Jewel in the Crown: Brownstoner’s Jonathan Butler Invests in BK
Gus Delaporte Aug. 6, 2013, 8 a.m.
After establishing Brownstoner.com and the Brooklyn Flea, Jonathan Butler has expanded his Brooklyn empire into brick and mortar, acquiring 1000 Dean Street in a joint venture with BFC Partners and the Goldman Sachs urban investment group. The 140,000-square-foot commercial building in Crown Heights will open for occupancy on October 1 and is expected to welcome a mixture of artists, technology firms and nonprofits, offering lower-cost office space for Brooklyn’s entrepreneurial class. Mr. Butler spoke with The Commercial Observer outside his office in Dumbo last week, offering insight into his motivation for acquiring the property and his vision for the future.
The Commercial Observer: Why Crown Heights?
Mr. Butler: First of all, I live about eight blocks from the building, in Clinton Hill. One of the interesting things about the location is that it’s Crown Heights, but it’s very far western Crown Heights—it’s almost Prospect Heights. When I was first conceiving of the project and pitching it, I took out a map and drew a concentric circle at a half mile and a mile from the building, and within a mile you hit all these neighborhoods that have been experiencing incredible booms over the past 10 years. You hit Crown Heights, obviously, but you also hit Bed-Stuy, Clinton Hill, Fort Greene, Prospect Heights—you even touch a little bit into Park Slope.
It just struck me that the creative class that has been flocking to Brooklyn is quite entrepreneurial, and there was no hub of commercial office space anywhere out there. In fact, if you start at the East River, at the end of Atlantic Avenue, and you head east from there, there’s really nothing. There’s Dumbo, and Dumbo’s at about 99.5 percent occupancy right now and getting increasingly expensive for small startups and things like that. For me, there just seemed to be an obvious need for it.
Why this building in particular?
Since I live in the area and since I started Brownstoner in 2004, I had my eyes and ears open. This little manufacturing area between Atlantic and Bergen, and, I think, Grand and Franklin, is M-1 zoned. There hasn’t been much investment in the area, and in my mind, it had a lot of potential because of all the stuff going on around it, and it was relatively cheap because it was zoned M-1 and you couldn’t do anything residential with it. This is by far the biggest property over there.
This property came on the market when the market was still quite depressed. It came on the market in 2009-2010 for $14 million, and it sat there. And a year later or so, it had been cut to $12 million.
I had initially not given it much thought because it was so expensive for a first project—it seemed a little ambitious. But, the more I thought about it, oftentimes the larger project is easier to pull off economically because of the economies of scale.
At that time, it priced at about $75 per foot. It’s this beautiful structure, and they don’t make them like they used to. To build it new would have been $200 or $250 a foot, and here it is within a mile of all these neighborhoods, and I knew that from living and breathing Brooklyn that the demand would be there from small businesses and entrepreneurs.
I got the email of the head of the urban investment group at Goldman Sachs and wrote her a short email basically pitching the idea, and she got back to me within an hour, and I was in there talking to her the next week. They were very enthusiastic about it. As part of their mandate—they want to both make money and do good, so I think they very quickly saw the potential for all the job creation that can happen here. I think we are going to end up having 500 people working in that building, whereas when we bought it, it was full of boxes.
What tenants are you targeting?
Targeting is not really the right word. It’s more “build it and see who comes.” I have some ideas who I think the likely audience is, and I think it is people who live within a mile of there and like riding their bikes to work. It’s close enough to Manhattan, but I think the audience is people that live relatively nearby. I think that’s kind of neat, from an economic development standpoint: keeping dollars in the neighborhood.
I’ve been assuming it will be this entrepreneurial, creative class, but I hope it will be an interesting mix. It can become its own ecosystem. If you need a graphic designer, there’s one down the hall. If you need a lawyer, there’s one upstairs. That would be the idyllic way for this all to play out.
Crown Heights has experienced rapid gentrification. What do you attribute that to?
I moved to Clinton Hill in 2004-2005, and I think it’s a similar thing. You’ve got an incredible housing style, and there’s also a very solid, entrenched middle and working class. People that have lived there a long time, that own homes and have a stake in the neighborhood. Those are the people who really did a lot of hard work 10 to 15 years ago, getting Franklin Avenue cleaned up to set the stage for a lot of what’s happened. I think the housing stock and the long-term residents make it a very attractive place to move to.
The connectivity to the rest of the city is pretty good, and you’re also right near the Brooklyn Museum and Prospect Park. When you start to look at it from that perspective, it starts to make a lot of sense.
The thing that held it back for a while was there was a lot of crime, and that’s changed a lot.
Was this opportunistic, or was getting into the real estate business a goal?
I’d actually been in the real estate business. In 1999, I helped put together a deal through a joint venture with Time Equities and bought 125 Maiden Lane with them. I had some experience with this.
