By Jonathan Berman
Vice President Ariel Property Advisors
Brooklyn’s real estate market recovery continued to gain steam during the first half of 2012, according to our firm’s recently released Brooklyn 2012 Mid-Year Sales Report.
Our research shows that during the first six months of this year Brooklyn saw 219 transactions comprised of 303 development, multifamily, industrial, and other commercial properties totaling $1.14 billion in gross consideration. This represents a 77 percent increase in dollar volume, a 33 percent increase in transaction volume and a 24 percent increase in building volume compared to the first half of 2011, which saw 165 transactions comprised of 245 properties totaling $645.6 million in gross consideration.
Although the first quarter 2012 figures are modestly down from the second half of 2011, if this year’s activity continues as we expect, we are on course to complete about 450 transactions which will trade for around $2.5 billion. These numbers would represent a year-over-year increase of 20 percent in transaction volume and a 40 percent increase in total dollar volume.
This recovery is being driven by a variety of factors, notably the drastically improving rental market, today’s low interest rates, and increasingly favorable macro economic conditions. Highly desirable and more up and coming areas are reporting rent increases of 10 percent. This is not only coming from commuters priced out of Manhattan but also a greater number of young professionals and families simply drawn to the borough’s quality of life.
These factors are driving several major trends in Brooklyn. First, institutional capital is now paying Manhattan level prices for core Brooklyn assets. Such assets, like the recent sales of 111 Kent Ave., which sold for nearly $800 per square foot, and 204 Huntington St., which reportedly traded for under a 5 percent cap rate. Tremendous demand and a tight supply of multifamily buildings are leading cap rates to fall — quickly. Banks are offering historically low interest rates and while their loan-to-value ratios are not as generous, many buyers are willing to pay a premium for the upside, even if it means they need to contribute more equity.
Another major trend is occurring in the development market for rental units. While condominium prices are somewhat stagnant, investors are seeing such significant gains on rentals that many are opting to build ground up or convert existing buildings for that use. Development sites are selling in several core, high demand areas such Williamsburg / Greenpoint where 14 development properties sold, Downtown and Park Slope with 34 development properties sold, and Bedford-Stuyvesant and Bushwick with 14 development properties sold. Even South Brooklyn is on pace to see a significant increase in new development property sales this year.
Many macro-economic events cited as threats in our last report have subsided for the time being. Sluggish global growth has kept a lid on oil prices and the Euro crisis seems under control at the moment. All eyes in the second half will be on the results of the election and its consequences on tax policy. Despite this, we expect modest growth throughout the remainder of the year.
A full copy of the report is available on our website at arielpa.com/research/reports.
Ariel Property Advisors is a New York City investment property sales firm with an expertise in the multifamily market. The firm also produces a number of research reports including the Multifamily Month, Quarter, and Year in Review: New York City reports, and the Northern Manhattan, Brooklyn, and Bronx Sales Reports. More information is available at arielpa.com.