As Brooklyn Towers Soar, a Sinking Feeling for Developers

As Brooklyn Towers Soar, a Sinking Feeling for Developers

The rental market, which makes up roughly three-fourths of the borough’s housing, peaked in 2014, when units leased for a median $2,936 a month, according to a Douglas Elliman Real Estate report. The median rent has since fallen more than 10 percent, to $2,632 in February, as existing units vied with new competition. To grease the skids, developers have ramped up their marketing, often offering concessions to fill units quickly, said Jonathan J. Miller, an appraiser who prepared the report.

Developers’ reliance on concessions “is probably the worst-kept secret in the rental market,” said Mr. Miller, who found that 47.5 percent of Brooklyn rentals offered some form of sweetener in February, a record high. In the same period last year, just 15.7 percent had concessions. On average, renters received the equivalent of 1.4 months of free rent, with most of the concessions on one-year leases, Mr. Miller said.

The incentives were most common in three of the borough’s most expensive neighborhoods — Dumbo, Downtown Brooklyn and Fort Greene — each of which offered concessions on more than 80 percent of known leases in January. The analysis doesn’t capture the whole market, Mr. Miller said, because unlike sales, leases are not public record and developers are motivated to keep their numbers close to the vest.

“Developers want to maintain their listing prices, and then futz with the numbers behind the scenes,” said Paul Johansen, an associate broker with CORE Real Estate. “A couple years ago, there were no concessions whatsoever.”

That hasn’t deterred builders from moving forward with thousands of new units, most of them geared toward the luxury market. In 2017, more than 5,700 rentals hit the market — the most units in a year since 2008, said Nancy Packes, the real estate consultant. And the future pipeline shows no signs of slowing: About 6,100 units are expected this year, followed by almost 9,600 in 2019.

Ms. Packes, whose clients include Brooklyn developers, said the surge in supply is cyclic, with the glut clearing out by 2019 or 2020. “They’re looking at the trees, not the forest,” she said about growth skeptics, noting that demand remains strong, fueled by a strong job market and population growth.

For renters accustomed to Manhattan prices, Brooklyn can still seem like a relative bargain. After concessions, the median rent price in Manhattan was $3,168 in February, Mr. Miller said; in Brooklyn, it was $2,632.

Eileen Norton, 28, who works for IBM’s Watson Health division, is in a two-year lease at the Hub for a one-bedroom apartment, where she lives with her boyfriend Kevin Gallagher, 29, an accountant. The couple effectively pays around $3,350 a month, after calculating the two free months of rent. (Smaller one-beds started at $3,000.) They also received five months of free amenities — including the pool and gym — that typically cost $75 a month, per person. Almost 90 percent of the Hub’s market-rate apartments are studios or one-bedrooms and seem geared toward young professionals, which could explain why the children’s playroom was impeccably clean, and empty, on a recent tour.

Photo

325 Kent, a 522-unit rental building in South Williamsburg designed by SHoP Architects.

Credit
Adrian Gaut

In Manhattan, where she lived for five years on the Lower East Side, “I could barely find a one-bed in the same price range, with amenities that could compete,” she said. Her new rental has a washer/dryer, expansive city views and welcome perks, she said: “It’s my first apartment in New York with an actual coat closet, which is amazing.”

In spite of high demand for Brooklyn housing, the new supply remains heavily skewed toward luxury apartments. Overall, New York City had a rental vacancy rate of 3.63 percent, which qualifies as a housing shortage, according to the city’s latest Housing and Vacancy Survey. New York has remained below 5 percent rental vacancy since at least World War II, said Moses Gates, the director of community planning and design for Regional Plan Association, a nonprofit research and advocacy group.

But in the luxury segment, apartments priced at $2,500 or more had a vacancy rate of 8.74 percent, which was “at or approaching” a record high, Mr. Gates said. While the full survey, including a breakdown of Brooklyn vacancy rates, will not be released until summer, there already are signs of a shift at the top of the market, he said.

“We’re at or close to an inflection point, same as we were in 2007,” he said, referring to the recession, when luxury prices flattened and high-end development stalled.

Still, Brooklyn is sprawling, and some developers are testing markets farther afield. In South Williamsburg, the former 11-acre Domino Sugar refinery site includes 325 Kent, where more than half of the 522 units have been leased since last summer. The waterfront development is about a 15-minute walk to the nearest subway; the copper-and-zinc structure with a hollow doughnut core, developed by Two Trees Management and designed by SHoP Architects, has studios for $2,620 up to two-bedrooms starting at $5,520. (A leasing fact sheet on the premises recently offered a reduced rent, based on two months free for a 14-month lease.)

Pablo Marvel, 25, a co-founder of Nova Concepts, a real-estate marketing and tech firm that uses drone photography, moved into a studio apartment in the project in September. “I still feel like people think Manhattan is the epicenter of New York, which is simply not true,” he said. While his office is in the nearby Brooklyn Navy Yard, he said he uses the building’s waterfront common areas, complete with Ping-Pong and pool tables, as a satellite office. Kate Treen, a spokeswoman for the project, said about 40 percent of residents work from home.

To entice renters, the building also offered six to 12 months of free parking, which typically costs $350 a month, and will begin shuttle service to the nearest subways. (L train service will end for more than a year beginning in 2019.)

In Red Hook, a neighborhood along the East River that lacks direct subway access, the developer Sanba has built a 22-townhouse complex of four-bedroom homes ranging in price from $2.95 million to $3.41 million. After a year and a half, the development, called King and Sullivan, has three remaining houses for sale, asking more than $1,100 a square foot, a record for the neighborhood, said Mr. Johansen, the CORE agent who is selling there.

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