A Rental Market Surge in Brooklyn
May 29, 2012
By: Julie Satow

The market for multifamily buildings in Brooklyn has been heating up over the last year. But the recent sale of 111 Kent Avenue in Williamsburg was stunning even in a hot market. ...

... The price paid per apartment is a record for such properties outside Manhattan, according to the data company, Real Capital Analytics. ...

... Several factors are behind the trend, including a strong rental market and low interest rates. ...

... In addition to a strong rental market, Brooklyn is attracting waves of investors because of the many stalled condominium sites that are primed for conversions into rental buildings. ...

... “Any time people build condominiums and the market doesn’t support it, there is a shift to rentals — that is not a new phenomenon,” said Woody Heller, an executive managing director at the brokerage firm Studley who, along with Will Silverman, a senior managing director, represented the seller in the sale of 111 Kent Avenue. “What is new is that we are seeing this happen in Brooklyn.” ...

... In the case of 111 Kent, the original developer had intended the building to be a condominium, but after constructing the majority of the building, financing dried up ...

... Another factor that is attracting these investors to Brooklyn is that the bulk of the stalled condominium sites come with 15-year tax abatements as part of the 421A tax program. The tax program allows landlords to pay less real estate taxes over the life of the program. In return, developers are allowed to charge market rate for the rentals, but they can only increase those rents by a limited percentage each year, as set by the New York City Rent Guidelines Board. ...

... Since many of the projects were originally intended as condominiums, there is also the possibility that should the market shift they could be converted back into for-sale units. In many cases, the projects already have condominium plans filed with the attorney general’s office or have condominium-level finishes and amenities. ...

... One caveat is that those projects that have the 421A tax abatement must wait until the program runs down before the building can be converted back to condominiums. ...

... At the same time, land prices have begun to creep up and condominium prices are also showing signs of strengthening. If land prices and condominium sales reach a certain point, then developers may begin pursuing condominium developments rather than rental projects. ...

... Mr. Heller said “the landscape is beginning to feel selective and sparse” for multifamily sales, adding that “the market is at an interesting point of inflection.”

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