From left: Thor Equities CEO Joseph Sitt; Brian Hanson, director of sales, Massey Knakal; Juan Rivero, spokesman, Save Coney Island; Timothy King, managing partner, CPEX Real Estate; Albert Wilk, owner/broker, Wilk Real Estate; Sofia Song, vice president, research, StreetEasy
The last two years have, of course, brought Coney Island back from the dead with its first new amusement parks in a half-century — Luna Park and the Scream Zone. So what’s the status of the rest of the redevelopment of Coney Island? Is it on the same Cyclone-style roller coaster as the rest of the city’s real estate market?
In this month’s Q&A, The Real Deal talked to a host of Coney Island’s players, including the commercial brokers who do deals in the area, the city officials pushing forward the remainder of the redevelopment, advocates looking to preserve the neighborhood’s character, and residential brokers who are seeing the demand for housing change. And, of course, we talked to Coney Island’s most prolific developer, Joseph Sitt, whose name and company, Thor Equities, are never far from anyone’s lips when they’re talking about Coney Island.
What we found was a cross section of views of what’s happening in the area, which is still expecting up to 5,000 new units of housing and 500,000 square feet of new retail.
On the commercial side, retail rents are up about 10 to 15 percent compared to before the 2009 rezoning, and buildings are getting sold. But at least one of our sources said the recession has slowed down progress.
“I think people were hoping for a light switch to turn on … but the reality is that it’s taking longer than everyone had hoped,” he said.
Another source pointed out some of the buildings that are still ripe for developers to swoop in on, including the Grashorn Building and the Childs Restaurant Building.
Meanwhile, Sitt said, all of the redevelopment has “sparked a wave of interest in both the commercial and residential markets.”
As part of that interest, however, there are some who want to ensure that the onetime “People’s Playground” and “Poor Man’s Riviera” (as Coney was called back in its heyday) doesn’t price out the lower- and middle-income New Yorkers it was originally built for.
Prices on the residential side are down compared to a year ago, and delinquent properties abound. But there’s a sense that the housing market is about to open up as more developers start sniffing around for opportunities.
For more on which residential price ranges are performing best, which projects are being closely watched and how the summer amusement park season ended, we turn to our panel of experts.
Commercial
Nate Bliss
vice president, NYC Economic Development Corporation, Development Department; president of the Coney Island Development Corporation
We know that the Scream Zone and Luna Park are complete, but can you bring us up to speed on what remains for the redevelopment of the Coney Island amusement park?
In 2010, Central Amusement International was selected to lease approximately 6.5 acres from the city to be developed into new amusements [after the rezoning in 2009]. Last year, Luna Park was the first new amusement park in Coney Island to open in 50 years. Now in the second year of redevelopment, the park has expanded with the opening of Scream Zone. The two amusement parks represent a $30 million private investment, with an additional $6.6 million by the city. An additional third phase of the amusement park will open next year, followed by a fourth phase in 2013.
What are the projections for number of visitors for this season and how does that compare to previous seasons?
Luna Park attracted over 450,000 visitors in 2010, its first year of operation, and this year, despite the rainy weather, Luna Park and Scream Zone are on pace to surpass last year’s attendance numbers.
How is the redevelopment impacting overall economic activity in the area?
We expect that over the next 30 years the redevelopment of Coney Island will generate over $14 billion in economic activity. This includes the creation of over 25,000 construction jobs and more than 6,000 permanent jobs. There will be approximately 4,000 to 5,000 new units of housing created outside of the amusement area, with approximately 900 affordable units. And the project will generate an additional 500,000 square feet of new neighborhood retail to support a growing and underserved residential community and to create job opportunities.
Despite all of the redevelopment efforts, there is still a lack of higher-end restaurants and amenities in the area. Why is that?
This summer we have already begun to see a number of new businesses open, including Coney Cones, Cyclone Café, Coney Island Brewing Company, Tattoo Shot Lounge, Bratva Bar and Uncle Louie G’s. Also, the New York Aquarium is making significant investments to its space. As the revitalization continues, we anticipate the opening of additional new businesses, which will bring new amenities.
Joseph J. Sitt
chairman/CEO, Thor Equities
Activists are concerned about local businesses going under because of all of the changes to the area. How are the changes that you and other developers are making impacting old-time businesses?
