Still Time to Get In on Outer Borough Investments

NEW YORK CITY—In addition to places like SoHo and Tribeca, developers and lenders see Brooklyn, Queens and the Bronx as places which will retain and increase in value over time. “There has a been a slow down in that appreciation, and maybe even a small decline,” said Sorabh Maheshwari, founding partner at Churchill Real Estate Holdings. But the ability to buy into, invest in or even just lend into those areas is still attractive today, he added.

Maheshwari was one of the “Coffee & Cap Rates” speakers, at Ariel Property Advisors’ bi-annual discussion on the New York City investment sales market.

Brooklyn has experienced aggressive growth in the last three years in terms of pricing and development, said panelist Susi Yu, managing director, head of development, L&L MAG. “There are opportunities in places like Gowanus, Greenpoint, Southern Williamsburg, closer to Navy Yard where there is an ability to go for increased underlying FAR. I think that’s where the potential value is,” she said.

She added rentals tend to be the first indication of a strong market—then people start to buy. She predicted still greater increases in Brooklyn sales prices. “A lot of condominiums are underwriting at $1,700 a square foot, which is really high for downtown Brooklyn,” Yu said. “You’re going to see rents in the mid-60s.”

Moderator Michael Stoler, the president of New York Real Estate TV, asked panelist Paulo Garcia, SVP at Mercantil Bank, why his company provided a construction loan to Gary Barnett’s Extell at City Point, a $1 billion, 1.8 million square-foot development in downtown Brooklyn. In 2015, Extell bought the last development site at City Point, apartment buildings on top of retail and offices.

In Brooklyn prices have gone up tremendously, especially in the for-sale sector, and Mercantil saw the pent-up demand for these products in downtown Brooklyn, Garcia said. It was a larger loan than Mercantil usually makes, and a syndicate of banks is involved with the project. But when Extell made their presentation about their vision in downtown Brooklyn, it was something with which they agreed.

Garcia noted, “We’re getting to a price point for downtown Brooklyn that is unprecedented. It’s actually close to $2,000 per square foot. The absorption has been phenomenal. In the first month of sales, they closed on 50 units. That gives you an indication of the amount of demand that exists for a particular product in downtown Brooklyn.”

Panelist Eli Weiss, principal of Joy Construction Corp., defined South Brooklyn as Manhattan Beach and Brighton Beach. Stoler asked Weiss’s opinion of John Catsimatidis’ 440-unit development at Surf Avenue, by Coney Island.

Weiss pointed to South Brooklyn’s unique beach access. “How many people can come home after work and in the summer be on the beach, and then jump onto the New York subway system to Midtown?”

“With the exception—that it’s a schlep,” interjected Stoler.

However, Weiss pointed to the affordability. It’s not the Long Island Rail Road. It’s not Metro-North. You can live in Brooklyn and have a suburban lifestyle, he said. Weiss also noted that with real estate taxes no longer deductible, people living in Westchester, Long Island or Bergen County will feel personal budgetary impacts. “Real estate taxes in Brooklyn, especially if there is a tax abatement, are significantly lower,” he said.

Referencing Weiss’s childhood Stoler said, “The boy from Brooklyn—all of a sudden you’re the King of the Bronx. You’re involved in a major project that may include the soccer stadium. Why do you see the Bronx as such a great opportunity?” As reported by The New York Times in July 2018, although not final, there are plans for a project led by Jorge Madruga of Maddd Equities and Weiss with Joy Construction, where they would build and lease a stadium to the team and create housing, the park and hotel. The stadium would be part of a 20-acre multi-billion dollar development.

Weiss said as part of the Bloomberg administration, he worked in financing low- and middle-income housing in the Bronx. Mayoral administrations from Giuliani to de Blasio have spent billions of dollars in the Bronx through affordable housing, transportation, infrastructure and with rezoning, Weiss said. “What you’ve seen in Hudson Yards and in Harlem, you’re seeing this story play out in the Bronx. Years and years and years of public investment, leading to public-private investment and now going to just simply private investment.”