Thursday, October 13, 2011

NY Post on real estate around AY: retail enthusiasm, residential wariness--and vast gap between Atlantic Terrace pricing and KPMG's AY predictions

The New York Post today publishes a real estate article headlined Court vision: With opening of Nets’ new arena actually on horizon, Brooklyn residents brace themselves for whatever happens next.

So, while the article does take in some diverse voices, it's focused on the real estate market, not the "whatever happens next" of daily construction noise and dust faced by some project neighbors, as documented on Atlantic Yards Watch, or the burdens expected from pedestrians and drivers congesting narrow streets on their way to and from interim surface parking.

Markowitz optimistic

The article states:
As the stadium, which will seat 18,000 during basketball games and 19,000 for concerts and contain eight clubs and restaurants, makes its bold way into Brooklyn, the neighborhoods that surround it -- Park Slope, Fort Greene, Clinton Hill, Prospect Heights, Boerum Hill -- are busy figuring out how to react.

“When the arena opens, you’ll see a new city center in New York, with culture, art, entertainment,” says Marty Markowitz, Brooklyn’s borough president. “There will be many people who’ll want to live downtown because it’s bustling, exciting.”
Unmentioned are the much warier responses by local community boards, which have been hit with a plethora of applications for bars and nightspots.

Landlords waiting

If you see moribund retail space near the arena, that's a negotiating tactic, according the article:
Markowitz might be right, but, meanwhile, uncertainty surrounds almost every aspect of the project.

“No one knows exactly what will change yet,” says Ofer Cohen, president of TerraCRG, a commercial realty group whose office is in the shadow of the arena. “The one aspect of development that will come earlier will be in terms of retail on Atlantic and Flatbush surrounding the arena.”

According to Cohen, landlords in the area have been patiently awaiting the opening of the stadium, allowing leases to lapse and their spaces to sit vacant in anticipation of attaining higher rents.

Asking retail rents on Flatbush across from the stadium go from $85 per square foot up to $175 per square foot, the high end of Brooklyn pricing, notes Geoffrey Bailey, vice president of retail services at TerraCRG.
Keep in mind that, however visible the impact in the immediate area, the larger impact is questionable. From a 10/11/11 Financial Times article headlined NBA cancels two weeks of season:
Though both sides in such labour disputes often use the wider economic impact of sports as ammunition for their arguments, Andrew Zimbalist, professor of economics at Smith College in Massachusetts, said the impact to the economy would be minimal.
“The bars will be affected, but it won’t have any effect on the overall economy,” he said. “Some venues will be hurt, others will be helped. If people don’t go to games, they’ll go out to dinner.”
Residential wariness

The article quotes a bar owner who opened Woodwork on Vanderbilt Avenue in anticipation of the arena and a residential real estate agent who says, "“I haven’t seen developers trying to buy close to the stadium.” (It's an arena, as Markowitz would remind us.)

Regarding Atlantic Terrace, the new mixed-income co-op building on Atlantic Avenue catercorner to the arena, the 59 affordable units have been bought, as have nine of the 20 market-rate apartments:
“We’re seeing more construction-specific fears as opposed to arena-specific fears,” says Heather Gershen, director of housing development at Fifth Avenue Committee, which developed the project. “It is a major construction project, but construction is a reality of living in New York.”
Yes, and no. Construction over 25 years is not a reality. And, as noted below, it looks like the relatively reasonable prices--toward the low end for Fort Greene--mean the Atlantic Yards factor is being priced in.

Atlantic Terrace pricing casts doubt on KPMG report

The article states that Atlantic Terrace co-ops are priced at $550 per square foot. Consider the August 2009 KPMG report to the Empire State Development Corporation (ESDC) that argued that it was reasonable to expect a ten-year buildout of the project.

The state relied on this questionable report to argue it was reasonable not to study an extended buildout of this project.

A state judge has ruled twice against the ESDC, saying the agency should have studied an extended buildout--though the basis for that ruling has not been flaws in the KPMG report but rather the discrepancy between the ten-year assumption and other project documents that allow a 25-year buildout.

Even though the average high sales price in the three surrounding neighborhoods was $970/sf, the KPMG report states that only a "modest inflation factor" would allow Forest City to reach its 2015 target of $1217/sf:
Mindful that these prices are based on transactions that have occurred over the past 12 months during a severe recession, the value ranges for Fort Greene ($480 - $720), Park Slope ($500 - $950) and Prospect Heights ($470 - $1,225) lend support for the FCRC’s projected sale prices when a modest inflation factor is applied given these future sales prices.
The Atlantic Terrace price of $550/sf would have to more than double across the street.

Some skepticism

The article notes skepticism about Forest City's plans for  16  towers, with an FCR spokesperson saying they "will 'hopefully' break ground before the year is out." That's unlikely, as Empire State Development (Corporation) CEO Kenneth Adams last month predicted the first quarter of 2012.

The article states:
 But even in the best-case scenario, with groundbreaking of each of the subsequent residential buildings coming nine months to a year after the groundbreaking of the building before it, the last phase one building could just be getting started in 2015. And, of course, there’s then phase two.
That's the best-case scenario if they don't build prefab, though that could speed things up. The article states:
“The big question is, what will the real community benefits be? We were promised affordable housing and construction jobs. They’ve announced modular construction,” Gershen says. “Jay-Z is not an amenity.”
They've announced the potential for modular construction, which, given lower labor costs, would significantly cut the total payroll, if not the total number of jobs. Note that Gershen's organization is a plaintiff in the above-mentioned ongoing suit challenging the failure to study impacts of an extended project timetable, which community groups have won--pending an appeal.

Also note that the Fifth Avenue Committee has built affordable housing in a mixed-income building near the Atlantic Yards site much faster than did Forest City.

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