Gentrification pushes up prices beyond Manhattan
Published 07/05/2015 | 02:30
For AvalonBay Communities, the next promising area for New York development is in southeast Brooklyn, at the second-to-last stop on the B train and off a bustling strip of discount stores and fruit stands.
There, in Sheepshead Bay, the second-biggest publicly traded US apartment landlord is planning 200 luxury rentals in the tallest tower the community has seen in decades. The project, about a 45-minute subway ride from midtown Manhattan, is also the most remote within the city for the company.
For all the attention Manhattan's ultra-luxury condominium towers have captured -- with their sky-piercing heights and record-shattering prices -- New York City's largest residential construction boom is in the farther reaches of the outer boroughs. Builders of rental and for-sale housing are being drawn to Brooklyn and Queens neighbourhoods where land is more plentiful and expenses are lower than across the East River.
They're betting on high demand for their projects as the costs of living in and close to Manhattan continue to climb.
"There's a lot of opportunity for developers to serve New Yorkers who are not billion-dollar bankers," said David Maundrell, president of Brooklyn brokerage AptsandLofts.com, who consulted on the Sheepshead Bay project with AvalonBay's local partner, Muss Development. "To be able to build a luxury tower near the Atlantic Ocean in New York City is an extremely unique opportunity. It's probably the wave of something bigger."
There are 37,243 residential units planned for outer sections of Brooklyn, beyond the borough's popular northwest riverfront communities such as Williamsburg and Dumbo, according to data from Nancy Packes, a marketing consultancy for New York developers. An additional 17,352 units are slated for the farther reaches of Queens, defined by the firm as everything outside Long Island City and Astoria. Combined, they surpass the 44,427 homes that Packes estimates are planned or under construction in Manhattan.
Some upcoming projects are by developers with roots in Brooklyn and Queens, including Rubin Schron, who became a billionaire as an apartment landlord in the outer boroughs. His firm, Cammeby's International, plans 544 residential units in Coney Island a 430ft tower that would be the tallest in south Brooklyn, according to filings with the city's Department of Buildings.
Others are making their first residential forays into the outer boroughs. Vornado Realty Trust, owner of more than 20 million square feet of Manhattan offices, completed 312 apartments above a shopping mall it partially owns in Rego Park, Queens. Leasing will begin this month, the company said on a February conference call.
"We're going to be building more apartments in that area," said Chairman and Chief Executive Officer Steven Roth, whose company also is developing an ultra-luxury condo skyscraper overlooking Manhattan's Central Park.
Further north, in Flushing, demand from Chinese buyers is spurring a housing boom near the Roosevelt Avenue shopping hub, where the 7 train from Midtown reaches its last stop.
Onex Corp., Canada's largest private equity firm, plans 795 condos across three towers in a project called Grand at Sky View Parc. Sales have started at the first building, where current listings range from a $513,888 studio to a two-bedroom for $971,888, according to StreetEasy.com.
Half of the not-yet-built apartments went into contract within six hours on a single day in January, said Michael Dana, the New York-based president of Onex Real Estate Partners.
Some 95pc of the buyers are Chinese, he said.
"There's a lot of demand by international investors, and I think Flushing is the epicentre of the growth," said Dana, whose firm built three previous condo towers at the site in partnership with Muss. "We're very bullish on the market."
The Grand at Sky View Parc will be more luxurious than the earlier buildings, with amenities such as a rooftop garden, a putting green and tennis courts, Dana said.
Manhattan-centric investors seeking their first deal in the outer boroughs are among bidders on the leasehold to a 277,000 sq ft Flushing site where a Macy's now operates, said Robert Freedman, chairman of the tri-state division of Colliers International. Some investors actively negotiating for the site see potential for residential development and upscale retail, even it means waiting several years until the department store's lease expires.
"There's a perception among major players that the opportunities reside in the outer boroughs," said Freedman, who is marketing the site with Steve Chasanoff. "Everything on the island of Manhattan is so dear."
For the choicest commercial properties in Manhattan's most desirable locations, the average capitalization rate -- a measure of investment yield that falls as prices rise -- dropped to a record 3.2pc in the first quarter, according to research firm Real Capital Analytics
"Where you are in this cycle, you have two options," Freedman said. "You can keep chasing compressed cap rates in Manhattan and, at a certain point, it gets silly. Or you can try to create value elsewhere."
Sales of development sites in outer Queens jumped 54pc last year, to 20 deals, while the total value of those transactions climbed 14 percent to $150.1m, according to Real Capital. The data exclude Long Island City and Astoria.
In Brooklyn, the dollar volume of lot sales east and south of Prospect Park jumped more than five-fold, to $355.2m.
Buyers paid an average of $290 a square foot, compared with $652 a square foot in northwest Brooklyn, closer to Manhattan, Real Capital data show.
AvalonBay and Muss bought their Sheepshead Bay lot, at 1501 Voorhies Ave., for $16.2m last year, land records show.
The partners plan 200 rentals and 50 condos on the site.
"Buying land well is the surest way to have a profitable development," said Nancy Packes, the development consultant. "And spotting areas early means buying land well." (Bloomberg)