The fact is, the redevelopment of Coney Island will be a rising tide that lifts all boats. The area will not have seen the influx of spending, shoppers and tourists in a century. Plus, we forecast a different breed of visitor, who will stay the night and patronize many different levels and kinds of businesses: hotels, restaurants, shops, the boardwalk [and other] attractions. Since its heyday nearly 100 years ago, [Coney Island] has been in a saddening period of gradual decline and decay. Our vision would benefit existing businesses and provide thousands of jobs and a lift to an economically depressed residential community. … I grew up in the area in the ’60s and ’70s. My family and I live in Gravesend now. I jog on the boardwalk and eat in the restaurants. I want to preserve the grit that makes Coney Island so real and well-loved today and calls up feelings of nostalgia, but I seek to reinject the mood of fantasy and dreams that drew millions of visitors in the first place.
What kind of spillover effect is the redevelopment having on the investment sales market in the area?
There will be a great positive effect in the short term and — hopefully — a monumental one in the aggregate. Nobody has looked at this neighborhood as more than a time capsule for many, many years. It’s one of the last great opportunities in New York City. The prospect of the project in itself has sparked a wave of interest in both the commercial and residential markets, and in both the sales and rental sectors, which we have not seen in years.
Brian Hanson
director of sales, Massey Knakal
What kind of spillover effect is the redevelopment of the amusement park having on the investment sales market in the area?
In general, there hasn’t been a huge volume of sales anywhere in New York. I handle properties in Coney Island, Sheepshead Bay and Brighton Beach, and I would say the majority of sales in the past two years have been in Coney Island. We sold a property on Mermaid Avenue. We have another that should be going into contract on West 17th, and a residential development site on Stillwell [Avenue] that sold. … I think that the redevelopment has helped the opportunism for the area. People aren’t paying exorbitant money for them, but they are seeing a lot of potential. Coney Island will look a lot different in 10 years than it does today.
What types of commercial properties are seeing the most demand?
Any income-producing property, because of the long-term investment horizon for that area. Unless you’re selling a vacant building to someone who knows exactly what they’re going to do and can start the business right away, that vacant property is going to be harder to sell than the income-producing property.
Despite all of the redevelopment, there is still a lack of higher-end restaurants and amenities in the area. Why is that?
I think people were hoping for a light switch to turn on and that it would be immediately different and better, but the reality is it’s taking longer than everyone had hoped, especially with the recession coming right in the middle of the rezoning. I know that there are several higher-end and national food chains looking to set up shop. It’s just a matter of a couple of years — finding the right place and the right rent. Thor Equities is just finishing up their redevelopment on the corner of Stillwell and Surf, and that should be getting some good tenants.
What are retail rental rates like in Coney Island today and how does that compare to two years ago?
Prices vary depending on the corner, but in-line on Surf Avenue it’s about $35 per square foot. That is up slightly — 10 to 15 percent — from before the rezoning. It was at $30 before the rezoning.
What are you seeing in terms of the volume of real estate activity on the whole in Coney Island? Has it increased or decreased in the last year?
It has increased. There weren’t many sales in 2009 and early 2010, but there is more property available and more property being purchased than a year ago. [Developer] John Catsimatidis is pretty far along in the approval process for a mixed-use project called Ocean Dreams, at the west end of Surf Avenue. I believe the plans are for a tower containing 400 or so condos and 25,000 square feet of retail. This would be the biggest development in the area since Muss Development put up the Oceana in Brighton Beach. That project was, and still is, hugely successful.
Which commercial sectors (investment sales, retail, hotel, etc.) still have the longest way to go?
I would say hotel. Before it becomes a place where you or I would want to go to spend a weekend at a couple hundred dollars a night, I think there has to be a lot more to do down there.
Juan Rivero
spokesman, Save Coney Island
How concerned are you about old-time Coney Island businesses going under?
The departure of old-time Coney Island businesses is of great concern on a number of counts. First, they are part of what makes Coney Island unique, and not some generic strip off an interstate highway. Second, the retention and cultivation of local businesses makes sense as a matter of economic policy, since a higher percentage of the revenues they generate remain within the local economy. It is lamentable that the city has not encouraged leasing to local businesses on the land that it owns. The boardwalk and Coney Island could use the color, quirkiness and creative energy that local entrepreneurs have to offer and that chains and big corporations struggle to provide.
There is still a lack of higher-end restaurants and amenities in the area. Do you expect that to change?
Throughout most of its history, Coney Island has been a place of affordable amusement and recreation for anyone who could afford the price of a subway ride. Its old monikers — the People’s Playground, the Poor Man’s Riviera or the Nickel Empire — tell you as much. … Coney Island is an affordable amusement destination that is, and should continue to be, available to all New Yorkers.
Are there any buildings or projects outside of the main amusement park that you’re keeping an eye on?
