WHITE PLAINS, NY—Multifamily housing investors in the Westchester market are sitting pretty, thanks to a favorable tilt in the supply and demand equation. But no one wants there to be a lack of development in a market forever, so interested parties—who will speak at the upcoming RealShare Westchester event on April 24—have a clear message for the community: mixed-use developments, particularly those close to mass transit, are the next generation of real estate.

“The multifamily market in Westchester is hot,” says Jose Cruz, senior managing director, HFF. “We've closed two transactions in the last 12 months, totaling $250 million. The biggest one of those was the sale of the Avalon Bay New Rochelle, which was an approximately $210 million deal.”

“This shows the demand for quality multifamily buildings in Westchester. The area has great demographics, it is one of the highest income MSAs in the country, there's a highly educated workforce, good transportation and a great highway system but there's limited product so when something comes on the market, we have well over 10 bids on each unit,” Cruz asserts.

The supply constraint stems from several factors, he notes. “It's tough to get approvals, it's expensive and time consuming; not everyone has the stomach for it. Plus, construction costs are rising pretty significantly, so when you can buy an asset already built, you pay up. You're going to pay an aggressive cap rate for that deal.

Cap rates in the market generally are in the fives, whereas NYC trades in the fours.”

Adds Grant Jaber, senior development director, AvalonBay Communities, “We've always seen Westchester as a great market to develop housing because there's a lack of supply and high barriers to entry—namely, a scarcity of land for large communities.”

Notes Glen Ventromile, principal, Glenco Group, “In the markets where there is availability, such as Yonkers, Mount Vernon and maybe New Rochelle, the rents aren't high enough to justify high-rise construction. To go vertical, high-rise rents need to be near $40 per square foot to justify this construction.”

Fortunately, he adds, “The greater Westchester market is blessed with a number of progressive planning professionals who understand the benefits and needs of creating higher-density housing in their downtowns which are, invariably, situated around their Metro-North rail stations. These planners understand that there are numerous benefits to bringing density to the town centers in terms of creating vitality, demand from services, restaurants, shopping, etc. Generally speaking, a by-product of these multifamily buildings is that they are very tax positive, meaning that they provide significant net real estate tax revenues.”

Adds Jaber, “Over the last several years, more of our multifamily developments have included a mixed-use, retail/commercial element based on the nature of the sites we are selecting for development: urban in-fill sites close to other retail, mass transportation and employment.”

“The different communities in Westchester are starting to embrace the next generation as well as the baby boomer generation, which is starting to want—and need—luxury rental homes that they can downsize into. Both groups want luxury apartments with amenities that are close to mass transit, retail, restaurants and other community amenities.”

Providing such amenities is needed to capture the interest of the modern renter, Jaber asserts. “Millenials don't want a car or certainly not two; that generation in particular is embracing mass transit and wants to live in a location that's convenient to it. In our Bronxville development, across the street from the train tracks, we have 110 apartments and its one of our most successful projects in Westchester.”

Across the Avalon portfolio, Jaber says, “All of our communities have a fitness center and an amenity, whether that's a club room, a game room, or something else. It's what our demographic wants.”