Billyburg shifts to rentals

With an increasingly saturated condo market in Williamsburg — and with most hipsters unable to afford the high-end luxury units that have popped up all over the neighborhood — renting may be the new buying.

One rental project has already been announced. Kalmon Dolgin Affiliates will open 510 Driggs, a 55,000-square-foot, 50-unit luxury rental building, in September 2008. One- and two-bedroom apartments will rent for anywhere between $2,500 and $3,850, and the penthouse apartments will go for $5,000 per month. The building, designed by architect Stephen B. Jacobs, is unusual for now, with new residential construction in the neighborhood almost always designed as condominiums. The question, brokers say, is whether 510 Driggs will continue to be a rarity or if it marks the beginning of a trend in new rental development.

In response to changing market conditions, developers are also taking other routes: One is converting older buildings into rentals and another is adapting plans to create a condo-rental hybrid. With land prices dropping following December’s 421-a tax abatement changes, the neighborhood appears to be poised for rental development.

“It is ripe for rental development,” notes Patrick Todd, an agent with City Connections who has lived in Williamsburg for 10 years. “But how that will happen, I don’t know.”

According to Todd, the Williamsburg rental market is currently very tight. New rental developments would be the logical next step, he says. But, he adds, “Williamsburg is such a small land space and there are already so many condos.”

Michael Moran, executive vice president and director of sales for Prudential Douglas Elliman in Brooklyn, says he has noticed investors who bought condos a couple years ago are flipping the units into rental apartments. Nevertheless, Moran doesn’t predict much new development for rentals. “I don’t think it will turn into a rental market,” says Moran. “Williamsburg is still so incredibly hot, especially on the waterfront.”

For Moran, the condo market has remained strong enough for his company to open a new Douglas Elliman office in Williamsburg. And the brokerage is now handling sales for 55 Berry Street, which had been rumored to be switching from condos to rentals back in November. Douglas Elliman agent Christine Blackburn says 55 Berry never was going rental — the building developers had taken its units off the market to change brokers. The building is now 50 percent sold.

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Overall, Blackburn says, the condo market is healthy. “There isn’t really a dip in the market. It’s taking a bit longer — maybe a couple more months — to sell, but it’s not a dip.”

Like Moran, Blackburn doesn’t see many new rental buildings going up. There will be more units available for rent, she says, but many of those will come from overpriced waterfront condos. Developers still want immediate return on their projects, which they’ll get from condos and not apartments, explains Moran.

One developer is hedging its bets. David Maundrell, president of brokerage, is marketing The Point at 191 Woodpoint Road. He said its developers initially intended to sell the units, but with the market slowdown, decided to convert the building into Williamsburg’s first condo-rental hybrid.

For developers who do want rentals, however, converting existing buildings into apartments seems a safe bet. Kerry Dannenberg, CEO of Select Real Estate, has been buying older buildings and converting them into rentals, including a slaughterhouse on Bushwick Avenue he turned into apartments with his real estate offices on the ground floor. In five years, he expects values to double, and then he’ll sell the buildings. He says he’ll save a significant amount on taxes since taxes on condos are much higher than on apartments.

While Dannenberg continues to renovate rental buildings, he still has a number of condos, and he doesn’t think that market is in trouble — as long as developers understand the Williamsburg demographic. “The wrong condos are softening” in this market, he says, “but not the right ones. If you keep trying to get Wall Street buyers, you’ll fail.”

Dannenberg says his units are perfect starter apartments for people who will only take on mortgage payments similar to what they’d be paying in rent. And just to be safe, Dannenberg says he will only build and buy land at a price that will allow him to go rental or condo. That means not spending much more than $1 million on a lot that measures 100 feet by 100 feet and around $100 per square foot on construction. Other developers, he says, usually spend about $2.8 million and $150, respectively.

Maria Aidonis, senior sales associate with City Connections, was born and raised in Williamsburg. She says the area needs more rental units on the market. She also says that the young people drawn to the neighborhood do have some money and can afford slightly higher rents, but they are much more inclined to buy if their rent and mortgage will be about equal. For those with slightly less income who can’t afford to buy, she says, other neighborhoods might win out over Williamsburg.