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Multifamily and development sales push investment property transactions to new heights

Photo caption: Jonathan Berman. Photo via Ariel Property Advisors

Ariel Property Advisors

Robust multifamily and development site sales pushed Brooklyn’s investment property transactions to new heights in 2013, Ariel Property Advisors’ Brooklyn 2013 Year-end Sales Report shows.

Brooklyn saw 1,047 transactions comprised of 1,388 properties totaling $4.052 billion in gross consideration in 2013, a 31 percent increase in transactions and 30 percent increase in properties sold compared to 2012. There was a slight 4 percent year-over-year decline in dollar volume, however, largely because there were fewer high value institutional deals in the borough during the year.

The multifamily sector dominated Brooklyn’s investment property sales market in 2013 capturing 63 percent of the borough’s transactions and 47 percent of the dollar volume, while development sites followed with 29 percent of the transaction volume and 45 percent of the dollar volume.

Multifamily transactions jumped 44 percent year-over-year to 657, the number of properties sold increased 36 percent to 760, and the dollar volume of those trades rose 29 percent to $1.9 billion.

Historically low interest rates combined with average rents that increased 10 percent from December 2012 to December 2013 brought multifamily investors to Brooklyn searching for value beyond the marquee neighborhoods of Downtown Brooklyn, Park Slope, and Williamsburg and into other areas like Bushwick, Bedford-Stuyvesant and Crown Heights.  

Crown Heights, where residential rents have been rapidly rising in recent years and investors have been driving prices higher, experienced a strong spike in multifamily transactions over $1 million with 52 transactions totaling $173 million in 2013.

The demand for product put upward pressure on multifamily pricing and resulted in borough-wide average cap rates falling to 5.75 percent in 2013 from 6.95 percent in 2012, and borough-wide average gross rent multiples increasing to 11.24 from 9.26. High-end submarkets in Brooklyn are commanding capitalization rates and rent multiples on par with Manhattan prices.

Notable multifamily trades for the year included the sale of a 130-unit building at 110 Green Street in Greenpoint for $72 million, which translates to $415 per square foot and $553,846 per unit, and the sale of a 51-unit building at 202-204 8th Street at 4th Avenue in Gowanus for $37.75 million, or $669 per square foot and $740,196 per unit.

Development site transactions in Brooklyn increased 22 percent year-over-year to 301, the number of properties traded rose 35 percent to 520, and the dollar volume of the trades jumped 45 percent to $1.8 billion.

Plans for new residential and office developments were announced throughout the year as developers tried to keep pace with the growing borough, which has seen its population increase by more than 94,000 since 2001 to a record high of 2,565,000, and private sector jobs rise by more than 78,700 since 2002 to above 484,000.

Williamsburg continued to solidify its reputation as Brooklyn’s strongest sub-market and with 40 development transactions comprised of 74 properties totaling $284 million, more development activity than any other neighborhood.  Several new initiatives advanced in 2013, such as the Domino Sugar residential/office development that received nods from the community board and borough president, and a new waterfront residential project at 50 North 5th Street.

The borough’s largest development transaction was the $240 million sale of five Watchtower buildings in DUMBO to a group of investors planning to convert the buildings into a hub for tech companies.  Additionally, the Lightstone Group purchased an assemblage along the Gowanus Canal for $33 million and started construction on a 12-story, 700-unit mixed-use rental complex.  Another notable sale was a development site at 177 Front Street in Vinegar Hill, which sold for $30.6 million, or $204 per buildable square foot.

Emerging areas such as Bushwick and Bedford-Stuyvesant have seen prices for development sites sharply increase, trading for more than double the 2012 average price per buildable square foot in certain instances.

The continued success of the Barclay’s Center Arena, which in its first full year of operation generated more ticket sales than any other arena in the United States, contributed to increasing property values and rising retail rents in surrounding neighborhoods such as Boerum Hill, Park Slope, and Prospect Heights. Retail rents in the area have risen rapidly from the mid-$50’s per square foot to levels approaching $200 per square foot. In May 2013 Thor Equities closed on a nine-building package of mixed-use properties on Atlantic Avenue known as Atlantic Gardens for $23 million after having been sold only two years earlier for roughly $11 million.  

For more information please contact 212-544-9500 or jberman@arielpa.com.  For a copy of Ariel Property Advisors’ Brooklyn 2013 Year-end Sales Report, please see http://arielpa.com/research/reports/.

January 28, 2014 - 3:00pm


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