Brooklyn Investment Still Strong Despite Last Year’s Sales Cool Down May 8, 2018

Bisnow | May 8, 2018

By Travis Gonzalez

Brooklyn investment sales fell for a second consecutive year in 2017, hinting that the market might be losing steam after years of sustained development and sales activity. The borough posted $6.5B worth of transactions last year, a 19% drop from 2016, when it saw $8B, according to a report from GFI Realty Services. The decline in sales contrasts upward momentum in price per square foot, and while some investors have remained hesitant to invest, others have increasingly signed deals in emerging areas like East Flatbush and Kensington. Deal activity also continues to pick up in core neighborhoods like Greenpoint and Williamsburg, despite the slowdown last year.   “In terms of revitalization, Brooklyn’s barely a teenager,” GFI Realty Services research analyst Justin Fitzsimmons said. “The bottom line is that deals are being done in Brooklyn. Land deals, multifamily and mixed-use deals, commercial deals, industrial deals, they all continue to happen in the borough.”

Activity On The Rise In Core Neighborhoods

Williamsburg, the Brooklyn poster child for luxury development, continues to have one of the highest sale dollar volumes in the borough, posting $303.1M last year despite flat-to-falling rents and an oversupply of luxury multifamily.  The imminent shut down of the L train, which will impact the commute into Manhattan, has not yet led to lower rent prices, but higher concessions are expected within the luxury market come 2019. In terms of sales, the long-term nature of investment means the shutdown will have little impact on prices. In Greenpoint, film production company Broadway Stages was one of the more active real estate buyers in Q1. The company filed plans in January to combine six buildings at 341 Kingsland Ave. into a single film production studio. The new building will be six stories tall, and construction is expected to start in Q2.  Meanwhile, in Downtown Brooklyn, developer Forest City’s gradual exit from the Brooklyn market has led to a rise in transactions. The company sold its 363-unit apartment building at 461 Dean St. for $156M in March. Retail in the area has also seen significant growth. On Court Street in Downtown Brooklyn, rent is $250/SF, up 144% year over year. Court Street’s growth echoes similar patterns across the borough’s commercial corridors.

Room For Growth

The influx of young professionals into neighborhoods like Crown Heights, Bedford-Stuyvesant and Prospect Lefferts Gardens continues to attract the attention of CRE investors as safe, stable submarkets for investment, Fitzsimmons said. The borough’s highest number of deals in 2017, 323, took place in Bed-Stuy, Bushwick and Crown Heights.  Despite the sales downturn, development assets in Bed-Stuy totaled $90.1M in 2017, placing it within the top five neighborhoods in the borough for investment sales. The 36 Bed-Stuy transactions were 20% more than Williamsburg’s.  Affordable housing investment made up a significant deal in Crown Heights last October. Arker Co. bought a 52-unit apartment building for $12.8M.

New Development In Emerging Neighborhoods 

Arker Co. is also spearheading a 1,169-unit, affordable housing megacomplex in East New York. The project speaks to a growing interest among developers to expand into once-overlooked areas of Central and South Brooklyn.  The developer’s activity in up-and-coming neighborhoods highlights that despite Brooklyn seeing year-over-year declines, activity is up outside of the core submarkets. Over $33.5M of development sites traded in Flatbush last year, for instance, an increase of approximately 46% over 2016.  Midwood, another strong example of South Brooklyn rejuvenation, saw a 33% year-over-year increase in investment activity by dollar volume, which rose to approximately $23.5M. The total number of development sites that traded in the neighborhood rose by 100%.  In Brownsville, the historic Pitkin Theater sold for $53M, the most expensive single-building deal in the neighborhood’s history. The buyer, TerraCRG, plans to restore the property and rechristen it as an education facility.  While many projects focus on affordable housing, luxury projects have also appeared in these submarkets. In post-Sandy Coney Island, an eight-story mixed-use building is coming to a vacant lot and will offer 86 luxury apartment units. The building is one block from the Coney Island-Stillwell Avenue subway station and four blocks from the boardwalk and beach.  New York City might be seeing a slowdown in CRE investment, but in Brooklyn, interest remains high for properties in the borough.  “From an investment standpoint, Brooklyn today is obviously not the Brooklyn of two, five or even 10 years ago, but it is still alive and well,” Fitzsimmons said. “There’s every reason to expect a rebound this year, and this is reflected by the significant investment activity in 2018’s opening months.”

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