Gambling on Gentrification in New York City
It was the stuff of urban legends – and then some.
Then opera student Morris Robinson and his wife, Denise, a flight attendant, took a chance on an apartment on not-yet-gentrified 145th Street. Not quite three years later, they sold it for more than double what they paid, and used the money to realize their dreams.
“I certainly can’t think of any other way I could have done it,” Robinson said.
The Atlanta natives had been renting in New York, while Morris studied at the Metropolitan Opera’s Young Artists Program, when they heard that a new development – The Hamilton — was going up in Harlem. Approved buyers would be able to buy a two-bedroom apartment with terrace for just over $220,000. They moved in 2004.
When they sold the apartment in 2007 for $490,000, the profit enabled Robinson to pay off his student loans, buy a five-bedroom house back home in Atlanta, and launch his career. And being near family meant that Denise was able to return to work, knowing that there was a support system to help take care of baby Miles.[pullquote]“The price of housing has become unmanageable. There is more space for the dollar in resurging neighborhoods.”[/pullquote]
Today, Robinson sings bass for the Metropolitan Opera, the Washington National Opera, The San Francisco Opera and the New York Philharmonic, among many others, and said that the purchase and sale of that Harlem apartment is directly responsible for his success.
“It enabled me to move back to Atlanta, and to concentrate on becoming an opera singer without the distraction of financial worries,” he said. “It’s always a gamble, but I would do it again.”
As housing in established urban neighborhoods becomes ever rarer and more expensive, buyers continue to “bet” on areas that may be up and coming, hoping for a happy ending.
“The price of housing has become unmanageable,” said Tony Von Meyers, senior vice president at Halstead Properties in New York, and the broker who sold the Robinsons their home in Harlem. “There is more space for the dollar in resurging neighborhoods.”
In addition, housing in these neighborhoods can be architecturally exceptional, noted Sandy Edry, senior vice president at Keller Williams NYC, who sells – and lives – in Upper Manhattan. These neighborhoods “are where the upper middle class moved to get out of the hustle and bustle (of midtown),” he said. “There are several Emery Roth buildings here. These are quality, quality structures.”
But making a killing on a great home in a neighborhood that’s about to happen is not as simple as a down payment and a dream. Crime, lack of access to transportation, or plain old bad timing –some neighborhoods are just not a great investment.
“The golden rule with real estate is resale. Will someone want to buy this from me when I’m ready?” said Neil Tilbury, senior vice president at Halstead Group in New York.
Sometimes, unfortunately, the answer to that is “no.”
“I would sell if I felt I could make my money back,” said Elizabeth Safran who lives with her son Raphael, 2, in the apartment she bought on what she calls “the wrong side of Broadway” in Washington Heights in 2007.
A stylish mix of granite and antiques, Safran’s apartment has the feel of a Soho loft. But the neighborhood outside has not moved in that direction, as she had hoped.
A development she was told was planned for across the street has failed to materialize. In its place, a vacant lot, protected with barbed wire, with another down the block, and drug dealers on the corner.[pullquote]And then there’s coffee. Real estate experts agree that a Starbucks or, even a single high-end espresso bar are bellwethers that a neighborhood is on the rise.[/pullquote]
Safran, who runs Looking Glass Public Relations from the apartment, said, she was able to buy a 1270 sq foot plus terrace two bedroom for the $500,000 that a one bedroom would have cost in a more established neighborhood.
“There are pluses – it’s a great space — but it hasn’t really worked out the way I thought,” she said.
Her advice to potential buyers? “Try to find some tangible signs that the neighborhood is going to change or try to find the reasons it hasn’t. Really look under the hood.”
Experts say that gentrification has continued apace despite the recession, with affordable housing more important than ever.
“I found when I examined data that the recession did not affect gentrification,” said Candace Coleman, a master of Public Health Candidate at Duke University who wrote her thesis on “Gentrification in the Wake of the Subprime Mortgage Crisis.”
Practical experience seems to substantiate this. “People are always looking for a good deal,” said John Walsh, president, Total Mortgage, a direct lender in Milford, CT. “If there’s a neighborhood on the rise and they find a good deal, they’ll do it. I don’t think that will ever stop no matter the economy.“
That said, financing can be challenging when a neighborhood is a work in progress, Walsh commented.
“Financing is based on comparable sales. So, if you have a neighborhood on the rise, there may not yet be comparable sales. The buyer may have found out that a gym and a Starbucks are coming in but the last sales may have happened before they knew this.”
“Appraisals and comps are lagging indicators,” agreed Edry, but “a good agent should be able to help financers understand where the neighborhood is going and what it should cost.”
In fact, while there are no guarantees in real estate, certain key signs can indicate that gentrification is on its way.[pullquote]“We had to find a diamond in the rough,” said Pamela Capalad, a financial planner and author of Pockets Change, a financial curriculum for kids, who with her boyfriend, rapper, Dyalekt, bought a house in Bushwick in August 2012, for $190,000, after a two year search. The house was recently appraised at $440,000.[/pullquote]
“When new development moves into a new area it’s a sign that a neighborhood is resurging,” said Von Meyers. “ A new development brings with it an influx of cash. This is usually followed by a large business – a bank chain or a retail chain– which drives more foot traffic into the area. This is followed by restaurants and specialty shops. Then will come a second development and it mushrooms.”
A neighborhood that abuts an already established neighborhood is a good bet, said Tilbury – a place that’s “kind of central but still a bit out of the way.”
The proximity to public transportation is also key, he said.
The appearance of artists, writers, and young, childless professionals is a harbinger of change, as is the opening of certain key businesses and services that are important to them.
The arrival of a large health food chain is such an important indicator that developers have come to refer to the impact of such a store on surrounding real estate as “the Whole Foods effect.”
And then there’s coffee. Real estate experts agree that a Starbucks or, even a single high-end espresso bar are bellwethers that a neighborhood is on the rise.
“Starbucks is a big one,” said Edry. “When (they) show up it shows that they trust the neighborhood enough to invest in it.”
In researching a neighborhood, obviously, the number one issue for any homeowner is feeling safe.
“Do your due diligence,” Edry said. “Stand outside the building and see who’s walking in and out. Come back and see it at night.”
Number two is protecting your investment. If it’s an apartment, “you want to check the finances of the building,” Von Meyers said. “That’s key, key, key. If you have questions, get answers.”
Finally, “you have to physically like the space,” Von Meyers said. “You don’t have to love it, but you have to like it enough to make it your own.”
“We had to find a diamond in the rough,” said Pamela Capalad, a financial planner and author of Pockets Change, a financial curriculum for kids, who with her boyfriend, rapper, Dyalekt, bought a house in Bushwick in August 2012, for $190,000, after a two year search. The house was recently appraised at $440,000. “It’s like instant equity,” she said.
Of course, that comes after the renovations. Capalad and Dyalekt are currently in the midst of a gut renovation that she describes on her blog, depending on the day, as harrowing or thrilling, having ridded the house of squatters and needles, rats, mold and ugly vinyl siding.
But Capalad is happy with her investment. Houses she looked at 2 years ago are now selling for $200,000 more, and an upscale cafe, Little Skips, as well as an organic food store and some trendy restaurants have moved into the neighborhood.
“I was floored when I heard what price ranges my friends are looking at in the neighborhood,” she said.
“Bushwick is on its way.”
Jacqueline Rivkin is a contributor to Newsday, and has written for many other publications including CNNMoney.com and The Philadelphia Inquirer. She was a Columbia University Alumni Medalist in 2005.