No Sleep Till Brooklyn
Gus Delaporte Oct. 8, 2013, 6 a.m.
When the Jehovah’s Witnesses began putting its portfolio of 35 buildings on the block in 2004, even the most seasoned real estate observer couldn’t have predicted that one of the winning bidders of a sprawling six-building complex in Dumbo would be Aby Rosen.
Known primarily as the owner of the Seagram Building and Lever House, two of the most iconic examples of mid-century modernism in Manhattan, Mr. Rosen and RFR Realty seemed unlikely suitors for a 1.2 million-square-foot compound in Brooklyn.
But similar to his cultivation of private equity and hedge fund tenants prior to the economic collapse, Mr. Rosen once again is tapping into New York City’s most exciting new business community–the rapidly expanding tech sector in Brooklyn.
“You’re seeing a lot of start-ups–tech and creative–and that’s the result of the last five years where prices in Midtown South are going up substantially,” said Tom Conoscenti, director of commercial leasing at Two Trees, one of several companies that bid on the site earlier this year. “The tenant base has dramatically changed in the past 10 years.”
But Mr. Rosen isn’t the only nationally recognized real estate investor to have recently explored buying property across the East River. From Taconic Investment Partners, which also bid on the Watchtower property, to Midtown Equities, which the city tapped in September to redevelop seven adjoining 19th-century warehouses nearby, developers better known for projects in Manhattan–not to mentioned nationwide–are lining up to capitalize on Brooklyn’s burgeoning creative class and rising property values.
And while artists began migrating to Williamsburg, Greenpoint and other neighborhoods more than a decade ago, only recently have some of the country’s largest landlords entered a market dominated primarily by single-family owners and small-scale investors.
Despite perceived value in comparison to Manhattan, prices in Brooklyn have escalated, motivated in no small part by the borough’s increasing popularity with developers.
Land prices topped out at approximately $150 per square foot in Brooklyn prior to the market collapse–when 421-a tax exemptions were still prevalent, according to data from CPEX. Today, land in Williamsburg can sell for as much as $300 per square foot, with prices in Park Slope and Downtown Brooklyn reaching $250 and $175 per square foot.
Williamsburg, labeled an “appendage of Manhattan” by some, is largely credited as being the catalyst for Brooklyn’s emergence on the radar of developers.
“Brooklyn really came into its own through Williamsburg taking off coming out of the recession,” noted Kevin Davis, chief investment officer at Taconic, which recently developed residential housing in East New York and is currently seeking property in Williamsburg, among other areas of the borough. “That really put Brooklyn on the map.”
The growing potential for commercial space in Williamsburg is most evident in Two Trees Management’s acquisition of the former Domino Sugar Factory for $185 million last year. The company, better known for projects in Dumbo, has initiated a development plan that stands to triple the amount of office space in Williamsburg, housing between 3,000 and 4,000 office workers in more than 600,000 square feet of space.
Throughout Brooklyn, projects of interest run the gamut across residential, commercial and multifamily sectors, and it may not be long before a commercial ground-up development is pursued in Brooklyn, some analysts predict.
The six-building Watchtower portfolio, which sold to RFR in partnership with Kushner Companies for $375 million in July, has been earmarked as potential office space for tech companies as part of the Brooklyn Tech Coalition’s efforts to promote Brooklyn as a national tech hub.
“These properties feature large, creative office space right in the heart of the growing Brooklyn tech triangle,” said Jared Kushner, chief executive officer of Kushner Companies, in the statement at the time of the sale’s announcement. “We look forward to playing a key role in the continued improvement of the neighborhood and advancement of the market,”
Mr. Kusher owns the Observer Media Group, which publishes The Commercial Observer. Both Kushner Companies and RFR Realty declined to comment further on the deal.
The Brooklyn Tech Triangle, which includes Downtown Brooklyn, the Brooklyn Navy Yard and Dumbo, is slated for increased development in the coming years. Over the past decade, the area has seen $5.2 billion spent on creating 1.5 million square feet of retail, 332,000 square feet of office space and 12.8 million square feet of development, according to the Brooklyn Tech Triangle Coalition.
“I don’t think you’ve ever seen as much interest in the Downtown Brooklyn area for development as you have in the last five years,” said Mr. Conoscenti, formerly of the Downtown Brooklyn Partnership. “Tech tenants and creative tenants want to be in Brooklyn.”
Earlier this month, in nearby Brooklyn Bridge Park, Midtown Equities–with roots in Brooklyn but a portfolio that includes the 99-year leasehold on the World Trade Center–was awarded the Empire Stores development project. The reclamation project stands to create 380,000 square feet of commercial and retail space in Civil War-era warehouses along the Fulton Ferry Waterfront. Already, the developer has inked Dumbo-based home furnishings brand West Elm to a 20-year lease for 150,000 square feet at the property.
“Speaking as a Brooklyn native who raised my family in the borough, it is an honor for my firm to be chosen for the redevelopment of the Empire Stores, the most desirable waterfront property in all of Brooklyn,” said Joe Cayre, chairman of Midtown Equities.
Elsewhere, Chelsea Market-owner Jamestown Properties is spearheading a partnership that has snapped up 6 million square feet in Sunset Park’s Industry City with an eye toward attracting the creative class.
The developer’s Industry City project will tap into the changing face of manufacturing, according to Andrew Kimball, the project’s chief executive officer and former chief executive at the Brooklyn Navy Yard. MakerBot, the 3-D printing company that took 55,000 square feet at Industry City earlier this year, is a prime example.
“They’re clearly manufacturing something, but, when economists classify them, they’re listed as a tech company,” Mr. Kimball said.
Given the large commitment by such an established name, it is expected that Sunset Park will see an increasing amount of interest. “You will see a huge push in Sunset Park because of the Jamestown deal,” Mr. Kelly predicted.
Infrastructure is a key component to the interest in Brooklyn. With transportation abundant in a number of areas in the borough, particularly in Downtown Brooklyn, Manhattan is easily accessible.
“What makes Brooklyn different is you have great public infrastructure mixed with private investment,” Mr. Conoscenti said. “That is really taking things to the next level.”
Doing business in Brooklyn brings its own challenges, particularly with the small-scale family ownership that is pervasive in much of the borough.
“It is more of Wild West environment,” noted Chris Havens, commercial director at aptsandlofts.com. “There is less protocol and rules that people adhere to.”
The tide, however, is changing, as an increasing number of established developers enter the fray.
“You can run into owners of properties and sites more often in Brooklyn that are families that ran a business on the site and that can complicate the sale process,” Mr. Davis said. “There are some unique characteristics, but if anything it has institutionalized.”
Indeed, there are even some advantages to working in Brooklyn instead of Manhattan. Borough President Marty Markowitz’s involvement in the borough’s resurgence is highlighted as especially advantageous, particularly his involvement in the approval of rezoning parts of Williamsburg and Downtown Brooklyn, among other neighborhoods that benefitted from Michael Bloomberg’s focus on land use since being elected mayor in 2001. Come to Brooklyn and find a community eager to help is the message.
“Brooklyn is very much a small town; there are a number of resources in the neighborhood,” Mr. Conoscenti said. “People like that feeling. It makes you feel welcome. I don’t think you get that type of service in Manhattan.”