Juny Francois, an attorney and developer, bought a Bed-Stuy brownstone in 2003 for $350,000; today it’s worth more than twice that.Imagine you host a party and no one comes. That was broker David Behin when he unveiled the 29-unit condo project 111 Monroe last year in Bedford-Stuyvesant. He put the building, with its slick glass-and-stone façade, large, clean apartments and huge windows, on the market last January and didn’t get a single bite.
“It was a project where anyone who walked into the building said, ‘Wow.’ But it was tough as nails to try to get anyone to buy,” said Behin, executive vice president of the Real Estate Group New York, a residential brokerage. “And we probably went out with prices that, even though we reduced them, were still too high.”
The developers lowered the price of the units, twice. Two-bedrooms, for instance, fell from $495,000 to $450,000. The developers also offered to pay buyers’ closing costs and got the building approved for FHA loans, meaning qualified buyers could purchase units with as little as 3.5 percent down. And they could pluck down just $2,000 to sign the contract and make the rest of the down payment over time.
The result? The units started moving. By December, he had contracts on half of them, he said.
But the building wasn’t alone in its struggles. Sales volume in Bed-Stuy is down about 23 percent from the market’s peak in 2006. Condo prices alone have fallen about 40 percent, according to developers and brokers who work in the neighborhood. By comparison, average condo sale prices in Brooklyn have dropped 13.5 percent since their peak in 2007, data from Miller Samuel shows.
The market downturn has hit almost every section of the city, but condo developers in Bed-Stuy have been some of the worst hit. After all, before the boom, few would have pegged Bed-Stuy as a lure for new condo construction. That changed, of course, and plenty of condos rose from the ground.
For a while it looked like the bet would pay off. Not anymore. When the condo market turned, those who could get out did — by 2007. But those who were unable to sell are stuck with buildings in which they can’t sell the units, and the whole cost structure of the deal was based on inflated condo prices of up to $650 a square foot. Condo prices today are closer to $350 a square foot in Bed-Stuy.
Some condo projects there, like the Mynt building at 756 Myrtle Avenue, have been turned into rentals. But that’s not an option for those with construction loans coming due. Those developers are now either looking for a new principal to inject equity into the deal, or they face foreclosure. In some instances, it’s the banks, not the developers, that are trying to figure out what to do with the properties: sell, finish developing them or simply sell the loan to a private investor.
“We’ve done several valuations for banks trying to figure out what this stuff is worth,” said Michael Amirkhanian, first vice president of sales at Massey Knakal. While not exclusive to Bed-Stuy, Amirkhanian said many of the properties are located there, as well as in Brownsville, Bushwick, East Flatbush, East New York and Crown Heights.
“That said, there is a pool of buyers across the city that have been patiently waiting and are so thirsty for this stuff that you may see some unlikely suspects putting bids on distressed properties and notes in [Bed-Stuy] that you may not have anticipated,” Amirkhanian said.
He said in certain deals there’s been a “real overcorrection.” Land, for example, has been the hardest hit in Bed-Stuy, with values plummeting from $60 to $100 a buildable square foot at the peak to about $25 to $45 now. Mixed-use properties have also been hit hard, as banks don’t want to lend on property tied to the struggling retail sector.
Pricing on multifamily properties, particularly those that are fully occupied, have fallen the least. Vacant properties, in better sections of the neighborhood like Stuyvesant Heights (on the south side of Bed-Stuy) and areas west of Marcy Avenue, are attracting developers looking for quality rental developments, sources said. The neighborhood has also been hit by high home foreclosure rates, affecting overall property values.
But with construction on hold, many newcomers are left waiting for the new neighborhood amenities they had hoped for.
Lilo Stainton, a 40-year old media relations executive, moved to the neighborhood in 2004. And while sections like Stuyvesant Heights, where she lives, boast some of the city’s most beautiful brownstones, she said there’s still not much entertainment in the area, outside of the handful of restaurants, cafes and a bookstore on Lewis Avenue.
“I love my neighborhood, but if we want to go out, we have to get in the car,” Stainton said. She and her husband, Tim, bought in Bed-Stuy after living in a small apartment in the West Village and deciding they wanted more space.
Juny Francois, an attorney and developer with properties in other parts of Brooklyn and out of state, bought a brownstone in Bed-Stuy in 2003. Her property offers a good breakdown on what pricing in the neighborhood has experienced. She purchased it for about $350,000, and by 2005 it had doubled in value. By 2007, she was receiving offers in excess of $1 million. Today, she estimated, the property is worth about $750,000. Brownstones overall have retained their value better than condos or co-ops.
The good news is prices appear to have stabilized. Still, the only substantial activity in the neighborhood is in the northwest section, on Bedford Avenue, Skillman Street and Spencer Street, where the Hasidic community has been buying up property, said Douglas Heller, a real estate attorney at Herrick, Feinstein in Manhattan, who has worked in the area of developing, lending and restructuring condos and co-ops for 30 years. “There were about 40 trades in the first six months of the year, and roughly all of them were in the northwest part of Bed-Stuy, which is Hasidic,” Heller said.
Some developers are selling their properties at bargain basement prices, just to unload them. A six-unit building at 118 Lexington Avenue (also known as 354 Franklin Avenue) recently sold for about $175 a square foot.
“Bedford-Stuyvesant was never all that high, but $175 a square foot? You don’t recover your construction costs then,” Heller said. “A lot of neighborhoods go two steps forward, one step back. That’s what happened in Williamsburg, and I believe that’s what’s happening in Bedford-Stuyvesant.”