Gowanus gets ready

Gowanus is the Williamsburg of 10 years ago. That’s according to one residential broker working in the gritty, up-and-coming industrial Brooklyn neighborhood.  But the area is clearly on the fast track to gentrification, with trendy stores and restaurants like Littleneck clam shack, Fletcher’s Brooklyn Barbecue and the bakery Four & Twenty Blackbirds attracting attention, as well as new retailers like Whole Foods, Dinosaur Barb-B-Que and, yes, the hipster-sounding 40,000-square-foot Royal Palms Shuffleboard Club gearing up to open.

This month, The Real Deal talked to residential and commercial brokers to get a lay of the land in Gowanus, which is sandwiched between the far-more-established neighborhoods of Carroll Gardens and Park Slope and abuts the notoriously polluted canal of the same name.

Those brokers say that Gowanus has seen both speedier sales and a spike in prices in the last year, even though some properties close to the water were affected by Hurricane Sandy. They note, for example, that townhouses are now hitting the market for at least $1 million, whereas last year they had asking prices in the $800,000 range.

But relatively speaking, the area still has little inventory, so the number of sales is low. Developers and investors are, however, betting on the neighborhood and snapping up whatever properties come on the market in the hopes that a proposed (albeit delayed) rezoning, which would allow for more residential housing, eventually gets approved.

“The area is seeing an influx of large developers looking to land bank industrial properties in the hopes of being rezoned to residential or mixed uses in the future,” said Jacob Tzfanya, an associate director at the Brooklyn-based commercial firm CPEX Real Estate.

And there are projects already underway, including the Lightstone Group’s proposed massive 700-unit residential project, which brokers say will only spawn more new construction.

For more on the rezoning, retail prices along the transitioning Third Avenue strip and other upcoming developments, we turn to our panel of experts.

Ruthanne Pigott

president, Brenton Realty

How is overall residential sales volume doing in Gowanus these days, and how does that compare to a year ago, two years ago and during the boom?

Overall residential sales volume in Gowanus is not huge since Gowanus is a small area and there really is not a tremendous amount of residential property. Much of Gowanus is zoned M1-2 [for light manufacturing] even though residential homes already exist in the zone. The difference I see today versus a couple of years ago is there is an excitement about the Gowanus area.

There’s been talk about a possible rezoning of Gowanus to allow more residential projects. If approved, what impact do you think that would have on the neighborhood?

The proposed rezoning would have a tremendous impact on the area. It’s what’s creating the excitement and curiosity about Gowanus. The buyers are educated about the area and most are coming from Manhattan. If the rezoning goes forward, prices will skyrocket.

Which price ranges and housing types are performing best right now in Gowanus?

The prices of houses have increased a lot. A few years ago, houses were priced anywhere from $680,000 to $850,000. Now you would not see a house in Gowanus on the market for under $1 million and most are between $1 million and $1.5 million. That’s a huge jump. Condos are doing well, too. My company recently closed on a 860-square-foot, two-bedroom condo in the Novo at 343 Fourth Avenue for $725,000. The biggest transfers in the last year or so have been for empty warehouses, garages and  vacant lots, all within the M1-2 zone. These properties are trading for about $350 to $550 a square foot. Obviously, they’re being held for future [residential] development in the event the rezoning is accepted.

What are the biggest challenges to selling real estate in Gowanus?

The challenge with some of these properties is that, in a way, you’re selling the future of Gowanus in terms of the proposed rezoning. Right now, in order for a buyer to increase the size of their residential building in the M1-2 zone, they would have to seek a zoning variance. Whereas, if the proposed rezoning were already in place, the buyers would be able to proceed without this extra red tape.

The new Whole Foods, which is slated to open this fall, is obviously going to have a huge impact on this area of Brooklyn. Are you beginning to see any impact on the residential market?

Surprisingly, I’m not seeing the impact of Whole Foods yet. I am usually the one educating the buyers about this development. It seems that Park Slopers are more aware of it than new buyers to the area of Gowanus. But once it’s built and open, I do believe there will be another jump in prices.

How will the Lightstone Group’s planned 700-unit residential project near the Gowanus Canal impact the residential market in the neighborhood?

The project, I believe, may speed up the rezoning. Lightstone got a huge variance to build this project. Many who have bought in Gowanus, and are buying in Gowanus, are going to push for the rezoning so that they can build and extend their own properties. I think it will become too cumbersome, and unfair, for each property owner to seek a variance when a variance has already been given for this huge residential building.

The northern section of Third Avenue in Gowanus has seen the opening of a number of new restaurants and stores lately, such as Littleneck clam shack, Twig Terrariums, Fletcher’s Brooklyn Barbecue and the bakery Four & Twenty Blackbirds. What is the range of retail rents in the area, and how has that changed over the past few years?

