Skip to main content

Real estate boom lifts Atlantic Yards/Pacific Park condos: prices 18% over 2009 projections for 2015 (which were aggressive)

It's stunning, a testament to the roaring New York/Brooklyn/Prospect Heights real estate market, as well as the unpredictability of project timing, the entrance of a deep-pocketed partner, and the opportunity to reach a new segment of buyers.

In 2009, Forest City Ratner's projections for future condominium revenues were seen by many (including this writer) as significantly overstated. Now, they seem conservative.

(Update: a reader points out that we should look at the 2006, when the project was first approved, with the unrealistic ten-year buildout.)

For example, in 2009, the developer projected that the B11 tower would open in 2019 and sell for $1,369 per square foot, among the most expensive towers in the project.

Now, the building, known as 550 Vanderbilt, is projected to open next year, and the eight announced sales are pending at $1,436/sf, according to StreetEasy.

That's more than a 4.9% increase. It's a 4.9% increase three years early. As of 2015, the developer was only expecting $1,217/sf for the first condo building. The jump to $1,436 represents an 18% increase.

Should those numbers be reached, and also be reflected in the market-rate rentals, Forest City may well make up the impairment it announced, $148.4 million after taxes, upon selling 70% of the project (excepting the Barclays Center and B2) to Greenland Holdings last year.

After all, the subsidized affordable rental apartments also will rent for higher prices than projected.

Forest City also originally gains a 5% development fee, which if maintained by the developer--rather than split with Greenland--would mean some $200 million.

Greenland not only offers deep pockets but--surely not projected a decade ago--access to some deep-pocketed potential condo purchasers. Hence the marketing materials in Chinese.

The 550 Vanderbilt units

Streeteasy's page for 550 Vanderbilt cites:
  • Apt. 202, 1-BR, 1-BA, 637 sf, $800,000 ($1255/sf))
  • Apt. 327, 1-BR, 1-BA, 672 sf, $870,000 ($1294/sf))
  • Apt. 621, a studio, 461 sf, $625,000 ($1355/sf))
  • Apt. 331, a studio, 414 sf, $565,000 ($1364/sf))
  • Apt. 328, 2-BR, 2-BA, 1,177 sf, $1,615,000 ($1,372/sf)
  • Apt. 730, 3-BR, 2-BA, 1,358 sf, $1,960,000 ($1,443/sf)
  • Apt. 1119, 3-BR, 3.5 BA, 1,919 square feet, $2,890,000 ($1505/sf)
  • Apt. 1317, 2-BR, 2-BA, 1,004 sf, $1,655,000 ($1,648/sf)
Looking for context

Some thought those numbers high--one Brownstoner commenter pointed to a resale in DUMBO at under $1200/sf.

But they're not out of line for the most expensive luxury condos in the area. At One Prospect Park, there's a listing for $1823/sf. Units recently sold for $1104/sf, $1270/sf, $1173/sf, and $1459/sf.

The latter unit, listed at 9/15/10 for $1,950,000 and then re-listed 1/17/12 for $1,775,000, finally sold more than 18 months later, on 4/18/12, at that new ask. It was re-listed two years later, on 4/8/14, at $2,849,000, it sold at that ask less than four months later. That's an astounding price increase of 60.5%.

At Newswalk, 535 Dean Street, there's a unit on sale for $1090/sf, and another for $1002/sf. (This latter was priced at $799,000 in 2009, and is now listed at $2,099,000, an increase of 162.7%.) Sales at Newswalk's Phase 3 average $1004/sf.

Active sales at 388 Bridge Street in Downtown Brooklyn, the borough's tallest tower, average
$1,494/sf, while previous sales averaged $1,335/sf, according to StreetEasy.

Downtown Brooklyn, according to StreetEasy, averages $1,340/sf. Prospect Heights averages $1013/sf, including townhouses. The difference in price may be one reason why Corcoran--violating its own stated boundaries!--classifies 550 Vanderbilt as being located in Downtown Brooklyn.

The predictions in 2009


In 2009, Empire State Development, the state agency overseeing and shepherding the project, commissioned a report from KPMG that said it was not unrealistic to expect the project to be built in ten years, given the continuing demand for affordable housing as well as the expected increase in demand for market-rate units.

