‘Unicorns’ and fine finishes for sale in Brooklyn

Borough’s brownstone market sees more sellers list properties as more buyers compete
By Adam Warner | December 01, 2015 10:43AM
From left: Nadine Adamson, Deborah Rieders and Patty LaRocca

From left: Nadine Adamson, Deborah Rieders and Patty LaRocco

The number of Brooklyn brownstones on the market is increasing as the mom-and-pop brokerages that traditionally dominated the borough take a back seat to larger firms that are garnering higher prices for these highly sought-after properties. International buyers and others who previously might have only looked in Manhattan are now riding the wave to Brooklyn and scooping up reconditioned brownstones, helping to drive prices up. Longtime owners are seeing what their properties are worth and don’t want to miss the boat. And buyers who are being priced out of the more traditional brownstone neighborhoods like Brooklyn Heights and Park Slope are heading to Sunset Park, Bay Ridge, Bensonhurst, Bedford-Stuyvesant and even East New York with a little elbow grease in their pockets. But the number of brownstones is finite. “There are simply just so many of them available, and the ‘original’ brownstones will not be built again,” said Aleksandra Scepanovic of Ideal Properties Group. Competition is fierce as buyers, many of whom have already lost a bidding war or two, go into battle stance. For more on the state of the Brooklyn brownstone market, we turn to the experts.

Patricia LaRocco
Licensed associate broker, Douglas Elliman

Where is the brownstone market gaining strength? And are there any under-the-radar areas not gaining?

Kensington is a fantastic neighborhood with great houses that offer yards and driveways, but prices are going up there. Sunset Park is also on the way up. While neighborhoods like Sunset Park, Bensonhurst, Bay Ridge and other areas in southwest Brooklyn don’t receive the same hype as northern Brooklyn, the southwestern portion of the borough has accounted for 25 percent of the townhouses sold.

How competitive is the brownstone market right now? Is the increase in listings making bidding wars more or less likely?

Price points are everything, but the width of a townhouse is very reflective of the price. Generally speaking, the under-$3 million price point for a house is very competitive and will get tons of traffic and offers.

How has the growing number of luxury Brooklyn condos affected townhouse sales and what impact do you think it will have on the sector in the next few years?

I believe it will be positive, as buyers have more choices and there are really extraordinary developments going on and coming on. The condo buyer looking for a 3- to 5-bedroom is an obvious crossover buyer for a townhouse. And in some instances and areas, the prices are becoming comparable for large condos and townhouses.  

A number of recent projects have included townhouses. Do you expect more of those projects going forward?

I expect some but not a huge amount. When the zoning doesn’t allow you to build tall then townhouses make a lot of sense. At the King & Sullivan Townhomes developed by Sanba Partners, the lot size and low density of the neighborhood were a perfect choice for Red Hook. Over 55 percent sold in the first couple of weeks. There were similar results with the Navy Yard project. Demand is high.

Are more developers and investors buying brownstones and converting them to condos or rentals? If so, which areas are they most likely to target?

We see that a lot in areas with historic landmark designations: Fort Greene, Park Slope and Carroll Gardens in particular. However, investors and developers have been buying up Bedford Stuyvesant and Crown Heights in the last five years. 

Nadine Adamson
Licensed associate broker, Brown Harris Stevens

The number of brownstones on the market has reportedly surged this year, especially in neighborhoods like Cobble Hill, Brooklyn Heights and Carroll Gardens and Boerum Hill. Are you seeing increased listings in these areas?

I wouldn’t call it a surge, but yes, we are finally seeing a bit more townhouse inventory in these areas. It’s a huge relief actually because there was such limited inventory that buyers were getting desperate, discouraged and bowing out, as the competition was too fierce to be comfortable. Those open houses with lines down the block that we were seeing in 2012, 2013 and 2014 were leaving a bad taste in a lot of buyers’ mouths and becoming comical and the antithesis of what Brooklyn really is: friendly, quiet and livable.

How competitive is the brownstone market right now?

The “unicorn” townhouses — meaning that they are well located on a pretty street, have a bit of original details and have the right proportions and 20 feet or more width — are selling in an instant for higher and higher prices. Buyers are educated and they know when they see something great. By now, they’ve probably lost a few houses and are well trained to act quickly and decisively. In general, the slight increase in listings has not had a great effect on the number of bidding wars. It’s the specifics of the house, price and location that will determine whether it garners multiple bids or sits on the market.

How has the growing number of Brooklyn luxury condos affected townhouse sales?

These luxury developments and their high price tags are great for Brooklyn townhouse sales prices. Their beautiful marketing campaigns and developments are bringing more and more well-heeled buyers to our Brooklyn neighborhoods. Once they’re here, these same prospective buyers are also considering the advantages of townhouse ownership.

What are some of the other external forces effecting the townhouse market in the borough these days?

