Dumbo defies odds

Click chart for larger versionThirty years ago, the notion that the largely industrial area at the foot of the Manhattan and Brooklyn bridges would one day command some of the highest prices in Brooklyn real estate might have seemed about as plausible as an elephant taking wing.

Nowadays, of course, Dumbo is well established as one of Brooklyn’s most sought-after neighborhoods. So much so that it has weathered the real estate downturn better than Brooklyn as a whole — a reality that the few developers planning projects in Dumbo hope continues.

In December, the publicly traded luxury home builder Toll Brothers closed on a parcel of land at 205 Water Street where the firm intends to develop a condo with approximately 70 units. Toll paid $8.6 million for the land and hopes to start building by the end of the year.

“Dumbo is fairly unique within the Brooklyn market,” said David Von Spreckelsen, a senior vice president with Toll Brothers. “It’s really been holding value better than the other neighborhoods in Brooklyn, and if you look at [condo] resales they’re at really strong numbers.”

According to data from StreetEasy, the median price of a sold condo — virtually the only type of residential inventory available in Dumbo — in the fourth quarter of 2009 in the neighborhood was $1.24 million, a 56 percent increase over the same quarter in 2008 and a 48 percent increase over the third quarter of last year. Although there were only about a dozen sales during each of those quarters, the upward trajectory of prices was still notable since it bucked the borough-wide trend of decreasing prices.

But since Dumbo has relatively few sales, a small number of big-ticket closings, several of them at the J Condo at 100 Jay Street, skewed overall prices upward, according to Sofia Song, vice president of research for StreetEasy.

The property was one of only a few new condos built in Dumbo during the last few years. The building is completely sold out and resales have been faring well.

Washington Street

Steven Lopez, a salesperson with the Corcoran Group who recently brokered the resale of a J Condo unit, said the property received “multiple offers.” The condo, a 1,711-square-foot three-bedroom, sold for $1.61 million in December. The unit’s seller had purchased it for $1.44 million in 2007 and originally listed it for $1.85 million in March of last year. The asking price was subsequently cut to $1.75 million before it went into contract.

David Walentas, the founder of Two Trees Management Company credited with transforming Dumbo into a success story over the past three decades, said the neighborhood is “alive and well.”

“I run into people all the time who, when I tell them I live in Dumbo, say, ‘Oh, it’s my dream to live in Dumbo,'” he told The Real Deal.

Two Trees, which has developed more luxury apartments and office space than any other firm in the neighborhood, made headlines last year for trying to sell the most expensive private residence in the history of the borough, and also for championing a controversial development called Dock Street.

The high-priced residence, a condo triplex penthouse at One Main Street (also known as the Clock Tower), has an asking price of $25 million, and has been on the market since August. Jay-Z and Ralph Lauren recently looked at it, according to the New York Post.

By contrast, the most expensive home to ever sell in Brooklyn was reportedly an $11 million Gravesend property that changed hands in 2006. The most expensive condo to ever sell in the borough went for $7 million and was located in One Main.

“The penthouse is like buying a piece of art,” said Walentas, who declined to name the property’s prospective buyers. “We expect it’s going to take time to get the word out about it. So far, we’ve shown it to a few billionaires, but they’ve been very diverse sorts of people. It will end up selling to someone who wants it, and [for whom] the price doesn’t matter.”

Meanwhile, Two Trees plans to start construction on a project called Dock Street on the corner of Dock and Water streets — a 17-story mixed-use development that will include residential units as well as a public middle school at its base. The development is opposed by some community members and elected officials who say it will block views of the Brooklyn Bridge. Although the City Council voted last year to approve a rezoning for the project, a group of opponents subsequently filed a lawsuit against the city, alleging that the School Construction Authority didn’t properly select a developer for the site.

Walentas said he considers the legal action a “nuisance lawsuit,” and hopes to have cleared it and all other remaining hurdles to the project within about six months.

37 Bridge Street

Dock Street and the Toll Brothers condo are the only two ground-up new developments planned for the area. Developers are limited in what they can construct in most sections of Dumbo because the city designated it a landmark district in 2007.

Although a rezoning of some of the neighborhood last year now allows for new residential construction, developers still have to get their designs green-lighted by the Landmarks Preservation Commission.

One developer who wants to convert an industrial building at 192 Water Street still hasn’t gotten all the necessary permits for the project. And at 53 Bridge Street, developer Joshua Guttman’s conversion of a commercial building into a residential property has been proceeding in fits and starts for more than five years, but it’s been out-and-out stalled for the past couple.

The sole residential project underway in Dumbo is a conversion of an industrial building by the Manhattan-based Karnusa Equities. (Other conversions have been started over the past couple of years but, at present, are stalled.) Karnusa’s 37 Bridge Street is a 48-unit condo that’s being constructed in a former soap factory.

Bobby Jacobs, a principal at Karnusa, said he thinks it’s “probably the most unique project” being developed in the city because the residences will be built inside silos and have circular walls. Jacobs hopes to finish the conversion and start selling the condos by fall 2010.

“Dumbo has just held up much better than other places, and it doesn’t have much that comes on the market,” he said. “It’s a small neighborhood, and you have a captive audience.”