It’s funny; I actually wrote a post on Brownstoner about this building a year before I started thinking about it for myself. In that post, I put out my thesis on the area and why it was attractive.
I had the real estate background, and I think success often breeds success. Brownstoner went pretty well and the flea market has been a pretty big success, and that helps open doors and gives people confidence your idea might have some merit.
Do you plan to be involved in the real estate, or is this purely an investment opportunity?
I’m certainly not going to be the property manager. It’s a joint venture with me, BFC and Goldman, and everyone has had a lot of say in how the building has taken shape. But certainly as the one that had the initial vision for the project, I continue to be very involved.
Also, on the marketing side of it, as someone with a media platform at his disposal, I did one post about it, and in that one post, put up a link saying, “if you’re interested in space, fill out this form here,” and I think we got 400 tenant leads from that. The interesting thing about Brownstoner is it has a greater value to do other things than it does as a vehicle to sell advertising. Similarly to when we launched Brooklyn Flea—we did one post about it and 100 vendors signed up in the first two days.
Another important part of the building that was a selling point to the partners of the building is we committed to do a Brooklyn Flea beer hall on the ground floor, because there’s a one-story building on the backside on Bergen that we are in the process of building out to a beer hall with four permanent restaurants for our four most popular vendors.
Right now, a lot of my time—in addition to spending a lot of time on the leasing—is on that piece, because the construction is really starting to kick in on that.
Have you felt any conflict of interest, having covered the neighborhood and now being involved on the property side?
In this case, I gave everyone a year head start. Potentially, I guess one could imagine there could be conflicts of interest. There’s nothing in this case where there have been conflicts, but you could imagine a scenario in which I received a piece of information and didn’t publish it because I wanted to go off and exploit it myself—but that hasn’t happened.
Do you view this as the first project of more to come?
I spent about a year around the millennium supporting myself by writing business plans for other people, and earlier I tried to write a small business plan for Brownstoner. I realized it’s hard to project out more than about three months. Everything I have done since then has been very opportunistic.
At some point it may be revealed that having your fingers in too many pies works against you, but on the other hand, there could be other ventures that come up. I would hope that, if this is successful, there are other real estate opportunities, but there is no master plan.
We opened a flea market in Philadelphia in June, and we are opening in Washington, D.C., in the fall. It’s sort of an experiment, so it may or may not work. There are a whole lot of pieces on the board.
I feel pretty confident this is going to be successful. From a business perspective, the only question is what the market-clearing price is, rather than “Will there be enough demand?”
What are rents going to be?
It will vary on size and things like views, but anywhere from low $20s to high $20s, depending on those factors. Dumbo’s now in the high $30s, so no matter what, it’s going to be a good 30 to 40 percent cheaper. There’s so much demand, it’s not a zero-sum game by any means.
Is there a critical mass on the number of things you can handle at any one time?
First of all, I have a partner in the Brooklyn Flea business, Eric Demby, who pulls a lot of weight. I would say I am approaching the limits of what can be done with a very small staff. I don’t relish the idea of managing a lot of people.
The Flea has a lot of moving parts, but Brownstoner is pretty manageable. We have three full-time writers and a handful of part-time contributors. With the Flea, luckily we have Eric, and we have a full-time operations guy who handles a lot of stuff. I’m lucky I don’t have to spend too much time in the weeds with the Flea.
We are at that moment of introspection where we are trying to figure out what we want our lifestyles to be like and how much we can manage. It is at that point where the next thing could be the straw that breaks the camel’s back.
You recently expanded Brownstoner to Queens. What motivated that? Do you see similar growth happening in Queens that occurred in Brooklyn?
I definitely do. Brooklyn’s no longer the place you move to because it’s cheap. Just pure demographics and economics make the case for Queens, but also I think that, in some ways, Brooklyn’s already shown that the outer boroughs have a lot of interesting things that Manhattan doesn’t have. Queens has so much ethnic diversity and is geographically quite vast. I would say housing stock is, by and large, not as compelling as Brooklyn’s, but Long Island City has clearly taken off. There’s no stopping that.
I think, in the same way people who thought they would only live in Manhattan are considering Brooklyn, people who assumed they wanted to live in Brooklyn are now looking at Queens.
With all of your other ventures, is there anything else on the horizon?
The big thing is opening the flea market in D.C. in September and then the beer hall. In October, the office space of the building should start getting occupied, and then in the first quarter next year is when the beer hall’s going to open. I’m trying to leave my calendar as open as possible for that, because that’s going to be a 9,000-square-foot operation, and I’ve never run a restaurant before.
A year from now, if that’s going well, there will probably be lots of things. I’m sort of an entrepreneurial deal junkie at this point. It’s hard to say never.