Absolutely. The newly landmarked Shore Theater has a central location, and with the right vision it could again be a theater destination. The landmarked Childs Restaurant Building on the boardwalk is an obvious anchor for the western side of the district, and it’s just a matter of time before someone turns it into a restaurant, a club or a concert venue. On the south side of Surf Avenue, we envision the Grashorn, the oldest building in the amusement area, as a museum, a theme restaurant or perhaps a large haunted house. … One current development project we’re watching is the construction of new structures on Surf Avenue by Thor Equities. Regrettably, given Thor’s record so far in Coney Island, we don’t have very high expectations.
Timothy King
managing partner, CPEX Real Estate
What types of commercial properties are seeing the most demand in Coney?
Retail is the hottest segment.
There is still a lack of higher-end restaurants and amenities in the area. Do you expect that to change?
The area is in the early stages of redevelopment. Thor has a strong track record of attracting quality tenants.
How do land prices compare to before the revitalization of the area started up?
Values are up significantly over two years ago, [but there have been] more modest increases lately.
What are retail rental rates like in Coney Island today?
Rents are continuing to escalate. We are currently working on a fast-food lease at $40 per square foot.
RESIDENTIAL
Albert Wilk
owner/broker, Wilk Real Estate
How is the overall residential market
doing in Coney Island today?
There are a lot of delinquent properties with families facing foreclosure. Some of the buildings are neglected because [before] prices went down these people took out large mortgages and now can’t pay, so the banks are trying to sell notes and buildings. The neighborhood is very diverse, with Spanish, African-American and some Russian families who live in subsidized housing on 8th, 10th and 12th streets.
What are residential prices like in Coney Island compared to a year or two ago?
Prices for housing have gone down a lot. Two years ago, a six-family building in Coney Island had an asking price of about $800,000. Today, a six-family building in the good locations of Coney Island has an asking price of about $675,000. Prices went down about 15 to 20 percent. Coney Island went down more because it is the most underdeveloped location in Brooklyn.
The NYC rental market is performing well, largely because people are tentative about the sales market. How is the rental market doing in Coney Island?
Everything is being rented. I don’t see empty apartments on Coney Island. The majority of tenants that live on Coney Island are in subsidized housing or get some kind of city assistance. Junkies can be seen on the street during the day. It is not the healthiest part of Brooklyn.
What’s going on with residential development?
A few stalled projects have restarted, but I don’t see any new construction. Before, the price of land was skyrocketing because of the new condominiums, and because of that, the cost of the new condominiums was very expensive. Builders were paying $100 to $120 per buildable square foot. Today, I would not advise anybody to start a project if he is paying higher than $65 per buildable square foot, period. It would be suicidal.
What is the housing stock like in Coney Island and how is it changing? Are more condos being added to the mix?
On the MLS right now there are only eight active listings for one- to three-family houses. There are five in contract. In condos, we currently have nine units for sale, and we haven’t been able to sell these two-bedrooms from $299,000 to $319,000. People here live paycheck to paycheck.
Sofia Song
vice president, research, StreetEasy
What are prices like in Coney Island compared to a year ago and during the boom?
Median prices are down 8 percent from both a year ago and three years ago.
Which price segments of the market are performing best and worst now for sales?
Fifty percent of the closings in the second quarter of 2011 were below $300,000. There were only two closings above $500,000. In addition, 53 percent of those closing in the second quarter were co-ops, 22 percent were condos and 25 percent were houses.
What are the biggest challenges to selling real estate in Coney Island today?
The first is location. Coney Island is cut off from the rest of the borough by the BQE. It’s a very long commute to Manhattan. [Also], the area definitely needs more residential amenities like dry cleaners, supermarkets and places to eat for residents, not just Coney Island tourists.
Bartolo Raffaele
broker, RE/MAX Metro
How is the overall residential sales
volume doing in Coney Island today?
From six months and a year ago it’s about the same — not good. The boom was excellent, so there is no comparison.
Which price segment of the market is performing best right now for sales?
Properties are selling for between $300,000 and $400,000.
How is the rental market doing right now compared to the sales market?
Rentals are doing great because sales are down, but understand that Coney Island isn’t a large area. There are a limited number of houses in Coney Island compared to other areas in Brooklyn.
There are reports that developer John Catsimatidis might target those who are 55 and older at his planned condo project. What do you think about that?
We need developments built for 55 and older for the future. It would be a great thing to build right by the water.
John Reinhardt
president/CEO, Fillmore Real Estate
Are you seeing any new demographics, like young families looking at property in Coney Island?
We do occasionally find that. People that wouldn’t have ventured into Coney Island a few years ago are excited about the prospect for growth and improvement, just like the people that went to Harlem in the old days. There is a real value and upside potential in Coney Island.
What is the residential housing stock like in Coney Island and how is it changing?
I anticipate in the next few years that there will be a lot more condos. …There are no real new projects to speak of [right now].