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Fourth Avenue on slippery Slope

Dominic Tonacchio, one of Fourth Avenue's most prolific developers.

For the last few years, Brooklyn's Fourth Avenue has been billed as the next frontier of gentrification. The addition of new luxury condos, funky restaurants, coffee shops and pubs that have popped up on the six-lane thoroughfare has received intense attention from both Brooklyn apartment hunters and real estate observers.

However, while the city's 2003 rezoning drastically altered the stretch with a raft of new buildings — most of them the maximum allowable height of 12 stories — the type of development on Fourth Avenue is now changing.

Because of the credit crunch, a number of buildings that were initially planned as condos will now come to market as rentals. The frenzied pace of construction of new residential projects should also slow, due to a dearth of easily developable lots.

In fact, development sites on the strip that are actually selling are fetching far less now than they were just a few years ago.

At the same time, critics and real estate blogs have assailed the architecture of some of the avenue's new buildings and lambasted the Department of City Planning for not requiring commercial and retail use on the ground level of the new high-rises. Critics say that move did nothing to make the traffic-heavy avenue more pedestrian friendly (see Retail comes slowly to Fourth Avenue).


Park Avenue postponed

While the effects of today's bearish market are hardly unique to Fourth Avenue, the new market realities mean that a grandiose transformation of the area will likely not be realized at the rapid clip that some had been predicting.

Boosters like Brooklyn Borough President Marty Markowitz, for example, had claimed that the city's upzoning would transform the avenue into "a grand boulevard of the 21st century." One of the avenue's most prolific developers, Dominic Tonacchio, had referred to the boulevard in a Daily News article as "the next Park Avenue."

Tonacchio stands by his comparison. "It's still going to be a better Fourth Avenue than it was," he said. "I still think it's going to be the next Park Avenue."

However, even he is changing his strategy to cope with the new financial situation. While Tonacchio was originally intending a 49-unit condo development at Warren Street and Fourth Avenue, he's decided to go rental with the project, which is nearing completion. He said the units, which will start renting at around $1,800 for a one-bedroom, would "just take too long to sell."

Tonacchio — a partner in the 113-unit Novo on 4th Street and Fourth Avenue and in the boutique Le Bleu hotel across the street — is also partnering with another prolific Fourth Avenue builder, Isaac Katan, on a 108-unit rental that is in the early stages of development on 6th Street.
Note: Correction appended.


Rentals or condos?

Meanwhile, at two other Fourth Avenue sites where construction has recently begun, developers say the decision about whether to take their finished products rental or condo is still up in the air and subject to market forces.

Jean Miele, who's building a 12-story project between Union and President streets, said that "anything can happen" between now and when his building nears completion in about a year and a half.

Yet like Tonacchio, he's remaining optimistic about the avenue's future as a residential enclave. "We're going to have an interesting-looking canyon of buildings here," he said.

Further north on the avenue, developer Shloimy Reichman, who's building a 95-unit, 12-story building at 150 Fourth Avenue with partner Hillel Fischman, said that while they secured an acquisition loan for the condo, the two haven't yet nailed down a condo construction loan.

"Our designs and finishes work as a condo, and if need be, they'll work as a rental, too," said Reichman, adding that the unit mix will lean heavily toward one-bedrooms.


The first wave

Fourth Avenue, which had been dominated by low- to mid-rise tenements, empty lots and auto-body repair shops, has already seen sales, closings and move-ins at several of its finished buildings.

Those buildings include the 68-unit Crest condo on 2nd Street, the Novo and the 59-unit Argyle on 7th Street, which is under construction but has 70 percent of the units in contract.

Meanwhile, a large rental on Baltic Street that was completed about eight months ago is now fully leased, according to its developer.

Nonetheless, there are 10 buildings on Fourth Avenue between Atlantic Avenue and 15th Street that are in some stage of construction and have yet to hit the market. Those projects, observers say, will be under close scrutiny in the coming months.

Gregory Rigas, who developed a 56-unit rental on Baltic Street, a building where rents go from $2,200 to $3,000, also has an eight-unit building on Fourth Avenue and Carroll Street that should start renting soon.

While he's still betting on the corridor, Rigas is more measured than some. "They say it'll be like Park Avenue, but who knows?" he said.

"With the way the market is right now, people don't want to spend $600 to $700 a foot to be on Fourth Avenue," he said of his decision to make his buildings rentals. "We build the right way, and people want to live in our buildings. And we retain the value of the building since we're not selling it."


Doormen and parking

Prices at the Novo, which is the largest condo to hit the market on Fourth Avenue since the 2003 rezoning, have hovered in the $650- to $700-square-foot range. Whether it will be possible to maintain those rates seems doubtful, observers say.

The building, which some residents moved into a few months ago, has been on the market since March 2007, and there were about 20 units still available as of last month.

Meanwhile, a building under construction at 500 Fourth Avenue on 12th Street will soon steal the Novo's thunder as the biggest condo on the strip.

Isaac Katan, who partnered with Tonacchio on the Novo, developed 500 Fourth Avenue and said the 156-unit building will hit the market soon.

Katan said that he and his partners will consider taking the building rental as a fallback. Nevertheless, he's sanguine about its prospects as a condo.

"We'll have Manhattan-style service because it's a large-scale development," he said, noting that the building will have a 24-hour concierge, attended parking, large recreation areas and ground-floor retail. Prices for the building's units had not yet been determined as of last month.

Katan said Fourth Avenue is alluring to developers and buyers alike because of the dearth of new construction in the rest of Park Slope.

"Fourth Avenue is the only section of Park Slope where you can build on a large scale, and there is a shortage of housing in Park Slope," he said. "You can give more amenities at a cheaper cost."

Dan Cordeiro, a senior managing director for Corcoran Sunshine Marketing Group who's led sales for the Argyle condos on 8th Street, said that proximity to Park Slope amenities lured buyers to the development.

"Half of our buyers came from Park Slope," said Cordeiro. "There was always a great deal of skepticism about whether Fourth Avenue was part of Park Slope, but [the easy access to] all the amenities available on Fifth Avenue were [obvious to buyers], because that's where we had our sales office."

Cordeiro said prices at the Argyle have averaged about $730 a square foot.

Still, developers and brokers suggest that the building boom may be nearing its end now.

Kenneth Freeman, a senior sales director at commercial brokerage Massey Knakal, said development site pricing peaked in spring 2007, when parcels were trading for as much as $175 a foot. In 2003, the year of the rezoning, that number was at around $100 a foot, and Freeman said it's back to that level.

"Nobody can get money to do anything right now," he said, citing the end of the 421-a tax abatement as well as the rocky financial climate as reasons for the devaluation of Fourth Avenue land. "And if banks will only finance rentals, you can't pay $175 a foot and have it make sense."

Freeman noted that he can only think of one development site on Fourth Avenue that has sold in the past six months.

Katan said there's likely another reason that there haven't been many development site sales over the past several months.

"Most of the developable sites have been taken," he said. "I don't see that you're going to have much more development to build that doesn't involve demolishing a series of buildings, and that's difficult to do."