You are here

Rising towers give NY developers sinking feeling

The increasing vacancy rate for the most expensive units in downtown Brooklyn is undercutting the tremendous growth seen over the past decade

BT_20180320_UWBROOKLYN_3357436.jpg
Uncertainty hangs over the roughly 28,400 rental units expected to be built in Brooklyn over the next several years - about a thousand more than all the units built in the past decade, according to real estate consultancy Nancy Packes Data Services.

New York

FROM a penthouse apartment in the Hub, a new 186 m rental tower in downtown Brooklyn that is - for now - the borough's tallest, its developer groused about timing.

"Not early enough," said Doug Steiner on a recent tour, lamenting his firm's belated decision to add a rooftop lounge that is still under construction.

It seemed an odd quibble for a building that has nearly 0.4 ha of finished amenities, including a 23 m indoor pool, a home theatre, cabanas for outdoor grilling and a dog run.

sentifi.com

Market voices on:

About 65 per cent of its 600 market-rate units have leased since last spring, he said.

But one need only look beyond the apartment's floor-to-ceiling windows to glimpse at Mr Steiner's competition.

A construction crew nearby is building Brooklyn's next-tallest tower - 219.5 m in height - by Manhattan developer Extell, which will have a rooftop pool with stunning views.

A few blocks away, developer JDS is laying the groundwork for Brooklyn's first super-tall skyscraper, a residential tower expected to reach 325 m. Both are aiming for completion in 2020.

"It's impossible to know where the market will be when we finish," said Mr Steiner, who decided to add the rooftop lounge halfway through the four-year build. "We want to have everything that everybody else has, and more."

Uncertainty hangs over the roughly 28,400 rental units expected to be built in Brooklyn over the next several years - about a thousand more than all the units built in the past decade, according to Nancy Packes Data Services, a real estate consultancy.

Falling prices

Faced with falling prices, developers are offering concessions such as a month or more of free rent, discounted broker fees and even free parking for a record share of apartments.

While there is still high demand for housing in the borough, New York's most populous, a rising vacancy rate for the most expensive units undercuts the tremendous growth seen over the past decade.

At the lower end, affordable housing lotteries, for the few thousand apartments made available below market rate through the new development, often draw tens of thousands of applicants per project.

Is Brooklyn's moment over? Not likely - but developers are watching the clock.

The rental market, which makes up roughly three-fourths of the borough's housing, peaked in 2014, when units leased for a median US$2,936 a month, according to a Douglas Elliman Real Estate report.

The median rent has since fallen more than 10 per cent, to US$2,632 in February, as existing units vied with new competition.

To grease the skids, developers have ramped up their marketing, often offering concessions to fill units quickly, said Jonathan Miller, an appraiser who prepared the report.

Developers' reliance on concessions "is probably the worst-kept secret in the rental market", said Mr Miller, who found that 47.5 per cent of Brooklyn rentals offered some form of sweetener in February, a record high. In the same period last year, just 15.7 per cent had concessions. On average, renters received the equivalent of 1.4 months of free rent, with most of the concessions on one-year leases, Mr Miller said.

Incentives were most common in three of the borough's most expensive neighbourhoods - Dumbo, downtown Brooklyn and Fort Greene - each of which offered concessions on more than 80 per cent of known leases in January.

The analysis does not capture the whole market, Mr Miller said, because unlike sales, leases are not public record and developers are motivated to keep their numbers close to the vest.

"Developers want to maintain their listing prices and then futz with the numbers behind the scenes," said Paul Johansen, an associate broker with Core Real Estate. "A couple years ago, there were no concessions whatsoever."

That has not deterred builders from moving forward with thousands of new units, most geared towards the luxury market.

In 2017, more than 5,700 rentals hit the market - the most units in a year since 2008, said Nancy Packes, the real estate consultant.

And the future pipeline shows no signs of slowing. About 6,100 units are expected this year, followed by almost 9,600 in 2019.

Ms Packes, whose clients include Brooklyn developers, said that the surge in supply is cyclic, with the glut clearing by 2019 or 2020.

"They're looking at the trees, not the forest," she said about growth sceptics, noting that demand remains strong, fuelled by a strong job market and population growth.

For renters accustomed to Manhattan prices, Brooklyn can still seem like a bargain. After concessions, the median rent price in Manhattan was US$3,168 in February, Mr Miller said; in Brooklyn, it was US$2,632.