KPMG cited Brooklyn demographics:
If the above given projections turn out to be evenly reasonably accurate, the Brooklyn residential marketplace will demand more luxury apartments and condominiums over the next ten years.
KPMG noted the predictions were generally in the range of $1,200 to $1,400 per square foot--and I discovered the actual numbers, which were not fully redacted, including the $1,369/sf prediction for 2019.

But KPMG's statistics about condo sales, as I pointed out, were exaggerated and incorrect.

Note that the project, in fact, was not built out in the next ten years, as developer Forest City Ratner spent several years researching modular construction, aiming for cost savings. But it looks to be built out in eleven years after joint venture partner Greenland entered the picture in 2014. That means a 16-year buildout after 2009.

What's changed

With Greenland in the driver's seat, they're building conventionally--though in 2011, developer Bruce Ratner told the Wall Street Journal that "existing incentives" don't work for high-rise, union-built affordable housing.

What's changed? First, it's quite possible that Greenland, in its desire to make a splash, is accepting a lower profit margin. More importantly, the market is booming even beyond KPMG's assessment. KPMG stated:
Given the timing of the Subject Property’’s entry into the market place, with what was described earlier in this report about the vacancy and absorption rates, the market data supports that the high-end/luxury nature of these properties, coupled with the number of building amenities that will be provided, such as proximity to transportation, the fact that the buildings will be brand new, the amount of retail surrounding the property, etc, will create a higher demand for the Subject Property and allow the units to be absorbed more quickly than other comparable properties, as well as, obtain a premium on asking sales price.
What might that premium be? As noted in the graphic above right, condos in 2009 were averaging $450/sf as a minimum and $970/sf as a maximum, with the anomalous $1225/sf likely attributable to One Prospect Park.

Even that number wasn't trustworthy; the KPMG report claimed that building was 75% sold; however, the Times quoted the developers as saying half the units have been sold and that StreetEasy.com documented only 25% the units as sales.

Looking back at the critique

As I wrote in 2009, the Kahr report commissioned by the Council of Brooklyn Neighborhoods--a group set up to respond to the environmental review--was skeptical of even the $850/sf (in 2006 dollars) assumed for condos in a 2006 KPMG report.

Given recent price drops in Manhattan, "the Brooklyn properties should be in the $600 PSF range," Joshua Kahr wrote.
From 2006 predictions

Kahr was both right and wrong.

He was absolutely correct in casting huge doubts on the official timetable, saying it "would be extremely difficult to finance the project within the next 36 months and to build the project over the next ten years."

That should have been enough to give state overseers pause.

But Kahr also said "it is much more likely that the development will take at least 20 years to complete." That was a not unreasonable conclusion, given that Forest City Ratner restructured payments to the MTA to last more than 20 more years. But it also didn't allow for market changes.

Also, hindsight suggests that Kahr should have provided much more of a range of projected condo prices, depending on the level of economic recovery.

While it may have been reasonable to project a recovery, few were projecting the furious rise in real estate dollars, even in the past few years, as noted in the sales at One Prospect Park.

Nor was anyone projecting how Forest City (with Greenland) would raise $349 million via the EB-5 program--essentially selling visas--to lower costs and help pay for the project. (This was on top of $228 million raised during the arena construction phase.)

Or that a deep pocketed developer from China would join the project, and have access to wealthy Chinese buyers.

Atlantic Yards, as I've said before, is a "never say never"project.

Comments

Popular posts from this blog

Barclays Center/Levy Restaurants hit with suit charging discrimination on disability, race; supervisors said to use vicious slurs, pursue retaliation

The Daily News has an article today, Barclays Center hit with $5M suit claiming discrimination against disabled, while the New York Post headlined its article Barclays Center sued over taunting disabled employees.

While that's part of the lawsuit, more prominent are claims of racial discrimination and retaliation, with black employees claiming repeated abuse by white supervisors, preferential treatment toward Hispanic colleagues, and retaliation in response to complaints.

Two individual supervisors, for example, are charged with  referring to black employees as “black motherfucker,” “dumb black bitch,” “black monkey,” “piece of shit” and “nigger.”

