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INSIGHTS | Crown Heights: The Crown Jewel Of Real Estate Investment in Brooklyn
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Crown Heights: The Crown Jewel Of Real Estate Investment in Brooklyn

July 20, 2017 – By Jonathan Berman, Director - Investment Sales; and Brett Campbell, Senior Analyst, Ariel Property Advisors

The Brooklyn real estate investment market is currently transitioning from record sales in 2015, but energy abounds in Crown Heights, where major transformations, copious trans-portation options and relative affordability have spurred strong demand for multifamily assets by real estate investors.

(From left to right) Jonathan Berman, Director - Investment Sales and Brett Campbell, Senior Analyst

Historically a swanky neighborhood that catered to the elite, Crown Heights has blos-somed into an eclectic enclave as diverse as New York City itself. Spanning from Washington Avenue on the west to Ralph Avenue on the east, the region has evolved dra-matically over the years, due largely to a con-stant inflow of residents from other areas of Brooklyn, according to an upcoming Crown Heights Neighborhood Report by Ariel Property Advisors.

The neighborhood boasts quintessentially Brooklyn architecture, a reminder of its early 20th century upper-class background. While elegant turn-of-the-century brownstones and pre-war multifamily buildings decorate many of the tree-lined streets, a deluge of modern developments have altered the landscape.

In the first six months of 2017, Crown Heights saw 25 transactions totaling $912 million in sales, a 32 percent and 53 percent decrease from the second half of 2016, the report shows. Nevertheless, the neighborhood has been one of the most transactional in New York City. To that end, the region of Crown Heights, Bedford Stuyvesant and Bushwick accounted for 23 per-cent of all transactions in the 1H17, more than any other region of Brooklyn.

Since Crown Heights was initially settled as a residential community for the upper class, building stock is dominated by one-to-three-family townhouses. After townhouses, multi-family buildings, properties with five or more units account for 27 percent of the total build-ing stock. These two categories comprise over 85 percent of the buildings, reflecting the dom-inance of the residential asset class, the report shows.

Multifamily property prices in Crown Heights mirrored Brooklyn's overall trend, with the average price per square foot in 2016 increasing 19 percent to $357 per square foot year-over-year. This appreciation is indicative of investors’ confidence in the neighborhood’s growth and stability. While prices have come down this year, they remain significantly above where they were several years ago.

Nevertheless, the Brooklyn investment sales market has cooled since 2015, which was a record-setting year for investment sales in New York City. In the first half of 2017 there were 570 transactions totaling $3.58 billion in gross consideration, according to Ariel Property Advisors’ recently released “Multifamily Quarter In Review 2Q 2017.” These figures represent an 8 percent decrease in transactions and an 11 percent drop in dollar volume versus the second half of last year.

Prime Destination For Developers

The Brooklyn real estate development mar-ket also slowed in the first half of the year, but activity is poised to pick up due to the recent reinstatement of the popular New York state 421-a tax incentive program. From January through June, the borough saw 148 develop-ment transactions totaling $1.04 billion, down 12 percent and 41 percent from the second half of 2016. Pricing, meanwhile, remained rela-tively stagnant with the average price per buildable square foot falling just 5 percent to$249 during the same period.

Crown Heights registered 5 transactions totaling $47.9 million, with the average price per buildable square foot falling 16 percent year-over-year to $204.

The expiration of the 421-a tax abatement more than a year ago dampened demand for new development projects throughout New York City, with the downturn in Brooklyn particularly pro-nounced. However, in April, New York state law-makers revived 421-a, calling it “Affordable New York,” as part of the state’s $163 billion budget. With the return of 421-a, developers are expected to start building some of the projects that were put on hold over the past year.

Indeed, developers are planning or currently embarking on large-scale projects, which will add hundreds of units to the housing stock and entice new residents to Crown Heights.

Meanwhile, the looming shutdown of the L-Train in 2019 for a 15-month period essentially assures an influx of new residents to Crown Heights in the years ahead as the area has plenti-ful transportation options. The 2, 3, 4 and 5 trains all pass through the neighborhood, and the Franklin Avenue Shuttle runs from Prospect Park to Fulton Street. Most areas of Crown Heights closely parallel that within areas of Bushwick along the L-Train, putting it at a strong advantage during this construction period.

In addition, Crown Heights’ relatively lower rent should continue to lure new residents. According to an analysis by StreetEasy, Crown Heights has a median asking rent of $2,266, compared to $2,495 in Bushwick, a 9 percent discount.

Looking ahead, while the commercial real estate market in Brooklyn is more uncertain that it has been in recent years, Crown Heights remains a beacon of opportunity. The area’s architectural beauty, wealth of transportation, as well as its close proximity to significant landmarks and amenities — including Prospect Park, the Brooklyn Botanical Gardens and the Brooklyn Library — should continue to lure residents to the neighborhood, all but guaran-teeing a strong commercial real estate market.

This article was also published in Brooklyn Eagle.

More information is available from Jonathan Berman at 212.544.9500 ext.20 or e-mail jberman@arielpa.com.

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The information contained herein has either been given to us by the owner of the property or obtained from sources that we deem reliable. We have no reason to doubt its accuracy but we do not guarantee the accuracy of any information provided herein. As an example, all zoning information, buildable footage estimates and indicated uses must be independently verified. Vacancy factors used herein are an arbitrary percentage used only as an example, and does not necessarily relate to actual vacancy, if any. The value of this prospective investment is dependent upon these estimates and assumptions made above, as well as the investment income, the tax bracket, and other factors which your tax advisor and/or legal counsel should evaluate. The prospective buyer should carefully verify each item of income, and all other information contained herein.