Interest rates are still remarkably low, and the flexibility that a townhouse gives its owner is unparalleled. We see so many buyers who are frustrated with the limitations that condo and co-op ownership present. People are tired of drama at board meetings and the need to get consensus to fix issues in their own units. Condo investors are frustrated with the increasing hurdles and fees that building managers and boards are imposing on them to rent out their units. … We also are seeing a lot of people who have gotten spooked by the stock market volatility and are looking to invest in multifamily townhouses with significant rental income opportunity.

Are most townhouse buyers paying in cash or is it more common to seek financing?

We are seeing less cash buyers overall but still a good amount. Over the past six months to a year, we have been seeing more sellers who are open to a deal with a financing contingency. For a lot of these sellers, it’s worthwhile to wait a few months for the bank and pick the buyer who is willing to pay more. Two years ago, there was little chance for a townhouse buyer who needed a financing contingency.

What are some of the challenges you’re seeing in the Brooklyn brownstone market right now?

Managing sellers’ expectations with regard to pricing can be a real challenge. It’s always hard to tell someone that their house isn’t as special as the unicorn house down the block that went for 35 percent over its asking price on the first day.

Aleksandra Scepanovic
Managing Director, Ideal Properties Group

Brownstones listings have reportedly surged this year, especially in prime neighborhoods. Are you seeing increased listings in these areas?

We haven’t seen a meaningful surge but rather a relatively inconsequential increase in the number of listings, and mostly listings of the “testing the market” variety, or those listed at unprecedentedly high prices and targeting a very specific segment of buyers. Otherwise, the townhouse inventory throughout Brownstone Brooklyn remains very spotty.

Are there different market forces in play that account for increased townhouse listings in emerging neighborhoods?

Along with the increased attention — primarily buyer attention — to these “emerging” neighborhoods comes an increase in attention that “established” brokerages pay the local sales markets. With these brokers now routinely involved in marketing the townhouses, it could certainly appear as though the listings were more plentiful, when, in fact, the numbers have barely changed. It’s just that the segment of townhouse inventory that used to be marketed by small, local, mom-and-pop brokers with limited reach is now getting more “mainstream” exposure.

What are some of the other neighborhoods where the brownstone market is gaining strength?

Pockets of townhouse areas in neighborhoods such as Bushwick and East New York are seeing an increased level of interest as the go-to destinations for multifamily homes in the $1 million to $1.5 million, and under $1 million, price ranges, respectively.

Has the increase in listings affected pricing for brownstones?

The increase in listings has had virtually no ill effect on pricing. … The immense amount of buyer interest, on the other hand, continues to fuel the market and drive the prices ever upward. Ideal Properties Group’s quarterly sales market report reveals a 13 percent increase quarter-over-quarter and a 25 percent increase year-over-year from an average $2.08 million the buyers were shelling out in Q3 2014. Only a year prior, the late summer and early fall 2013, brownstones were trading for an average $1.88 million. The gains, even just over the last two years, have been significant, if not dramatic.

How competitive is the brownstone market right now?

The very nature of the townhouse market is at the heart of what’s driving the competition. Brownstones have a historic dimension and value absent in new construction. Ownership of one also carries an inherent promise of options, equally absent in co-ops or condos. If you own an individual condo or a co-op, your options at leasing portions of your home … are very limited. Your options at re-configuring, expanding
or re-purposing your existing space are also limited, compared to what would likely be possible if you owned a brownstone.

Not to mention the limited supply of brownstones. And the “original” brownstones will not be built again. Not with two-feet-plus thick party walls, not with the intricate historic detail of yesteryear. Today’s craftsmanship and costs simply do not compare or allow.

How quickly are properties selling today?

Our latest data shows that the speed of townhouse sales has accelerated, taking slightly over three months to trade (from listing to closing date). From listing to contract, the average number of days this quarter was 46. This is a quarter-over-quarter acceleration of nearly 12 percent (down from 52 days on average). The numbers have been steadily declining — early months of 2015 saw townhouses go into contract within 56 days, the contract process hastening by nearly 18 percent to date.

How has the growing number of luxury condos affected townhouse sales?

Luxury condos and townhouses are like apples and oranges. … Buyers looking to purchase townhouses are clearly after a unique product, one that is difficult to procure and one that is not necessarily a “luxury” product. The allure of a townhouse can be multifold, as they tend to speak to a variety of customers: from those looking forward to improving their “fixer upper” space to those looking for the ultimate luxury that combines into an eclectic soup the historic backdrop with the modern touch. … In the long run, I doubt that the luxury condo building expansion will have a tremendous impact on its distinctly different counterpart.

What challenges are you seeing in the Brooklyn brownstone market?

From the brokers’ perspective, the biggest challenge remains listing acquisition. Even with ever-so-slight improvements, the inventory levels are far from being able to satisfy the buyer pool. As sellers continue to be courted by endless brokers and buyers, some opt to “wait it out” in hopes to achieve astronomical returns — a common choice adding to the tightening of supply. Others respond to the pressure by severely overpricing their property “to test the waters.” Among others, these factors tend to inch the market upward by creating new realities or awareness of what is or may be possible.

Tamara Abir
Licensed salesperson,  Halstead Property

How competitive is the brownstone market right now?

