Shimon Shkury: Hi everyone, this is Shimon Shkury with Ariel Property Advisors, and today I have with me Sean Kelly, my partner in Brooklyn, together with Stephen Vorvolakos, both of which are doing a tremendous amount of business in Brooklyn. Hi Sean, how are you doing?

Sean R. Kelly: Shimon, I am great and excited to dig in.

Shimon Shkury: Excellent, Stephen, how are you?

Stephen Vorvolakos: I'm doing well. Happy to be here.

Shimon Shkury: Awesome. So let's start with the year we are 2023 way behind us, only $5.15 billion of transactions in in Brooklyn overall close to a 50% drop, pretty much in almost every asset class, we'll talk about it, but the development market dropped as well. And we know that development was trading only for certain reasons in Brooklyn and for a lot of different reasons, like the lack of 421a, interest rates, construction costs, all of that stopped to an extent the transactions in land. Sean, what have we seen in developments in Brooklyn, which has been prolific before 2019 and a little bit slower now?

Sean R. Kelly: Yeah, so what we've seen historically is a lot of development sites trade for the development of rental housing. And without a tax abatement developers have little incentive to build rental housing and without a tax abatement, land prices would have to be significantly less expensive and owners are not willing to capitulate because the thought process is that we have a perpetual shortage of housing, rents are skyrocketing. So the legislature is going to have to pass a reasonable abatement. What was interesting though is while we were down 22% year-over-year in dollar volume pricing really stayed steady and increased in some instances. And I'll just give you by way of example, you know, myself, Steve, and our partner Nicole, we sold the development site at 125 3rd Street in the Gowanus. It is not in an opportunity zone, and we sold this for $30 million. It's $300 per buildable foot on a site that requires mandatory inclusionary housing. So it's the highest trade to date on a per buildable basis per development site with mandatory inclusionary housing. And then we had two other transactions in Stephen's core. He and I sold a development site for $525 a buildable foot. It's going to be slated for condominiums or townhouses. And then we had a retail site trade on Smith Street in the Carroll Gardens Cobble Hill area for $525 a buildable foot. So flight to quality and demand for housing in great locations consist consistently.

Shimon Shkury: That's interesting. I mean, 125 3rd I know that had the 421a tax abatement. So the developers are attracted if it's vested already. And you mentioned these are the two that are slated for condo development and we're seeing that across the city. If you have a great location for luxury condos or smaller condos you might find the buyers for that and also for affordable housing development if the city and state cooperates. So that's what's trading today and we're looking forward to seeing if there is a chance for a tax abatement moving forward. Let's talk a little bit about multifamily. I mentioned affordable housing, big year for affordable housing citywide. But you know, we also have rent stabilized housing, which didn't do that great. Free market housing which always does well, but this year because of interest rates was a lot slower, although pricing was okay, but for free market specifically, so what are we seeing in multifamily in Brooklyn specifically? I know we had a drop of more than 50% in terms of transaction volume like we've had throughout the city, but Stephen, what are we seeing in multifamily in general in Brooklyn?

Stephen Vorvolakos: So the multifamily asset class in Brooklyn took a hit just like the rest of the market, mainly due to the regulatory and lending environments that we're in. In 2023, the average price per foot for the asset class was 374 foot, which is the lowest we've seen since 2015. Much of that has to do with the fact that the buildings that are at least 75% stabilized traded at 175 a foot, so that really dragged down that average. But with all that being said, there are very distinct trends in terms of what's driving activity, and I think there is room for optimism moving forward. First, you mentioned affordable housing. That's been a significant driver of this multifamily market, even though things were slow in 2023, we did have a significant portion of multifamily activity that was affordable housing driven. And just as an example, you can look to the $150 million sale of the Sea Park Portfolio on Coney Island that Ariel was involved in. We represented the seller there. That was the second largest multifamily transaction of the year. And then the second real path where activity is picking up is buyers that are continuing to look for smaller tax class protected buildings, primarily free market, that these owners don't have, have to deal with the city, they don't have to deal with rent stabilization. 53% of the multifamily buildings that sold in 2023 were in that category. And, additionally 22 transactions only sold north of 10 million. So you compare that to the previous year, 2022, there were 68 north of 10 million. So you see there's a clear movement towards smaller assets where there's a real value add component. And while a lot of the sentiment I think you'll hear would be negative overall, looking back, I think looking ahead, those two paths are where there clear avenues for value and activity in 2024.

Shimon Shkury: Great insight. Thank you so much Stephen, this is really great, insight. And industrial, we've seen one big transaction that took place there this year, which was super interesting, Sean.

Sean R. Kelly: Yeah. Interesting transaction. You know, we've seen the industrial market really flourish in the last five years. We haven't seen a tremendous amount of volume as, you know, as we've seen in the previous few years because a lot of that product is being built, planned for development, and absorbed. What was interesting is Dov Hertz and his partners would purchase Sunset Industrial Park, I think six or seven years ago, sold a portion of that to FedEx. And it's right along the Sunset Park corridor with really easy access to highways and to Manhattan, which has sort of been the driver for distribution facilities.

Shimon Shkury: Wow. So we, we can talk more and more about Brooklyn, but we don't have a tremendous amount of time. Let's wrap up. Sean let's start with you and Stephen will move to you afterwards. Where do you see Brooklyn moving forward in 2024?

Sean R. Kelly: Yeah, look, I'm excited about the development world, encouraged by the governor's announcement to extend the abatement for the projects that were in process in the Gowanus hoping that extend to other projects. There are some newer rezonings on the horizon, so we do expect the development market to pick up significantly, and hoping that the legislature can pass a tax abatement, so that we can get back to creating housing and housing for everybody. Free market, affordable, low income and middle income.

Shimon Shkury: That's great. Stephen?

Stephen Vorvolakos: Yeah, I think Sean hit the nail on the head with most of the drivers. I think, you know, interest rates are the biggest driver and if they can continue to trickle down, there will be people that are sitting on the sidelines that have been waiting. There's a lot of money sitting there. It just needs to be deployed and I think, you know, at the end of the day, that's what's gonna lead to this kind of snowball effect.

Shimon Shkury: Great. So a lot of good drivers moving forward. It's probably gonna be slower to materialize, but maybe in the second half of the year we'll start seeing some more transactions, maybe some movement on the political side, good movement, hopefully on the political side, and maybe some good movement downwards on interest rates. But thank you both very much. That's been very insightful and we look forward to the next one.

Stephen Vorvolakos: Appreciate it, Shimon.

Sean R. Kelly: Thanks a lot, Shimon.