The Brooklyn condominium market looks pretty healthy right now, but existing market conditions suggest developers aren’t going to have an easy time meeting the growing demand.
The builders of Brooklyn are stuck between two equal and unyielding forces: patient landowners who don’t believe the cycle is past the peak, and risk-averse lenders wary of contagion from softening markets. Together, the market forces have choked the traditional avenues to pump more supply into the Brooklyn pipeline.
At its peak, the Manhattan market focused on condos and Brooklyn on rentals, with both skewing towards luxury product, says Jonathan Miller, CEO of appraisal firm Miller Samuel. Now, there’s an oversupply of both, and lenders are pulling back without distinguishing between the specific segments. “New development financing is being dumped into the same bucket, whether it’s rental or condo or high-end or mid-priced,” Miller told The Real Deal.
And while lenders are retreating, land continues to be priced at peak-level.
“Sellers are slow to adjust to the new market pricing,” said Eastern Consolidated’s Ron Solarz. “There aren’t that many development sites that are priced at a level that buyers are comfortable with.”
David Schwartz of Slate Property Group, an active condo developer in Brooklyn, agreed. “Yesterday [the landowners] would have gotten $450 a foot. Now it’s only worth $375, and they’re having a hard time swallowing that.”
An analysis by The Real Deal shows the seesaw of demand and supply in Brooklyn remains pretty balanced, as a spate of condo projects in Dumbo, Downtown Brooklyn and Williamsburg come online. However, data also shows that development activity has slowed down in the last year, potentially leading to a product shortage down the line.
According to a report from Halstead Property Development Marketing, 281 contracts for new developments either signed or closed in the first quarter of 2017, with 655 units still on the market. That works out to about 1.3 years worth of supply, far less than in Manhattan. While the number of new condo units accepted in Brooklyn by the New York State Attorney General’s office increased in 2016 relative to 2015, the figures declined in the second half of the year, and fell even further in the first quarter of 2017. Only 214 new units have been accepted in Brooklyn since the calendar turned to 2017.
There’s no indication that a potential shortage in supply would be in response to waning demand from buyers. Manhattan may be softening, but in Brooklyn, all the condo metrics were in the green throughout 2016 and the first quarter of this year. A total of 869 condos sold in Brooklyn to date this year, up 48 percent from the first quarter of 2016, while new development sales doubled, according to a Douglas Elliman report last week. Beyond that, the median price for new development condos jumped 44 percent to $1.1 million in 2016, and another 27 percent in the first quarter of 2017 to $1.4 million, the report shows.
Brokers and developers say that demand, especially in the $1 million to $3 million sector, remains robust. At Adam America Real Estate and Slate’s 51 Jay Street, which launched sales in January 2015, 90 percent of the 74 units are in contract or sold. The only remaining condos are all priced at $3 million and up. At the developers’ 251 First Street, which launched sales in May 2016, 80 percent of units are in contract.
And at the Nevins, a 21-story project developed by Adam America and Naveh-Shuster Group in Boerum Hill, at least 50 of 73 units went into contract or sold since sales launched in July 2016. Sale prices have ranged from $504,000 for a studio to $2.68 million for a three-bedroom unit, at an average price of $1,344 per square foot, according to StreetEasy.
At open house showings for new development condos in Brooklyn, “We have 30, 40, 50 people coming to see every unit,” said Stephen Kliegerman, president of Halstead Property Development Marketing.
While 2016 was a slow year for newly submitted condo projects, it’s picked up in 2017. In the first quarter, 560 new units were submitted across 43 new projects, up from 492 submitted in the final quarter of 2016.
A temporary slowdown doesn’t guarantee there will be a shortage, and if the condo market continues to perform well it’s inevitable that more developers will find a way to get in the game. “Partly because the rental market is plateauing,” said Miller, “the condo product is a logical alternative.”
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Correction: The $2.68 million unit at the Nevins is three bedrooms, not five as erroneously reported. It has five rooms.