The Real Deal

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Merry-go-round stops in Kensington

Warren Shaw in front of 22 Caton Place in Kensington, which is located next to his residence.

Two years ago, the Windsor Terrace/Kensington section of Brooklyn was one of the brightest spots in the emerging Brooklyn real estate market.

The neighborhood was fast becoming a magnet for writers, artists and growing families priced out of more established areas such as Park Slope and Brooklyn Heights.

However, the wave of speculative residential development that started in Windsor Terrace/Kensington during the boom has now been stopped in its tracks by the squeeze on lending. The financial meltdown has — at least for the near term — left several half-built condos and empty lots in its wake.

"This neighborhood is very much the victim of speculative development gone bad," said Warren Shaw, president of the board of directors at 81 Ocean Parkway, a co-op building that has a stalled development across the street from it and an empty lot next door.

Until the credit crunch hit, developers had zeroed in on a seven-square-block area in Kensington bounded by Fort Hamilton Parkway to the north, Coney Island Avenue to the east, Caton Avenue to the south and Ocean Parkway Service Road to the west. One of the most visible problem developments in that locale is 23 Caton Place, where developer Moshe Feller had planned on building a luxury condo that neighbors felt was out of character with the community.

The 107-unit Karl Fischer-designed condo, which was dubbed "Caton on the Park," now sits half finished. The developer ran into financial trouble, and the Department of Buildings issued a stop-work order in April after construction workers walked off the job.

In June, Chicago-based Corus Bank filed suit in New York State Supreme Court after the developer defaulted on a $32.5 million loan. (Feller had previously filed a motion to prevent Sagecrest II, a Greenwich, Conn.-based mezzanine lender, from selling its interest in the property; Sagecrest filed Chapter 11 bankruptcy in August.) Lawyers for Feller were not immediately available for comment.

Corus Bank, for its part, declined comment.

Cindy Whiteside, a senior associate salesperson at the Corcoran Group and a resident at 81 Ocean Parkway, said part of the problem at Caton on the Park may have been the lack of a pre-sales effort.

"Most new developments will offer pre-construction sales," said Whiteside in September. She added that she was impressed with the aesthetic qualities at 23 Caton Place, and believed that apartments at the site could sell with a proper marketing push. "If somebody could save that site, I could sell those apartments tomorrow."

However, weeks after the federal bank bailout, Whiteside cautioned that selling most buildings was becoming more difficult. "Any property is going to have a challenge in this market because of credit," she said.

Meanwhile, another developer, Empire Equities president Daniel Rokeach, had asked the city about two years ago to rezone a site at 22 Caton Place, located right next door to 81 Ocean Parkway, so he could build a 68-unit condo.

Shaw said that residents at 81 Ocean Parkway opposed the new building, in part because it would block natural light and air for up to two dozen apartments in his building, and would create traffic congestion because of the lack of available parking space.

After neighbors circulated an opposition petition, a compromise was reached for an underground parking space and the creation of a 16-foot side yard that would provide natural light and air for residents at 81 Ocean Parkway.

However, the developer ran into financing issues, in part because he does not own the land outright, but controls the site under a long-term ground lease from another owner. Banks are often reluctant to finance buildings operating on a long-term lease because of the risk that the land owner may sell the property.

Rokeach said the company is working on financing for the building, and that he may revise the project with a smaller number of units. He has already changed his original condo proposal to a rental.

Tom Angotti, an urban affairs professor at Hunter College who worked with community groups during the rezoning fight, said that residents in Kensington were upset when they were told that existing zoning laws would allow real estate developers to build high-density condos in a community that has historically consisted of one- to three-family homes, a mix of moderate co-op apartment buildings, light industrial sites and the Kensington Stables, a popular venue for horse riding in Prospect Park. "They were surprised to see a lot of new developments sprouting up around them, and discovered that the zoning permitted it," Angotti said. "They were also concerned about the Stables being surrounded by high-rise development."

Jeremy Laufer, district manager of Community Board 7, which includes Caton Place, said many in the community were concerned that a rapid increase in the number of luxury condos would price local residents out of their homes.

"The massive development that has taken place in our community has been a concern," said Laufer. "One of these concerns was, who are these units being built for?"

Still, real estate brokers insist that the development problems at Caton Place have not spilled over into other parts of Kensington, where sales have exceeded 2007 levels.

According to the Brooklyn Board of Realtors, 21 co-ops and condos were sold in Kensington during the first nine months of 2008, compared with 14 a year ago. The average sale price of a co-op or condo is up 8 percent compared with a year ago, to $248,376.

However, the average days on the market rose 66 percent to 243 days, an indication that brokers are having a harder time moving inventory.

There are certainly signs of sluggishness at two new completed condo developments.

At 235 Ocean Parkway, a new eight-story, 15-unit condo marketed by Corcoran, prices were slashed dramatically in recent months, and 11 units were temporarily pulled from the market last month, according to StreetEasy.com, a real estate data Web site.

For example, a 720-square-foot one-bedroom apartment that was originally put on the market in March for $499,000 was cut to $379,000 by late July, before being withdrawn last month. A 1,070-square-foot two-bedroom, two-bath unit, which was listed for $625,000 in March, went into contract in September for $504,000.

Nonetheless, local real estate brokers remain bullish on Kensington.

Carolyn Cedar, an agent at Fillmore Real Estate, noted that median sales prices through September — the most recent data on record — are up 18 percent since 2005.

However, she said that some potential buyers are planning to sit out the market until mid-2009 due to the recent financial meltdown and the tight credit market.

Whiteside and Shaw said that sales at 81 Ocean Parkway continue to move rapidly, with one-bedrooms selling in the $200,000 range and three-bedroom apartment selling in the $500,000 range.

Still, the prospects for rescuing some of the dormant sites on Caton Avenue remain bleak unless lenders are able to renew their funding obligations or new investors are brought in.

"It's going to be status quo until the financial markets and real estate markets recover," said Shaw.