Brooklyn Developers, Financers Are Growing More Grounded In Their Expectations
Brooklyn development exploded in the last decade, but all good things must come to an end.
Sitting in the newly completed William Vale Hotel, the panelists of Bisnow’s Brooklyn New Frontiers event warned that the increasing difficulty of construction financing and a frustrating government could bring the borough back to earth, but insisted there are still opportunities and areas to take advantage of in the time we have left.
In the wake of the 421-a’s expiration, for example, no one could deny that multifamily construction had taken a hit. While The Hudson Cos principal Alison Novak was confident the program would return after the election, Red Apple Group CEO John Catsimatidis (right) wasn’t as certain, joking that many government workers didn’t know what the program was.
Frustrations with the government were a theme throughout the morning.
Meridian Capital Group senior executive managing director David Schechtman was quick to remind the crowd that the “utopian dreams” of every NYC neighborhood being safe and available for rapid development was “insane” without a smart government that incentivizes intelligent development, and that isn’t happening.
John agreed, believing that the market will only get tougher without creative inducements that aren’t forced down the industry's throat.
John and Mintz Levin partner Jeff Moerdler (left)—a former commissioner of the Port Authority—argued that government is hindering development, such as using the Port Authority as a “piggy bank for other projects that won’t make any revenue.”
“The Authority has a $50B project wish list and a $30B annual budget, and half of that is being used to keep the current infrastructure together,” Jeff said.
Another big concern came from Hornig Capital Partners managing partner Daren Hornig (second from right), who said the increasing difficulty of acquiring construction financing could make it almost impossible to find a deal to underwrite and be confident on absorption. While Slate Property Group's fortunate to have repeat credible lenders, Slate managing director Michael Zampetti said, finding acceptable terms or asking for more money has become a nightmare.
A concern that was quickly diffused was the L line’s 2018 renovations. Michael (far right) called the renovations “a blip on the radar” that could create opportunities for those willing to take the risk, while Daten Group director Craig Roenmann (second from right) added that other transit options would be there to pick up the slack.
In the face of these challenges, several panelists had their unique philosophies to find the last untapped Brooklyn markets. John said he’s keeping his eye out on the next MetroTech or Lincoln Center—a “mecca for developments and opportunities for people to pay out of pocket for NYC real estate.”
Daren echoed the words of his father—”follow the artists.” Seeing similar booms in Chelsea, the East Village and Williamsburg, he believes Bushwick is the next artist alley, as it has so little quality product that smaller companies will have no issue paying $40 to $50 per SF.
David said the secret lays in food. Coming from “a family of foodies before the Food Network was even a thing,” David says developers should be looking along the water, where new transit options have catalyzed a boom in new restaurant concepts.
A unique alternative came from Brook Land Capital president Boaz Gilad (right), who said condos would stay strong as more families made their way to Brooklyn and realized they could have all the benefits of owning the property as opposed to renting it for the same price. Even as as the luxury condo market’s struggles shake banks’ confidence, he says he hasn’t seen a drop in prices.
David and Cushman & Wakefield's Winfield Clifford (second from left) believe Brooklyn’s at the end of the cycle. While multifamily will always rent and stand the test of time when compared to Manhattan—”we have to beat people back with a stick,” David jokes—none could deny we’re about to enter a particularly tricky time, or even a potential slowdown, for the market and financing.