By Daniel Tropp, Brett Campbell
Ariel Property Advisors
Despite a slowdown in transaction volume in 2016, Brooklyn investment properties continued to appreciate. With limited barriers ahead, prices are poised to head higher, particularly for multifamily properties, as the borough’s ever-changing landscape captivates the attention of both institutional and private investors.
New York City’s biggest borough registered another year of price growth in 2016 as demand outweighed limited supply against the backdrop of a still-attractive financing environment. For the year, Brooklyn saw 1,327 transactions consisting of 1,646 properties totaling about $7.8 billion in gross consideration, according to Ariel Property Advisors’ newly released “Brooklyn 2016 Year-End Sales Report.”
While dollar, transaction and property volume fell 16%, 7% and 18%, respectively, the declines largely reflected a cooling off from 2015’s historic level of activity. In terms of transaction volume and pricing, the multifamily asset class fared better than development and commercial sub-markets.
Mirroring the trend seen throughout NYC, multifamily dollar volume softened, falling 12% year-over-year to $4.02 billion. However, while other asset classes experienced a year-over-year drop in transaction volume, the multifamily market was essentially unchanged, rising to 865 in 2016 compared to 863 in 2015.
Multifamily pricing metrics climbed higher for the year, rising 9% overall. More specifically, price per square foot and price per unit both increased an impressive 15% from 2015 levels, reaching $376 per square foot and over $326K per unit, respectively. Moreover, and along with the other pricing metrics, Brooklyn’s gross rent multiple ballooned to 15.96 in 2016 from 14.63 in 2015, indicating investor confidence in the multifamily asset class.
In another sign of price stability, Brooklyn’s multifamily capitalization rates, a metric used to gauge the value of a property relative to its income stream, stood at 4.58%, roughly unchanged from 2015’s average cap rate of 4.56%.
Brooklyn continued to lure larger buyers in 2016, including Greystar Real Estate Partners’ purchase of 246 North 8th Street & 255 North 7th Street, a 170-unit Williamsburg elevator rental property that sold for $125 million, or $824 per square foot, making it Brooklyn’s largest multifamily transaction of the year.
Other noteworthy transactions in 2016 include World Wide Group’s $103.5 million purchase of 110 Green Street and the $66.5 million purchase of 180 Franklin Avenue by Muss Development and Bedrock Real Estate Partners.
MULTIFAMILY HOT SPOTS
With a seemingly endless supply of trendy restaurants, bars and entertainment venues, residing in Brooklyn is more popular than ever. With transformation abound, investors are particularly fond of multifamily properties in the Brooklyn neighborhoods of Bushwick, Greenpoint and East Williamsburg.
Indeed, the dollar volume for these three neighborhoods rose a remarkable 20% in 2016 to $532 million, snaring 13% of the borough’s total multifamily dollar volume, according to research compiled by Ariel Property Advisors. Transaction and property volume fell 14% and 23%, respectively, but most pricing metrics climbed higher for the year. Most notable was the sizable 11% gain year-over-year of average gross rent multiples to 16.54. In addition, price per square foot rose 4% to $398.
Bushwick has transformed dramatically over the past decade. The neighborhood, once lined with bodegas, tenements and empty factory buildings, has become the home for hipsters and numerous celebrities. Its multifamily market will continue to grow as new residential projects, such as the Rheingold Brewery conversion and Dannenhoffer’s Glassworks building, come to market.
In Greenpoint, a 22-acre development along the East River is set to transform a section of the Greenpoint waterfront. Of the 5,500 units expected to be built at Greenpoint Landing, approximately 1,400 will be affordable and the first 300 affordable units will be delivered to the community over the next few years.
Looking ahead, the outlook for 2017 is more uncertain than it has been in recent years, with higher financing costs on the horizon. However, interest rates remain historically low and an improving U.S. economy, as well as the borough’s increasing allure, bode well for Brooklyn real estate. As more and more people call Brooklyn their home, institutional and private investors will likely continue deploying capital in the borough, which is proving to be one of the best bets around.
As we speak, a gleaming glass façade is being installed on a skyscraper that's being constructed beside the Greenpoint ferry dock. …