Rents for commercial spaces in Gowanus are going up. A couple of years ago, I would say commercial rents were asking about $35 per square foot, and now they are asking about $55. I believe it will continue to grow along Third Avenue, and I think it’s helping to bring attention to Fourth Avenue — which has struggled to attract new restaurants and shops — as an option for retail.

Justin Dower

senior vice president, Ideal Properties Group

Where does the neighborhood stand in terms of gentrification?

The rezoning of Fourth Avenue and parts of Third Avenue four to five years ago started the transition and the peak is coming. The Whole Foods is going to be the badge of completion for that transition, and 40,000 square feet of shuffleboard [at the soon-to-open Royal Palms Shuffleboard Club] won’t hurt either. With Dinosaur Bar-B-Que coming, it’s only a few months, or maybe a year, until we get Starbucks. That will be the culmination of the transition.

Which price ranges and housing types are doing best right now in Gowanus?

The vast majority of Gowanus is comprised of single-, two- and three-family residences — brick and vinyl siding and the very random and rare brownstone. So condos and co-ops aren’t really relevant. Prices are in the $1-to-$2 million range. The multi-family and mixed-use buildings are the hottest commodity in the neighborhood — mixed-use more so. Also, the heartbeat of Brooklyn is its small business owners, and Gowanus, being the Williamsburg of 10 years ago, is attracting a lot of those small business owners. All of these folks are looking to install their business there. If they have the capital, most of them are looking to buy a building rather than paying inflated rents for long periods of time.

How will the Lightstone Group’s planned 700-unit residential project impact the residential market in the neighborhood?

If a major [company] like Lightstone is still willing, after the calamity of Sandy, to go ahead with their plans to build 700 residential units on top of a flood zone, many more investors [will feel safe] doing the same. Having a high-end building along a Superfund site is not going to immediately drive rents up.

Are there any other upcoming residential projects that you think are going to have a large impact on the market?

There aren’t other very large residential projects on the horizon, but a lot of the developers have been reading between the lines as far as the [proposed] rezoning and they’ve built hotels. Investors don’t put up hotels in Gowanus because they are looking to make money on hotel investments; they’re waiting for the rezoning. Once it happens, they can immediately flip these hotel rooms into residential spaces and rentals.

The northern section of Third Avenue has seen the opening of a number of new restaurants and stores lately. What’s the range of retail rents in the area?

Rents have risen 20 percent in the last two to two and a half years. There are still deals to be had on Third Avenue, mainly because a once very unpopulated area is becoming more heavily trafficked. … Many of these tenants — Littleneck, the Pines, Runner & Stone — have to make major investments in the infrastructure of the building. Landlords are willing to accept lower rents to attract that investment and end up with a more valuable space down the road. … Storefronts where high-end businesses already exist are commanding in the area of $50 per square foot and in some cases higher. There is only one way to go and it’s up.

Which parts of Gowanus are doing best and which are struggling the most?

Hurricane Sandy really changed things down toward the canal within flood Zone A. We are experiencing an exodus. A lot of people lost a lot of property and the majority of flood insurance does not cover sea water, only fresh water. The insurance companies are finding loopholes for paying people, and businesses are losing their shirts — even some very large industrial uses. There is a printing company that can’t recover $500,000 in lost equipment and inventory and they are getting out of dodge.

How long are properties staying on the market in Gowanus, and how does that compare to the recent past?

There is a scarce level of inventory and a high level of interest. A lot of properties [are selling] within a couple of weeks of marketing efforts with offers at or over asking price.

What are the most surprising trends you’re seeing in the Gowanus market?

The price per square foot on the rental side. I didn’t think we would be breaking $50 a foot quite so soon; 433 Third Avenue [which Ideal is leasing] is really a benchmark. Getting these sorts of rents in this area two years ago was an impossibility; now it’s quite easy. People have no qualms about paying the same premiums they would in Park Slope.

Eileen Dolan

salesperson, AC Lawrence

How is overall residential sales volume doing in Gowanus these days? 

Gowanus is recovering from the storm and continuing to increase in residential sales this year compared to last year. The area experienced its highest number of residential sales in late 2008.

What’s going on with residential prices in Gowanus these days?

Prices are generally up from last year, with renovated residences leading in growth. The area experienced a spike in sales price in 2006 and 2007, followed by relatively steady progress over the last five years. Depending on the location of the property, some owners are seeing their first decrease in value in many years, although a very small decrease.

Which price ranges and housing types are doing best right now in Gowanus?

Newly constructed townhouses. Smaller apartments are [also] doing particularly well. Condo townhouses with top-drawer renovations are getting excellent prices.

Are there any upcoming residential projects that you think are going to have a big impact on the market?

There is a new luxury residential development of 44 units at Third Avenue and Bond Street.

What are some of the new trends you’re seeing in the Gowanus market?

The new trend is new construction. With new development, the area is no longer a destination for urban pioneers.

