Brooklyn’s investment sales market has been steady thus far in 2018, with a noticeable pickup in bidding activity on active listings and contract signings in recent months indicating an increase in sales. Pay particular attention to Fort Greene and Clinton Hill as we anticipate higher transaction and dollar volume and an uptick in pricing.
(From left to right) McNally S. Lee, Director - Investment Sales and Sean R. Kelly, Esq., Senior Director - Investment Sales
New York City’s biggest borough opened the year on solid footing as it was the only sub-market to experience across-the-board gains on a month-over-month basis, with transaction, building, and dollar volume increasing an impressive 44%, 50% and 32%, respectively, according to Ariel Property Advisors’ recently released “Multifamily Month In Review.” To view, click on: http://arielpa.com/report/report-MFMIR-Jan-2018
Whether it be favorable supply/demand dynamics, or the looming shutdown of the L-train in 2019, Fort Greene and Clinton Hill are at the eye of a perfect storm for a surge in real estate investment. With investors’ sights set squarely on the sub-$10 million realm of the market, these neighborhoods are ripe with opportunity as they are comprised primarily of multifamily properties, mixed-use buildings, luxury townhouses, brownstones and brick rowhouses.
The smaller, income-producing properties in Fort Greene – an area named after an American Revolutionary War fort that was built under the supervision of General Greene – and Clinton Hill, both with partially landmarked sections of the neighborhoods, are well-positioned for the reasons listed below.
First, a slew of new investors has emerged over the past 3-5 years. These participants, which includes family offices, principals backed by high net-worth individuals, and operators with institutional capital to deploy, have focused on assets priced between $2 million and $10 million. Many of these firms traditionally would have sought larger, higher priced assets, but fierce competition from institutional investors, private equity funds and pension funds has prompted this transition.
Once overlooked by new entrants, these smaller deals allow investors to execute a business strategy that achieves attractive value-add returns. Well attuned to the Brooklyn market, these buyers can also attain economies-of-scale by purchasing several smaller assets in close proximity to one another, which can lighten the burden on management. Ease of transportation and regions with up-and-coming retail corridors are also firmly on investors’ radar.
Strong Demographics & Favorable Statistics
The percentage of buildings sold with under 10 units in Clinton Hill and Fort Greene leaped to 75% in 2017 from 54.6% in 2015, according to Ariel Property Advisors’ Investment Research Division. During the same time period, the percent of acquisitions made by LLCs surged to 50.0% from 35.4%.
Perhaps the most telling evidence of strong investor demand for multifamily and mixed-use properties in these neighborhoods is pricing, with the median price per square foot fetching $700 in 2017, up 21% from 2015, according to Ariel Property Advisors’ Investment Research Division.
Additionally, Brooklyn neighborhoods that rely heavily on the L-train face some uncertainty when it closes next year. The project is expected to take 18-24 months, but many contend it will take longer. In contrast, Clinton Hill and Fort Greene enjoy copious transportation options, with 98.4% of the residents residing within a half-mile of a subway line. Clinton Hill and Fort Greene have undergone substantial population growth, a key driver of real estate investment, and the closure of the L-train could spur even more growth, which should drive rents higher and bolster property values.
Lastly, long-term ownership, generally an indication of upside potential, either real or perceived, is the norm right now – demonstrated by Clinton Hill and Fort Greene’s relatively low transaction volume compared to other Brooklyn neighborhoods comprised primarily of smaller assets. From 2014-2017, the entire investment sales market in Clinton Hill and Fort Greene experienced only 128 transactions compared to 491 in Bushwick and nearly 300 transactions in Crown Heights.
Looking forward, whether it be favorable fundamentals, or the imminent shutdown of the L-train, properties priced below $10 million in Clinton Hill and Fort Greene are primed to increase in popularity. As opportunistic investments in other Brooklyn neighborhoods become more challenging for small-cap investors to identify, they will be paying increased attention to these neighborhoods, with pricing and volume metrics destined to follow suit.