They aren’t making any more land in Brooklyn, which is why it’s increasing in value as developers follow savvy urban homebuyers to the borough.
Manhattan attracted the most expensive and dazzling construction in the previous decade, but now Brooklyn is seeing more new construction. There is more and cheaper vacant land in the borough, but it’s being gobbled up quickly.
“Manhattan prices have gone crazy it’s 10 times more expensive to build,” said Isaac Hager of North Development Group, which has six new construction projects in Brooklyn. “In buildable profit, you make more in Brooklyn than you make in Manhattan.”
According to New York City’s tentative assessment roll for 2006, Brooklyn land values increased about 40 percent from last year. In Manhattan, land values rose only 27 percent. More than 6,800 residential building permits were issued by the city for Brooklyn in 2004, the highest in 32 years. Through July of last year, Brooklyn was outpacing Manhattan with permits for 3,800 units compared to 2,200.
Developers are now jockeying for position, especially for smaller sites, as huge swathes of Brooklyn are rezoned, including parts of Downtown, Williamsburg and Greenpoint. The borough is projected to have 4,000 to 5,000 new apartment units within the next two years, said Elan Padeh, chief executive officer and president of The Developers Group, which is currently working on more than 90 Brooklyn jobs and seven projects in Manhattan. Padeh said that construction costs are lower in Brooklyn because there is less need to build tall projects.
Any project up to eight stories high can cost as much as $200 a square foot in either borough. But high-rise construction, mostly a Manhattan phenomenon, costs as much as $400 or $500 a square foot, he said.
As for conversions, which are cheaper than ground-up construction, in Brooklyn, costs average about $120 a square foot. In Manhattan, it’s closer to $170 or $180 a square foot if the work is nonunion, said Padeh.
Even with the large number of units expected to be delivered and fierce competition for land in Brooklyn, developers don’t expect saturation in the market any time soon.
“The market is so virgin that I don’t think the units we all build will absorb the demand for Brooklyn,” said Eugene Kiska, one of the principals of The Kiska Group, which has seven projects in Brooklyn and one in Manhattan currently. “It will create some competition, however, which is good. It will show that the better product will attract better prices and better clientele.”
In Brooklyn, an apartment hunter can find something for as little as $350 or $400 a square foot in Bedford-Stuyvesant, where The Developers Group currently has six large projects of 70 units or more.
“The value of land per buildable square foot there is $50 to $80,” Padeh said. “But you can charge as much as $420 to $440 a square foot for new development. It’s a place where you can still get tremendous value for your dollar.”
However, emerging neighborhoods like Bedford-Stuyvesant, Clinton Hill and Bushwick may be slower to develop than areas like Williamsburg and Greenpoint, because they are home to substantial subsidized and low-income housing mixed into established residential neighborhoods, Kiska said. Rezoned parcels run $130 to $200 per buildable square foot in Williamsburg and Greenpoint, $200 to $250 in Dumbo, and $175 in Park Slope, Padeh said.
In tonier parts of Manhattan, prices easily double that. From 60th Street to 86th Street, between First Avenue and Lexington Avenues, developable land was selling for more than $400 per buildable square foot at the end of the year and has likely risen since then, according to Grubb & Ellis. The sale of Beth Israel Hospital’s Singer Division property last year at 170 East End Avenue for $770 per buildable square foot set a record price for a residential site.
Kiska maintains that much of the new construction in Brooklyn is at least as good, if not better, than Manhattan, because developers have had to work harder to lure high-end buyers to the borough.
“In Brooklyn, people pay a lot more attention to the architecture of the buildings they live in as opposed to Manhattan,” Kiska said. “They’re Calvin Klein wannabes. They just don’t have the right kind of budget today, but they have the taste.”
Kenneth Horn, president and principal of Alchemy Properties, which is breaking ground on its first Brooklyn project, a high-end development on State Street, said it was possible to bring a Manhattan- quality project to market in Brooklyn. He said that although apartment prices are lower due to the lower land costs, construction costs were about the same.
“We’ll be able to buy the land, build the building, with the hard costs, soft costs, and upfront land costs, at probably less than $450 a foot,” Horn said. “If we then hit the market at between $650 and $700 a foot, we’re doing great.”
That would never work in Manhattan, where Alchemy has done about 19 projects and sold out its most recent one in four days at $950 a foot, and it won’t work in Brooklyn if land prices get too dear.
“If you have to start buying land at $300 a foot, those economics won’t work,” Horn said.