Upper East Side: The Golden Opportunity
The Upper East Side, on the island of Manhattan, has been one of the most coveted neighborhoods across the land. Commencing in the late 19th century, it has and continues to be a haven for Manhattan’s elite. With a median household income of approximately $120,000, the neighborhood contains the highest concentration of wealth in Manhattan. Park Avenue, once referred to as Fourth Avenue, has been home to family dynasties such as the Carnegies, Rockefellers, and Kennedys. This comes as no surprise, as the neighborhood has been heavily publicized in books and movies for generations. It seems the neighborhood is oversaturated by old money. Right?
This certainly holds true for a portion of the Upper East Side, which spans from Fifth Avenue to Lexington Avenue. It is not uncommon to walk down the street and spot a group of elderly women sporting $50,000 fur coats and wearing enough diamonds to sink their private yachts.
So, where is the opportunity?
Yorkville, the hidden gem which spans from 79th Street to 96th Street, Third Avenue to the East River. An average one bedroom will run $2,600 compared to the borough average of $3,170. It is quite common to score an updated studio for under $1,900, which is 25% below average for a studio in Manhattan. Second Avenue is oozing with culture and nightlife. There is no shortage of restaurants and Irish pubs strategically dispersed for your enjoyment. Yorkville is also a brisk walk away from Central Park, which if were being honest, sells itself. For years, the only hindrance to this neighborhood has been the shortage of public transportation; this is about to change. Phase One of the Second Avenue subway line is expected to begin transporting over 200,000 daily riders in December 2016.
The Second Avenue Subway was first proposed nearly a century ago, but unfortunately, plans were scrapped due to a little mishap we like to call The Great Depression. Nearly fifty years later, the MTA began a brief three year construction on the Second Avenue Line, but once again, efforts were unsuccessful due to budgetary constraints. Finally in 2007, construction resumed; the MTA allocated a budget of $4.45 billion for the completion of phase one. As of May 2016, the MTA unveiled the new New York City Subway map which included the Second Avenue Subway Line. It really is going to happen.
Image: http://web.mta.info/capital/sas_alt.html
Now, we’re certainly not world renowned economists here, but thinking logically, if a major investment in the growth and development of a locality has been undergone for over a decade, it is safe to say that the neighborhood as a whole will benefit exponentially from the investment. The average sale price per square foot on the Upper East Side in 2014, was a mere $1,200 compared to over $1,500 in 2016. Rents have also increased by an average of 11% over the past year. Warren Buffet’s main philosophy for buying dividend yield stocks hovers over the idea of purchasing stocks which increase their yield year after year, and have some basis for future growth. This same philosophy can be used when purchasing Real Estate. If a property is purchased today at $1 million with an initial cap rate of 5% it may seem like a great investment as the investor would profit $50,000 on the investment in year one. What if the same property had a 10-12% increase in yield in year two? The investor would now profit $55,000, respectively, in year two, indicating a cap rate of 5.5%. Couple this phenomena with the potential of growth on the underlying asset. As discussed before, the average price per square foot on the Upper East Side has increased by 25% over the past two years. Making decisions based on historic data is nothing short of ignorance, yet making decisions based on future projections and opportunity is business acumen.