The Real Deal New York

Foreigners crossing pond and the river to Brooklyn

Foreign buyers increase presence in Brooklyn

April 01, 2008
By Lisa Abramowicz

Over the past decade, Brooklyn has attracted an ever-growing flood of ex-Manhattanites drawn to its cheaper prices and its continually gentrifying neighborhoods. But now, the borough is attracting a new kind of transplant: the international apartment hunter.

While the vast majority of the foreign investment that has been flooding into the city because of the weak dollar has targeted Manhattan, brokers and analysts say a growing number of foreigners are checking out the city’s most populous borough.

“The pace of the interest by foreign buyers in the outer boroughs is probably double or more than it was a few years ago,” said Jonathan Miller, CEO of real estate appraisal company Miller Samuel.

But, he said, because the concentration of foreign buyers in Brooklyn and Queens is much lower than it is in Manhattan, the growth in the boroughs is less obvious because it’s coming in smaller numbers.

While there are no solid figures detailing exactly how many foreign buyers are picking Brooklyn as an alternative (Miller estimates that about a third of new developments in Manhattan are being purchased by foreigners), anecdotal evidence suggests an uptick of some degree.

Brokers say Europeans comprise the bulk of the foreign real estate buyers in Brooklyn, with residents from the United Kingdom, Ireland and Sweden making the biggest push for property.

“We’re seeing it more than we’ve ever been seeing it,” said Michael Guerra, director of Brooklyn sales for Prudential Douglas Elliman, of the European interest.

In recent months, Guerra said he and other Douglas Elliman agents have worked with a French couple looking to purchase a Brooklyn Heights brownstone as an investment, a Middle Eastern investor who is scoping out multi-family properties to rent out, and an Irish investor who just bought two side-by-side two-bedroom, two-bathroom apartments in downtown Brooklyn for about $2.2 million in cash.

The Irish investor already has renters lined up for the apartments.

Guerra said the most noticeable change is the number of foreigners buying Brooklyn properties purely as investments. He said that phenomenon was rare before the dollar started weakening compared to the euro and Europeans began to gain more purchasing power.

In the past, the Europeans who ventured out of Manhattan typically bought townhouses or spacious apartments in Brooklyn as a way of securing more space for their families — space that they wouldn’t be able to afford on the other side of the pond.

These were buyers who intended to spend time in New York and were familiar
enough with the city to be keyed into
Brooklyn’s heightened status as a hip and trendy destination.

Today, the foreigners, at least the wealthy ones who venture into the popular outer borough as real estate investors, do not necessarily plan to live in their newly acquired properties. They may choose to live in one and purchase others to flip or rent out.

For example, Guerra’s Irish investor already had a pied-à-terre in Brooklyn Heights before purchasing the Downtown Brooklyn apartments.

Robert Levine, president of RAL Companies and Associates, estimated that 10 to 15 percent of buyers at his firm’s properties hail from foreign countries. That includes the buyers at the firm’s sole Brooklyn development, One Brooklyn Bridge Park, which went on sale less than a year ago.

Levine said the percentage of foreigners hasn’t changed much in recent years. However, One Brooklyn Bridge Park and some of the other high-end projects didn’t exist in Brooklyn five years ago.

Also, it’s doubtful that Brooklyn would have attracted attention equal to that of Levine’s Chelsea and Tribeca buildings at that time.

Recently, Levine said, a group of Irish buyers approached him about buying up apartments in the Brooklyn property in bulk — 10 to 20 units at a time. He turned them down due, in part, to their insistence on getting discounts. “We are also not prepared to sell bulk units to investors,” he said.

In some cases, foreigners need not even leave their home cities to find out what’s going in Brooklyn.

As The Real Deal detailed in its January issue, the Daily Telegraph in the U.K. recently ran a story noting that brownstones in Brooklyn are more affordable than those in Manhattan, and that they appeal to British “sensibilities.”

“With their ornate cornices and tall sash windows, they resemble the type of period townhouse which British buyers might covet in London or Bath,” the story said. “It is easy to see why many an English expat would prefer living here to being filed away in the vast anonymous ziggurat that is a typical Manhattan apartment block.”

The story also said that the values of Brooklyn’s property should only increase in the coming years because of the new waterfront development, “which will include a stretch of parkland to rival any in the city,” and because of Atlantic Yards (although this project has now largely been put on hold).

“The scale of these projects is so great that some analysts predict that this region of Brooklyn will become a second Manhattan, giving prices a further boost,” the story said.

Miller likened purchasing a space in new construction to buying a new car with “less variables or unknowns,” a feature that may be attractive to foreign investors.

“If you’re coming into a market that you’re not that familiar with, it makes sense to look at new development,” he said.

If there is one issue that has hindered foreigners’ interest in Brooklyn, other than the prestige of Manhattan, it may be that there are not as many new developments in Brooklyn’s wealthy and more established areas, such as Brooklyn Heights and Cobble Hill.

In those traditional brownstone neighborhoods, there is a lack of new building and a predominance of co-ops, which have more stringent financial standards than condominiums and tend to reject buyers looking for purely investment properties.

While the citywide ratio of co-ops to condos is about 85 percent to 15 percent, the rates in an area like Brooklyn Heights chart in at almost 95 percent to 5 percent, said Ivana Tagliamonte, a senior vice president with Halstead Property.

However, almost all the new buildings going up are condos rather than co-ops.

David Barker, an agent with Citi Habitats, recalled recently working with an Italian couple looking to buy a Brooklyn condo with the aim of renting it out. “If possible, they would have preferred Brooklyn, but they were also uncertain about the rental market,” he said.

The couple ended up buying a space at the Cocoa Exchange in Manhattan’s Financial District because there were more condos available there in their price range. “There are limits to the new construction” in Brooklyn, Barker said.

Tagliamonte added, “I think there’s a certain cachet with having a property in Manhattan that a buyer hasn’t perceived in Brooklyn.”

Still, European investors, especially those who are looking for lower price tags, continue to eye Brooklyn.

Miller noted the character of foreign buyers is changing. While in the 1980s, they generally bought small units and rented them out for a profit, today they are tending toward larger properties that they can rent out to temper their holding costs, while keeping open the option of using the purchase as a second home at some point in the future.

“It’s viewed as a long-term equity play,” he said.

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