Brooklyn Condo Boom Cooled by Manhattan-Like Rents – Bloomberg 10-04-13

Salient to Investors:

MNS  said 15,300 new rental units are under construction or planned in the next 2 years for Brooklyn, versus 1,700 planned condos. Developers see rentals as a safer bet in a market where rents are climbing faster than in Manhattan and neighborhoods such as Bushwick, Greenpoint and Crown Heights are gentrifying.

Andrew Barrocas at MNS said Brooklyn condos are more risky compared with rentals as you are getting almost as much money for a fully leased rental building selling it as a whole than you are selling individual condo units in the market. Barrocas said even the greatest condo can lose money when the timing suddenly changes, whereas rentals are a great play and offer steady growth.

Miller Samuel and Douglas Elliman Real Estate said the median apartment rent in Brooklyn was the highest in at least 5 years in August, rising 4.6 percent from a year earlier to $2,850 versus rents gaining 1.8 percent to a median of $3,150 in Manhattan.

Michael Falsetta at Miller Cicero said the condos being built in Brooklyn are smaller, lower-rise properties, as developers shy from large-scale towers that could take years to build and might be finished at a time when mortgage rates are higher and they are more difficult to sell.

In Manhattan, where constructing rentals is less attractive, builders pay $750 per square foot for land; more than the equivalent price for a completed condo in Brooklyn.

Bruce Ratner at Forest City Ratner said Brooklyn is probably the hottest real estate market in the country.

Freddie Mac report the average rate on a 30-yr mortgage is 4.22 percent versus the 6.32 percent average during the past 2 decades.

Real Capital Analytics said purchases of multifamily properties in Brooklyn in 2012 were up 23 percent from 2011 and the most since 2006.

One advantage of developing rentals over selling condos is the ability to benefit from rapidly changing neighborhoods.

Miller Samuel said renting an apartment in North Brooklyn in Q2 the second quarter was 22 percent cheaper on average than renting in Manhattan versus a discount of 32 percent in Q1 2008. Jonathan Miller at Miller Samuel said the perception that you can get more for your money in Brooklyn is being challenged.

Aaron Appel at Meridian Capital said the demand to rent in Brooklyn shows no signs of abating as it evolves into a destination with a separate identity from Manhattan, while there is a long list of people who want to live in Brooklyn no matter what the price is – it took the world 50 years to realize that.

Read the full article at  http://www.bloomberg.com/news/2013-10-04/brooklyn-condo-boom-cooled-by-manhattan-like-rents.html

Click here to receive free and immediate email alerts of the latest forecasts.