Wednesday, August 29, 2007

The Wall Street Journal, on real estate and AY, needs some footnotes

A Wall Street Journal real estate column (full text for subscribers only) today tagged BLUEPRINT/Brooklyn and headlined 'Dem Bums' No Longer: A Borough on the Rise, begins:
About five decades after the Brooklyn Dodgers moved to Los Angeles, some investors are betting that a planned arena for the Nets NBA team and a residential building boom will help clinch the borough's comeback--and push up its commercial real-estate values.

That's an odd formulation. In many ways, the borough has already come back--residential real estate values have rocketed and the question has been managing growth and maintaining affordability. And commercial real estate has been a sideshow, as both plans by the city and Atlantic Yards developer Forest City Ratner have changed dramatically.

But the column's about commercial real estate, and there's little room for complexity.

On to AY

More than half the article is devoted to Atlantic Yards, even though the project is less and less about commercial real estate:

Among the largest projects planned is the $4 billion Atlantic Yards project being developed by Forest City Ratner Cos., an affiliate of Cleveland-based Forest City Enterprises Inc. The mixed-use development was designed by Frank Gehry and is partially located over rail yards on the edge of downtown Brooklyn. It is planned to include more than 6,000 residential units and the arena for the Nets, who play in New Jersey. There also will be an office tower, dubbed "Miss Brooklyn" because Mr. Gehry's design is said to have been inspired by a bride. Forest City Ratner plans to begin construction on the arena this fall and have the Nets in Brooklyn for the 2009-2010 season.


Unmentioned: that schedule is highly unlikely.

How much office space, at what cost?

The article continues:
Miss Brooklyn is expected to command rents in the $50-to-$60-a-square-foot range, according to MaryAnne Gilmartin, executive vice president for Forest City Ratner. That is above the $30 average asking rent in Brooklyn, which has historically appealed to financial-services companies as an affordable back-office location that offers good value in comparison to Manhattan. But Glenn Markman, an executive director at Cushman & Wakefield, believes the borough will attract new types of companies, such as those in creative industries that will be willing to pay higher rates for a signature building.

Maybe. The New York Times reports today some comparisons:
Landlords are asking $36.85 a square foot on average for Class A office space in Jersey City now, up almost 14 percent from a year ago. During that time, average asking rents in Lower Manhattan rose more than 25 percent, to $50.59, according to Cushman & Wakefield, a real estate services company.

Actually, according to projections in a Forest City Ratner document released in response to the lawsuit by Assemblyman Jim Brennan and State Senator Velmanette Montgomery, Class A office space is expected to rent at $39 for the first five years, $42.90 for the next five years, $47.19 for the next five years. It would top $50, at $51.91, only beginning in year 16. (See p. 9 of this PDF.) Those projections are almost a year old, but Brooklyn still has a good amount of empty office space.

Unmentioned: the severe cutback in planned Atlantic Yards office space, from about 2 million square feet to 336,000 square feet, and thus a cut in projected jobs. While Brooklyn may attract creative industries, the justification for the Downtown Brooklyn rezoning, and the initial Atlantic Yards office space, was to meet the need for back office space--large floor plates in large building sites for non-creative industries like financial services.

Public opposition

The article continues:
The plan still faces opposition from area residents and legal challenges. Daniel Goldstein, a spokesman for a group opposed to the project called Develop Don't Destroy Brooklyn, says many residents are concerned their neighborhood will be changed for the worse by traffic generated by the arena and the nature of the overall development, which, they fear, will alter the diverse racial, ethnic and socioeconomic groups that make Brooklyn special.

Beyond that fuzzy summary, the challenge in state court takes on the government's dubious claims of blight, while the challenge in federal court argues that eminent domain must proceed via a more transparent and democratic planning process.

Developer responsiveness?

The article concludes by giving the developer the benefit of the doubt:
Ms. Gilmartin says Forest City has cut about one million square feet from the project and has worked with state, city and local leaders to address issues of scale and density. In addition, she says the project's location over one of the city's biggest transit hubs makes sense because it will give people access to public transportation, which can help limit traffic.

Gilmartin seems to be channeling her mysteriously-departed predecessor, Jim Stuckey: the project, in terms of square footage, is about the same size as announced, an issue that flummoxed the press nearly a year ago. Of course density is appropriate near a transit hub; the issue is not the prospect of density, but how much.

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