After Relatively Strong 2016, Brooklyn Likely To See More Institutional Investment
For the first time in years, fewer Brooklyn properties traded hands in 2016 than the year before, but compared to Manhattan, Brooklyn commercial real estate has to be feeling pretty good about the way it ended the turbulent year.
In 2016, $7.8B traded hands in commercial real estate transactions, according to TerraCRG research, the second-highest number ever, but a significant drop-off from the red-hot 2015 sales market, in which $9.5B transacted.
Nearly $1B of last year's sales came in the systematic sell-off of the Jehovah's Witnesses' Watchtower portfolio in Brooklyn Heights and Dumbo. The four properties that changed hands — 25 Columbia Heights, 124 Columbia Heights, 85 Jay Street and 61-77 Adams — combined for $855M. Even without those deals, the Brooklyn investment market beat TerraCRG's internal projects by $400M.
"A lot of people didn’t know what was happening last year. People sat on their hands the first half of the year," TerraCRG partner Adam Hess told Bisnow today. "In the second half, we saw significant pickup, and what I’m seeing is people are optimistic that the overall business environment is going to improve this year and the next couple of years."
Hess said while there won't be $855M in deals from one entity — although another Watchtower property or two could hit the market, we're told — in 2017, the flow of institutional investors seeking out Brooklyn for deals is expected to increase.
Keep an eye out for portfolio transactions changing hands as those institutions look to reach their $50M to $100M deal threshold. In Manhattan, an institution can buy a stake of an office building and it's a big enough investment. Most Brooklyn deals are still far too small to be worth it without several properties selling at once.
For an intitutional investor, "if you want a stake in the Brooklyn market, you’re going to have to be comfortable with these smaller properties," Hess said. "You’ll see five, six or seven portfolios trade that are four or five large buildings or 10-plus smaller buildings that will be in the $50-$100M range."
Hess agreed with the scenario that long-term landlord holders could be trying to time the market to sell before interest rates rise and the U.S. economy starts to slip into a recession.
With the L Train shutdown growing ever closer, Hess theorized that office tenants in Manhattan could open satellite offices in Brooklyn in an effort to keep their best workers — many of whom live in Brooklyn — happy.
In 2016, according to Colliers International, Amazon, Laundry Service, Cycle, Translation and Publicis were among the firms with Manhattan offices that either opened a satellite office in Brooklyn or moved across the East River entirely.