Free amenities

Eileen Norton, 28, who works for IBM's Watson Health division, is in a two-year lease at the Hub for a one-bedroom apartment, where she lives with her boyfriend, Kevin Gallagher, 29, an accountant. They effectively pay around US$3,350 a month, after calculating the two free months of rent. (Smaller one-bedrooms started at US$3,000.)

They also received five months of free amenities - including the pool and gym - that typically cost US$75 a month per person.

Almost 90 per cent of the Hub's market-rate apartments are studios or one-bedrooms, and seem geared towards young professionals.

In Manhattan, where she lived for five years on the lower East Side, "I could barely find a one-bed in the same price range, with amenities that could compete," she said.

Her new rental has a washer/dryer and expansive city views. "It's my first apartment in New York with an actual coat closet," she said.

The new supply remains heavily skewed towards luxury apartments.

Overall, New York City had a rental vacancy rate of 3.63 per cent, which qualifies as a housing shortage, according to the city's latest Housing and Vacancy Survey.

New York has remained below 5 per cent rental vacancy since at least World War II, said Moses Gates, director of community planning and design for Regional Plan Association, a nonprofit research and advocacy group.

But in the luxury segment, apartments priced at US$2,500 or more had a vacancy rate of 8.74 per cent, which was "at or approaching" a record high, Mr Gates said.

While the full survey will not be released until summer, there are already signs of a shift at the top of the market, he said.

"We're at or close to an inflection point, same as we were in 2007," he said, referring to the recession, when luxury prices flattened and high-end development stalled.

Still, some developers are testing markets farther afield. In South Williamsburg, the former 11-acre Domino Sugar refinery site includes 325 Kent, where more than half of the 522 units have been leased since last summer.

The waterfront development is about a 15-minute walk to the nearest subway; the copper and zinc structure with a hollow doughnut core, developed by Two Trees Management and designed by SHoP Architects, has studios for US$2,620 up to two-bedrooms starting at US$5,520.

Pablo Marvel, 25, a co-founder of Nova Concepts, a real estate marketing and tech firm that uses drone photography, moved into a studio apartment in the project in September.

"I still feel like people think Manhattan is the epicentre of New York, which is simply not true," he said. While his office is in the nearby Brooklyn Navy Yard, he said that he uses the building's waterfront common areas as a satellite office. Kate Treen, a spokeswoman for the project, said that about 40 per cent of residents work from home.

Enticing renters

To entice renters, the building also offered six to 12 months of free parking, which typically costs US$350 a month, and will begin shuttle service to the nearest subways.

To address the affordable-housing shortage, the city has committed to preserving and creating 300,000 affordable apartments by 2026.

But providing tax breaks to luxury developers to have them build a percentage of below-market-rate units may not be the most effective approach, critics said.

"When you talk about affordable housing, one of the questions is: affordable to whom?" said Bernell Grier, executive director of Impacct Brooklyn, which helps place applicants in the city's affordable housing lottery.

While Brooklyn developers can receive tax breaks to reserve about 20-30 per cent of their units for below-market-rate renters, the resulting mix of units can still be unaffordable to long-term residents.

For instance, at one coming project in Clinton Hill, the "affordable" units are reserved for tenants making 130 per cent of the area median income, which for a two-bedroom apartment could cost more than US$2,700 a month.

For Dawn Trautman, a 45-year-old actor, finding an affordable apartment through the lottery took five years of searching and applications to about 40 buildings.

She first entered the lottery in 2012; two years later, she was considered for an apartment in midtown Manhattan, but because she had difficulty in verifying her income, she was disqualified.

Late last year, she was chosen for an opening at the Hub. After providing three years of income verification and notarised letters from seven previous employers, she qualified for a 17th-floor one-bedroom with a washer/dryer and the same expansive views afforded to market-rate tenants.

Her apartment, reserved for tenants making 60 per cent of the area median income, costs US$895 a month, while similar market-rate units start at US$3,000 a month.

Ms Trautman, who moved into the space in February, said that this will be her first permanent home in New York since 2008.

For years, she has stayed with friends or subletted apartments while pursuing acting and other work outside the city. "It still feels like I'm house-sitting," she said while wrapping up a job in Atlanta. NYTIMES