Competition remains fierce for brownstones in what buyers consider ideal micro-locations, and definitely for those that are recently well renovated. We’ve [recently] seen several homes sell quickly and above the asking price in bidding wars. However, with the higher inventory, buyers are also taking more time to weigh their options, especially when there may be objections to location, width, layout or quality of renovations. Purchasers considering a purchase of $4 million or more on a townhouse do not expect to compromise. At a slightly lower price point, competition is higher — there’s a wider audience at $3 million and under — and buyers who are determined to buy a brownstone see themselves getting priced out. Many of these buyers have lost multiple bidding wars and are willing to be aggressive, so when something comes to market that meets their needs, they will bid early to win it.  

How quickly are properties selling today?

There are more townhouses that have lingered on the market over the past six months, but I would argue that many were over-priced, not well-positioned or lacked a thoughtful layout or aesthetic. We spend quite a bit of time perfecting layouts, design details and marketing initiatives to ensure quick and successful sales.

What are some of the external forces affecting the townhouse market right now?

Brooklyn has become a destination for Manhattanites and foreign buyers alike who no longer see it as a second choice to Manhattan. For Manhattan buyers, Brooklyn prices and property taxes seem relatively cheap and they are willing to pay up for a property they love. We also see many foreign all-cash buyers moving to New York and exclusively considering townhouses in Brooklyn.  

Are most townhouse buyers paying in cash or is it more common to finance?

We see a good mix of all-cash, heavy cash and financed deals. With historically low interest rates, money is extremely cheap to borrow, so many buyers with the means to pay all cash choose to finance some of their property. That way, they are more leveraged and can free up cash to invest or use elsewhere. Sometimes these buyers will initially purchase all-cash to win in a bidding war but then finance their homes post-close.

Deborah Rieders
Broker, Corcoran Group

The number of brownstones on the market has reportedly surged this year, especially in prime neighborhoods. Are you seeing an increase in listings?

The inventory at large is still very limited right now. I have seen an increased number of listings coming on the market recently because sellers who may have been sitting on the fence are seeing the large numbers that their neighbors have been selling for. A number of people are also downsizing into smaller apartments, usually long-term owners who are nearing retirement or have kids that have gone off to college.

How quickly are properties selling today?

If it’s the right renovation, it can sell in a week. If it needs a little work, then it may sell in a couple of weeks. If it needs a gut renovation, it needs to be priced fairly, and it may take a little while longer to sell. I’ve seen the market remain fairly stable in this way for the past six months.

A number of recent new developments include townhouses. Do you expect more of those projects going forward?

I do expect more, but it will be on a limited scale. Those projects tend to be built in the landmarked neighborhoods, which are usually height restricted. I expect to see them coming up more in Cobble Hill, Fort Greene, Boerum Hill and Park Slope.

Are more developers and investors buying brownstones and converting them to condos or rentals?

For the most part, developers and investors tend to convert brownstones to multiple-family homes rather than condos, as it’s easier to flip quickly that way. A condo development can take well over a year to convert. I would say that I see the multi-family conversions mostly in Bed-Stuy and Crown Heights, and I think developers would be more inclined to convert to condos in neighborhoods like Brooklyn Heights, where the price-per-square-foot is higher.

What are some of the challenges you’re seeing in the Brooklyn brownstone market right now?

I think the biggest challenge is selling townhouses that need work. Since prices have gone up, buyers have higher expectation of quality, and they’re not willing to make the same compromises. They have a higher standard of renovation quality. The houses that are completed with perfect renovations tend to sell for abnormally large prices because buyers are paying for the privilege of not having to do any work. However, there are deals to be had for properties that need work, if buyers are enterprising.

Kevin Carberry
Founder, Kevin Carberry Real Estate

How competitive is the brownstone market right now?

There are a number of townhouses that have languished on the market for over a year, where other properties that have been more moderately priced have had multiple bids. This depends on both price and condition of a property, not to mention location.

How has the growing number of luxury condos in Brooklyn affected townhouse sales?

I was born and raised in Brooklyn Heights and have a strong affinity to this brownstone community. The intimacy that exists in knowing your neighbors I think will be lost in forty-story condominiums, which will create a different lifestyle. My choice would continue to be brownstone living.

Speaking of new developments, a number of recent projects incorporated townhouses. Do you expect more of those projects coming down the line? What neighborhoods do you expect it to happen in?

The quality of life that exists in the brownstone communities I personally find of great value, and I think the demand for this quality of life will continue to grow, although the space for these projects is limited.

What are some of the challenges you’re seeing in the Brooklyn brownstone market right now?

While technology has broadened the market for properties in our neighborhood — with search and showrooming online and the online publications that bring familiarity with the properties — our brownstone homes still require a careful, personal approach to the process. We deal with historic homes every day and each has its own character and needs. These are substantial investments and not just financially. New developments in our market can be high-priced, but they can still be sold from showrooms. Brownstones require a personal experience of the property and intimate knowledge of its past and potential.