NORTHEAST SNAPSHOT, SEPTEMBER 2005
Brooklyn, New York Multifamily Market
The multifamily development market continues to be driven by the strong demand for condominiums. The sellout prices for condos and increasing hard and soft construction costs have made it extremely difficult for multifamily rental developers to compete for new projects. A lack of new rental development and conversion of existing rental buildings has created a premium for large, well-maintained rental buildings.
The most significant development project in Brooklyn is Forest City Ratner’s Atlantic Yards project. The proposed project consists of 7.7 million square feet of commercial and residential space. This project has driven demand for development projects in the surrounding neighborhoods of Downtown Brooklyn, Park Slope, Fort Greene and Prospect Heights.
One of the largest developers to enter the Brooklyn market is Extell Development Company, who, with the Carlyle Group, purchased Donald Trump’s West Side Development for $1.76 billion. Extell Development recently made a bid in competition with Forest City Ratner for the Atlantic Yards project.
We have seen a number of new developers, both large and small, entering the Brooklyn market. There are two primary reasons for this. The increasing size of development projects crossed the minimum deal threshold for non-Brooklyn developers, especially those from Manhattan. Secondly, the intense competition for new projects in other areas has made Brooklyn development projects more attractive.
Practically all the new multifamily development is in the condominium market. The developers are targeting professional, white-collar tenants. The income requirements of a purchaser who can afford and qualify for a condo that sells for $450 to $700 per square foot limits the market for these properties to those in the top income percentiles.
Rental rates range from $850 to $1500 for one-bedroom, $1,100 to $1,850 for two-bedroom, and $1,300 to $2,500 for three-bedroom units.
Vacancy rates are approximately 2 percent to 4 percent in large rent-stabilized apartment buildings. These properties typically charge rents that are significantly below market rates and have very low tenant turnover. The low rents charged in rent-stabilized properties and high development costs make building new rent-stabilized properties economically unfeasible. This is the primary reason that new rental buildings across New York City are targeted toward the luxury sector.
In the past year, there have been a number of large multifamily portfolio sales in Brooklyn, including the Sudano Portfolio (214 units) and the Century Portfolio (284 units). The limited supply of new rental buildings has placed a premium on large-scale, well-maintained multifamily assets. Owners have been able to sell for record prices over the last year.
The multifamily market will continue to be driven by the demand for condominiums. The condominium market is tied to the employment growth and interest rates. If either of these changes significantly, there will be a large shift in the demand and pricing of multifamily assets.
— Chadwick B. Castle is director of sales for Brooklyn-based Massey Knakal Realty Services.
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