Developers Are Making Bets on a Rising East Harlem

“In the next five years, we will invest $75 million to connect East Harlem to the Upper East Side,” said Mr. Kahen, who, along with Mr. Levi, built the CL Tower at 203 East 121st Street in 2011. “We started at 121st Street; now we are doing a project at 119th Street, and we plan to continue moving south.”
Demand from students who attend Hunter College’s newly opened Silberman School of Social Work at 119th Street, along with residents displaced by increasing rents on the Upper East Side, are driving developers to build more housing in East Harlem.
In the neighborhood, which runs from 96th to 142nd Streets, east of Fifth Avenue, 15 development sites traded hands in 2012, compared with just six in 2011, according to Eastern Consolidated, a commercial brokerage company. And while the number of multifamily properties that sold last year was 43, the same as in 2011, the dollar volume on the transactions increased nearly 140 percent to $287.6 million, from a little over $120 million, the company found.
“The neighborhood is really starting to gentrify and attract for-profit developers — 96th Street is no longer the hard line dividing the Upper East Side and Harlem,” said Christopher Cirillo, the executive director of Lott Community Development Corporation, which builds affordable housing. With so much competition from market-rate builders, “there isn’t a lot of property available for us to rehab or do new development, so that is really our challenge,” he said.
Mr. Kahen and Mr. Levi bought their parcel on 119th Street in January. They paid about $3.8 million for the 75-foot lot, at 2183-89 Third Avenue, which also included air rights from an adjacent building. The developers plan to break ground in June and will spend $16 million to build a 12-story building of studios, one-bedrooms and two-bedrooms, as well as 5,000 square feet of commercial space.
The building, with a gym, a doorman and a roof deck, will have one-bedrooms starting at $2,500 a month and two-bedrooms at $2,900. In comparison, the average prices on the Upper East Side for one-bedrooms and two-bedrooms are roughly $2,400 and $3,350, according to Citi Habitats, a residential brokerage firm.
Land prices in East Harlem, as in all of Manhattan, have also been trending upward. The price to acquire the land for the rental building that Mr. Kahen and Mr. Levi are planning, for example, “was about $80 a buildable square foot, and it would have been closer to $55 a foot if we had sold it back in 2011,” said Michael A. Tortorici, a vice president for Ariel Property Advisors, the commercial brokerage firm that handled the sale.
Mr. Tortorici is marketing another development site in the neighborhood, at 336 East 112th Street, for $2.2 million. The same size lot just a few doors down, at 318 East 112th Street, sold for only $1.5 million in 2011, he said.
In addition to residential development, there is some commercial office construction under way in East Harlem. Artimus, a developer, is undertaking a $16 million renovation of the landmark Corn Exchange Building, on 125th Street and Park Avenue. The project, which is awaiting final approvals from the Landmarks Preservation Commission, will be one of the first new office buildings in the neighborhood in many years, said Eric S. Yarbro, a senior vice president for CBRE, a commercial brokerage firm. “We have a $3 billion nonprofit who wants to move their offices to East Harlem, but we haven’t been able to find them anything that was built after 2000,” he said.
There may also be some momentum on the 1.7 million square foot East Harlem Media, Art and Cultural Center, which is on Third Avenue from 125th to 127th Street. The project, headed by the city’s Economic Development Corporation, broke ground in 2010 and was supposed to include some 385,000 square feet of retail space, 250,000 square feet of office, 840,000 square feet of residential, a hotel and a cultural center.
So far, only 49 units of affordable housing and 6,000 square feet of retailing have been built, but developers hope to complete plans this year for the second phase, which will include residential, commercial and institutional space.
“This project, along with other recent investments that have been made along the 125th Street corridor, will help cement the area’s place as an important cultural and retail hub for Upper Manhattan,” said Patrick Muncie, a spokesman for the Economic Development Corporation.
But while East Harlem is seeing development, some hurdles remain. Vornado Realty Trust owns a large site at 1800 Park Avenue, at 124th Street, where it had planned to develop a mixed-use project before the recession. That project never materialized, and Vornado, which declined to comment, had not indicated whether it would develop the site soon. And while it seems that some progress is being made on the East Harlem Media, Entertainment and Cultural Center, the city still has not acquired all of the private parcels needed to complete the project.
Retailing in the neighborhood is also lagging. The East River Plaza shopping center at 116th and Franklin D. Roosevelt Drive has Target and Costco among its tenants, “but it hasn’t transformed the neighborhood as quickly as some of us expected,” said Lon Rubackin, a senior vice president for CBRE’s retail services group. “There are still very few national retailers in the area,” except for fast-food tenants like Dunkin’ Donuts and Subway. One reason for East Harlem’s lack of national companies like the Gap or American Eagle Outfitters is a dearth of retail spaces large enough to accommodate them, he said.
Still, retail rents have risen since the recession, Mr. Rubackin said. He is marketing a 2,700-square-foot retail store at 116th Street and Pleasant Avenue. While the space is not large enough to attract the larger apparel companies, the asking rent of $100 a square foot is higher than a few years ago. “After the recession, Harlem and the surrounding neighborhoods were some of the hardest hit, and rents back in 2009 or 2010 were as low as $50 a foot,” he said.
As more developers take an interest in the neighborhood, the community is doing its best to control the changes. In January, Manhattan Community Board 11 approved a proposal it developed in conjunction with the nonprofit organization Civitas to rezone 60 blocks. The plan, which has not been approved by the New York City Department of City Planning, calls for several zoning changes, including greater commercial development along Park Avenue and the creation of more affordable housing.
“We felt the need to be extremely proactive in how our community is planned and to support growth from within,” said Matthew S. Washington, the chairman of Community Board 11. While the rezoning cannot be done without city approvals, “this is a way to have our voice heard and start the conversation.”
A version of this article appeared in print on March 20, 2013, on page B6 of the New York edition with the headline: Developers Are Making Bets on a Rising East Harlem.