Multifamily Had the Most Sizzle in Brooklyn CRE in 2011

By Dees Stribling, Contributing Editor

New York—Like in much of the rest of the country, Brooklyn has excited the interest of investors on the hunt for multifamily properties. According to Ariel Property Advisors’ recently released “Brooklyn Year-End Sales Report 2011,” a bit more than half of the borough’s CRE investment activity by dollar volume for the year involved multifamily assets.

Brooklyn saw 377 CRE transactions in 2011 consisting of 562 properties and totaling about $1.8 billion, according to the report. Of those, Brooklyn’s multifamily asset class recorded 223 transactions consisting of 285 buildings sold for an aggregate of $925 million. Multifamily activity thus accounted for 51 percent of the area’s total dollar volume.

In fact, the borough’s multifamily market was the most robust CRE sector, with cap raps within the range of 6 percent to 7 percent. Prices for multifamily assets in the Downtown/Park Slope area were the highest in the borough, reaching on average $300 per square foot, noted the report. Williamsburg closely followed at $265 per square foot and Southern Brooklyn tallied $180 per square foot.

Brooklyn condos traded at an average price per square foot of $664 in 2011, according to the report. That’s mainly because the majority of the transactions took place Downtown and in Park Slope, the higher-priced areas of the borough.

Overall, residential rents in the borough were up. The areas that saw the highest increase were the ones with the highest number of free-market apartments: Downtown/Park Slope and Williamsburg/Greenpoint. Rents in these areas were at or above $30 per square foot, in contrast to the rents for rent-stabilized buildings, which averaged around $18 per square foot.

Jonathan Berman, vice president of Ariel, posits that Brooklyn is emerging from the shadow of Manhattan as a place to live, sparking the invest of residents and investors alike (GQ magazine, for its part, called the borough “The Coolest Place to Live in the World.”)  The trend is particularly evidenced by the large number of transactions in the Bedford-Stuyvesant /Bushwick/Crown Heights area, the ongoing transformation of the area surrounding the Barclays Arena, and some institutional multifamily and development sales in Williamsburg and Greenpoint, according to Berman.

“We are seeing a wide variety Brooklyn multifamily investors today,” Berman tells MHN. “Most of them are experienced owner/operators of Brooklyn multifamily buildings who are expanding their portfolio throughout the borough. Also, just like Manhattan-centric restaurants like Shake Shack are moving to Brooklyn, real estate investors that have traditionally sought properties in Manhattan below 96th Street are increasingly looking to Williamsburg, Downtown Brooklyn and similar areas for their next investment.

Berman adds that international capital is also coming into Brooklyn but the majority of it is being deployed through local, experienced operators. “Also, banks have are eager to finance multifamily deals,” he says. “At the right price, sellers can expect multiple bids for Brooklyn multifamily assets as demand for such assets significantly exceeds supply.”

For instance, the Williamsburg/Greenpoint area continues to show its strength, notes Berman. In 2011, 173 Kent Avenue was sold by Equity Residential for $73 million to an institutional buyer. Warehouse 11, a condo property that had a brush with foreclosure, went on to have all of its remaining units sold out. While the Williamsburg and Greenpoint areas still have a significant number of stalled developments, it’s just a matter of time until they’re restructured and recapitalized, especially as residential inventory declines, he says.