Manhattan-only firms start seeing Brooklyn benefit

<i>While brokerages stormed the borough years ago, development firms now finally follow suit, others expected</i><br>


Fred Harris, vice president at AvalonBay Communities, which is constructing its first Brooklyn project, a 631-unit tower on Gold Street in Fort Greene
A handful of major real estate management and development firms that have long avoided Brooklyn — even as housing prices in the borough shot up and brokerages rushed in — are finally venturing across the river.

The reasons are twofold. First, new high-rise, high-end construction in Brooklyn fits their business model. And second, values of these new Brooklyn buildings appear to have tumbled further and faster than their Manhattan counterparts, according to brokers and developers. “Developers are looking for opportunities, 100 percent,” said David Maundrell, a Dumbo resident and the president of aptsandlofts.com, a brokerage with a Brooklyn focus. “But they are willing to do that because there is a viable market here. It’s become a destination as opposed to an afterthought for Manhattanites who want a cheaper place.”

Jamestown Properties is one of the developers that recently upped its bet on the borough. In early 2007, the firm had a 60 percent equity stake in be@Schermerhorn, a troubled condo in Downtown Brooklyn, which was developed by SDS Procida and saw construction and sales suspended last year. But in December, Jamestown bought the balance of the mortgage from a consortium of banks. The consortium had originally lent $100 million to SDS Procida.

It’s the first Brooklyn project in which Jamestown has taken a lead role. The firm, which is based in Atlanta, has Manhattan holdings including Griffin Court, a condo being built in conjunction with Alchemy Properties, as well as commercial properties like One Times Square.

“We weren’t real estate vultures looking for a good deal,” said Michael Phillips, Jamestown’s marketing director. “What drew us is the fairly steady progression of gentrification in that part of Brooklyn.”

Although comparisons can be tough because the housing stocks are different, Brooklyn buildings in good times sell for about 25 percent less than those in Manhattan. But in recent months, with the downturn, Brooklyn properties have been trading for up to 35 percent less than buildings across the East River, developers estimate.

Although Phillips wouldn’t disclose what his company paid for the loan on be@Schermerhorn, he suggested it was in line with the discount buyers will see for condos there, which is about 25 percent off September 2008 prices. “We are passing our savings along to the buyer,” added Phillips about the building, whose 234 units will be priced in the “mid-600s.”

Other relative newcomers are looking to get a bigger piece of the pie.

AvalonBay Communities is constructing its first Brooklyn project, a 631-unit tower at 325 Gold Street in Fort Greene, where leasing began in September. But aside from the 42-story high-rise, the company is considering purchasing stalled buildings in the borough, according to vice president Fred Harris. Taking over one of them would be a sharp departure for the developer: AvalonBay prefers to build from scratch, like with its Avalon Chrystie Place on East Houston Street.

“What people are seeing are some cyclical opportunities,” Harris said of the newfound interest in Brooklyn for developers and management firms, “with acquisition and construction costs being much improved over what they were a few years ago.”

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Another firm, Rose Associates — which has focused on Manhattan for the more than 80 years it’s been in business — likes that Brooklyn has finally caught up in terms of luxury finishes. “The scale of developments was not really there yet [to the point] where people were reaching out for our expertise,” said Bob Scaglion, the company’s senior managing director.

But Rose now has five projects on its Brooklyn map. It’s handling leasing for 34 Berry and 184 Kent in Williamsburg, and managing 80 Dekalb Avenue, 111 Lawrence Street (the Brooklyner) and 36 Gold Street (the Oro).

At 184 Kent, a 340-unit converted warehouse that was initially set to be a condo, leasing began in January, Scaglion said. At 34 Berry Street, a 140-unit building, leasing begins this month.

Meanwhile, at the Oro, Rose — which, unlike many other firms, acts as a developer, property manager and broker — has taken over sales for Prudential Douglas Elliman. Of the building’s 303 units, 150 have sold, said Scaglion, adding that prices have been discounted between 6 and 25 percent.

For David Perry, the director of sales and leasing for the Clarett Group, the math leading investors to circle in Brooklyn is a no-brainer. That’s because when developers walk away from projects and sacrifice their equity stake, banks can afford to drop the price for units. Indeed, lenders often just want somebody to cover their loan, Perry said.

And he might know. At the Forté condo in Fort Greene, Clarett returned the project to the lender, Eurohypo, after telling the bank the market would only support $700 a square foot. The lender, Perry said, told the firm it needed $800, and that Clarett would have to make up the $100 difference. Now, ironically, the bank is selling the condo for $500 a foot, Perry pointed out.

The trend notwithstanding, some major landlords still haven’t embraced Brooklyn. Related Companies is “only interested in big-box retail in Brooklyn,” a spokesperson said. Ditto for the Witkoff Group, whose spokesperson said the company is currently not looking to buy any properties. Rudin Management had a similar response.

But some say more Manhattan holdout firms will follow suit soon. One thing that’s helping attract even bigger fish to Brooklyn these days is the city’s list of stalled development projects, according to Juliana Brown, who runs the Corcoran Group’s Fort Greene office.

Brown said they function as handy ads for interested investors. Indeed, Brooklyn is home to 245 stalled developments, the most in the city, many of them in and around Williamsburg, according to a report last month from the city’s Buildings Department.

“Some people’s misfortune will eventually turn around to be somebody else’s fortune,” said Anthony Santangelo, a broker with Elliman, which has five offices in Brooklyn.