Geographically, Downtown Brooklyn/Park Slope dominated dollar volume, capturing 40 percent, while Bedford-Stuyvesant/Bushwick/Crown Heights topped transaction volume, comprising 23 percent. By asset class, multifamily properties captured the lion’s share of dollar and transaction volume, snaring 43 percent and 62 percent, respectively.

Dollar volume for Brooklyn’s multifamily assets dropped 35 percent year-over-year to $2.72 billion, while transaction volume stumbled 19 percent to 684 transactions. Nevertheless, pricing metrics remained stable and, in some cases, increased; a reflection of buyer’s ongoing interest in quality assets in the area.

The average price per square foot increased to $388 from $376 in 2017, and average capitalization rates dropped 15 basis points to 4.43 percent from 4.58 percent the previous year. However, price per unit and gross rent multiples (GRM) softened, falling about 3 percent to $317,000 per unit and roughly 4 percent to 15.39, respectively.

Meanwhile, a growing demand for condominiums in the borough, as well as the introduction of Affordable New York, a tax incentive that replaced 421-a, positively affected the development market in the second half of last year. The new tax incentive made a significant impact on neighborhoods where the Area Medium Income (AMI) requirements are close to market rents, such as Flatbush and Crown Heights, but strength in those neighborhoods was not enough to offset an overall tepidness in activity.

Development sites saw dollar volume fall 30 percent to $2.18 billion and transaction volume slip 18 percent to 293 transactions. Prices depreciated in 2017, with the average price per buildable square foot at $248, down from 2016’s $262, which was a peak level for the current cycle.

Nonetheless, institutional investors continued to show interest in deploying capital in areas across the river from Manhattan, with Williamsburg and Downtown Brooklyn their top targets. Over the past 10-15 years, these neighborhoods have evolved into 24-hour mixed-use communities.

In terms of dollar volume, Williamsburg was the hottest neighborhood for development assets in 2017, capturing an 18 percent share of the $2.12 billion in sales. The region also comprised an impressive 11 percent of the 204 transactions that took place, and 12 percent of the 301 properties traded.  

A notable development site sale in Williamsburg last year was Cheskie Weisz’ CW Realty purchase of 187 Kent Avenue & 48 North 3rd Street for $42.5 million. The developer plans to build a mixed-use building with 96 units and ground floor retail at the location.  

The popularity of Williamsburg, both from a commercial and residential perspective, stems largely from its reputation as an edgy and trendy neighborhood catering to artists, hipsters, creatives and professionals. The looming shutdown of the L-train in 2019 will affect retail and office space more than it will impact the residential market. Williamsburg will continue to attract visitors worldwide to experience its abundance of art, music venues, bars, restaurants and boutiques.  

Downtown Brooklyn, meanwhile, has emerged as the 24/7 “Live, Work and Play” neighborhood that City Planning had envisioned with a rezoning that took hold in 2004.  A noteworthy Downtown Brooklyn sale last year was Rabsky Group’s purchase of 633 Fulton Street for $68 million, a transaction that completes the firm’s assemblage on the street.  

Despite steep appreciation in recent years, Williamsburg and Downtown Brooklyn remain a much less expensive alternative to Manhattan, where development sites fetched an average $682 per buildable square foot last year. With more than 5,000 units under construction and another 7,000 units in the pipeline, there has been some concern about the absorption of rental units, but rents have held steady, hovering in the low $60’s per square foot.

Meanwhile, there has been a dearth of condominiums in and around Greater Downtown Brooklyn. While land prices have risen to the point where rental developments are not feasible, developers have switched gears and are delivering condominiums with sellouts ranging between $1,400 and $1,700 per square foot, markedly higher than $1,100 to $1,300 two years ago. Tishman Spyeyer, Extell and Hudson’s are projected to be bringing around 1,000 units to the area, and expectations are they will be well absorbed.  

Looking ahead, Brooklyn remains a target for institutional investors as they believe in its strong economic fundamentals. We, therefore, expect Brooklyn investment sales volume to grow modestly from lackluster 2017 levels. Investors appear to be approaching 2018 with a firmer grasp of the risks and rewards that today’s market presents, which should translate to more deal flow.

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