles, which is more than double Manhattan's size.

CoStar does track investment sales figures in Staten Island. The 2011 YTD figures reported are a meager 49 sales for $98,838,415 with the largest transaction being a $9,510,000 sale for a 108,000 SF hotel at 1415 Richmond Avenue. That being said, CoStar did cite almost 30 sales without prices recorded, including “36 NY Mobil-Branded Locations”.

Meanwhile, CoStar reported 78 sales worth $146,804,726 in all of 2010 for Staten Island. This accounted for only 1% of NYC's total dollar volume last year.

So why would one consider investing in this unknown borough? For one, the land costs are exceptionally low. The loans we recently sold for $13,500,000 had two collateral sites: a 200,000 BSF residential site with direct water views near St. George Ferry Terminal and 30 waterfront acres on the South Shore adjacent to the Outer Borough Bridge. The first site was likely valued at under $25/BSF, while the larger site was likely valued at below $400,000 per acre.

The waterfront site had 1,200,000 BSF zoned for light manufacturing, but plans envisioned a 350,000 SF retail development complete with a marina. This site was a few blocks from the Charleston Shopping District, which is home to such nationals as Home Depot; Bed, Bath, and Beyond; and Target. According to Costar, retail is high demand in the area.

The retail vacancy rate is 2.8%, which is well below Brooklyn's 4.3% and Queens' 3.7%. In this case there was a decent enough sample set to draw from: Staten Island had over 15 million SF of retail which included 188 chain stores alone in New Springville, which is home to The Staten Island Mall. The stores added up to the most in any NYC zip code. The retail rents in Staten Island are attractive averaging almost $25/SF, whereas Queens and Brooklyn figures are $33 and $38 respectively.

Meanwhile, a decent case can be made for new residential development. Those rents can reach $20/SF, which is about what land trades for on a buildable basis. Construction costs run far less in this borough at around $200/BSF. Thus, if condos can sell for $400-500/SF, there is a healthy profit margin. That being said, high rise condo developments have yet to be seen in the borough, as new developments are generally garden style or row houses.

What is for certain is the 60,000 people who ride the ferry daily to Manhattan who have almost no luxury housing choices. The case for retail is even more certain. With this all in mind, will you take my call with the next Staten Island opportunity?

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