Jacob Tzfanya

associate director, CPEX Real Estate 

There’s been talk about a possible rezoning of Gowanus. If approved, what impact do you think that would have?

The proposed rezoning has been in discussion for some time now — whether that will come to fruition is yet to be seen. There are strong lobbies on both sides of the issue. If it does occur, it will tremendously increase the value of those properties rezoned to residential uses. Currently, the area is seeing an influx of large developers looking to land bank industrial properties in the hopes of being rezoned to residential or mixed uses in the future.

Are there any upcoming residential projects that you think are going to have a big impact on the Gowanus market?

Yes. The numerous development projects in construction or in planning on Fourth Avenue as well as the Gowanus Green [a mixed-use project on a brownfield site on Smith and Fifth streets].

What’s the retail rent range in the area, and how has that changed recently?

Retail rents have steadily increased over the past year. The current range of retail rents in Gowanus is from $25 to $40 per square foot, depending on size and location. The past year has seen demand grow exponentially, pushing vacancy rates down.

Ken Freeman

senior vice president of sales, Massey Knakal Realty

How is overall investment sales volume doing in Gowanus these days? 

Last year was a remarkable year for investment sales in Gowanus. I sold the PowerHouse  building, which has sat unused for over 20 years. The former Toll Brothers site went under contract. The Figliolia Plumbing building at 420 Carroll sold. The Verizon parking lot at 300 Nevins sold. Each of those were relatively large transactions for Gowanus, and to have all of them happen in one year was breathtaking. In addition, Whole Foods actually commenced construction and the EPA demonstrated that at some point in my lifetime the Gowanus Canal will be cleaned of toxic sludge.

There’s been talk about a possible rezoning of Gowanus to allow more residential projects. Do you see that happening? If so, how would it impact real estate? 

The Gowanus rezoning is inevitable despite its previous delays. The most likely result is that a new mayoral administration will reevaluate the rezoning and the community will go through a formal process of balancing various interest groups against each other. It will take a long time, but there is too much pent-up demand for it to not happen.

Are you seeing an impact of the under-construction Whole Foods?

I am a believer that Whole Foods will dramatically affect the market. I have watched for eight years as Forest City Ratner planned, then eventually built the Barclays Center. Nothing happened to the surrounding real estate until the moment the arena opened, and then everything became sizzling hot. I think it’s the same with Whole Foods. I think the moment it opens, everyone will want a piece of the surrounding real estate.

Are there any upcoming residential projects that you think are going to have a big impact on the market?

I think if [philanthropist] Joshua Rechnitz follows through and develops the PowerHouse building [into an exhibition center] that will have a major impact on the area. There are enough residential developers sitting on sites that there will be plenty of housing. What will really differentiate the neighborhood is a cultural centerpiece, which is what that project provides. I would also like to publicly request someone build a “Chelsea Piers” on the Gowanus; the neighborhood could use it.

What is the range of retail rents?

I had lunch at Fletcher’s today and heartily endorse the mac and cheese. It’s been great seeing the pioneers populate that stretch of Third Avenue. The quality of those restaurants demonstrates the creative talents in Brooklyn. The appeal of that location is that on Seventh Avenue you need to pay over $100 per square foot for those storefronts; on Fifth Avenue, that number is closer to $80; on Third Avenue it’s $45, which allows more leeway for new businesses.  It will take a rezoning before all the storefronts around there are filled.

Gina Castellano

salesperson, the Corcoran Group

How is overall residential sales volume doing in Gowanus these days?

There were five houses in our listing system that sold last year. As of right now, there are nine houses on the market, so already this year the townhouse market has doubled in the first six to seven weeks. The property I just put on the market got an accepted offer after seven full days on the market, but with [only] five full days of showings. I showed it about 40 times with no public open house and we had six offers — two all-cash — all over the asking price. I can’t tell you that’s an indicator of everything [that’s going on], but that really says something about the amount of inventory on the market. Everybody is after the same property.

What’s going on with prices?

Clearly they are increasing. The [above-mentioned townhouse] is the first property I sold in Gowanus. But all of these houses that are on the market now are well over $1 million. The ones that sold last year were an average of about $880,000. Agents are pricing according to what the market is now because of the inventory.

What sort of changes have you witnessed in Gowanus in the last few years?

My kids go to school [in Gowanus] and when they started in 2007–2008, there was nothing down there. Now you don’t have to cross over Fourth Avenue toward Park Slope or go across the bridge into Carroll Gardens to get something to eat. There’s no longer a void between the two neighborhoods. Now there is Powerplay [Sports Center], Four & Twenty Blackbirds and Fletcher’s Barbeque, among others. On Seventh Street, there’s the Bell House, a big nightclub. I was waiting at my kid’s school and reading Gwyneth Paltrow’s Goop website on my phone and it mentioned ShapeShifter Lab, the experimental music place that I happened to be sitting outside of.  People are now scoping out Gowanus as a destination.