Two have referred to an employee blind in one eye as “cyclops,” and “the one-eyed guy,” and an employee with a nose disorder as “the nose guy.”

There's been no official response yet though arena spokesman Barry Baum told the Daily News they, but take “allegations of this kind very seriously” and have "a zero tolerance policy for…

Behind the "empty railyards": 40 years of ATURA, Baruch's plan, and the city's diffidence

To supporters of Forest City Ratner's Atlantic Yards project, it's a long-awaited plan for long-overlooked land. "The Atlantic Yards area has been available for any developer in America for over 100 years,” declared Borough President Marty Markowitz at a 5/26/05 City Council hearing.

Charles Gargano, chairman of the Empire State Development Corporation, mused on 11/15/05 to WNYC's Brian Lehrer, “Isn’t it interesting that these railyards have sat for decades and decades and decades, and no one has done a thing about them.” Forest City Ratner spokesman Joe DePlasco, in a 12/19/04 New York Times article ("In a War of Words, One Has the Power to Wound") described the railyards as "an empty scar dividing the community."

But why exactly has the Metropolitan Transportation Authority’s Vanderbilt Yard never been developed? Do public officials have some responsibility?

At a hearing yesterday of the Brooklyn Borough Board Atlantic Yards Committee, Kate Suisma…

Barclays Center event June 11 to protest plans to expand Israeli draft; questions about logistics

At right is a photo of a poster spotted in Hasidic Williamsburg right. Clearly there's an event scheduled at the Barclays Center aimed at the Haredi Jewish community (strict Orthodox Jews who reject secular culture), but the lack of English text makes it cryptic.

The website Matzav.com explains, Protest Against Israeli Draft of Bnei Yeshiva Rescheduled for Barclays Center:
A large asifa to protest the drafting of bnei yeshiva in Eretz Yisroel into the Israeli army that had been set to take place this month will instead be held on Sunday, 17 Sivan/June 11, at the Barclays Center in Downtown Brooklyn, NY. So attendees at a big gathering will protest an apparent change of policy that will make it much more difficult for traditional Orthodox Jewish students--both Hasidic (who follow a rebbe) and non-Hasidic (who don't)--to get deferments from the draft. Comments on the Yeshiva World website explain some of the debate.

The logistical questions

What's unclear is how large the ev…

Forest City acknowledges unspecified delays in Pacific Park, cites $300 million "impairment" in project value; what about affordable housing pledge?

Updated Monday Nov. 7 am: Note follow-up coverage of stock price drop and investor conference call and pending questions.

Pacific Park Brooklyn is seriously delayed, Forest City Realty Trust said yesterday in a news release, which further acknowledged that the project has caused a $300 million impairment, or write-down of the asset, as the expected revenues no longer exceed the carrying cost.

The Cleveland-based developer, parent of Brooklyn-based Forest City Ratner, which is a 30% investor in Pacific Park along with 70% partner/overseer Greenland USA, blamed the "significant impairment" on an oversupply of market-rate apartments, the uncertain fate of the 421-a tax break, and a continued increase in construction costs.

While the delay essentially confirms the obvious, given that two major buildings have not launched despite plans to do so, it raises significant questions about the future of the project, including:
if market-rate construction is delayed, will the affordable h…

Atlanta's Atlantic Yards moves ahead

First mentioned in April, the Atlantic Yards project in Atlanta is moving ahead--and has the potential to nudge Atlantic Yards in Brooklyn further down in Google searches.

According to a 5/30/17 press release, Hines and Invesco Real Estate Announce T3 West Midtown and Atlantic Yards:
Hines, the international real estate firm, and Invesco Real Estate, a global real estate investment manager, today announced a joint venture on behalf of one of Invesco Real Estate’s institutional clients to develop two progressive office projects in Atlanta totalling 700,000 square feet. T3 West Midtown will be a 200,000-square-foot heavy timber office development and Atlantic Yards will consist of 500,000 square feet of progressive office space in two buildings. Both projects are located on sites within Atlantic Station in the flourishing Midtown submarket.
Hines will work with Hartshorne Plunkard Architecture (HPA) as the design architect for both T3 West Midtown and Atlantic Yards. DLR Group will be t…

Revising official figures, new report reveals Nets averaged just 11,622 home fans last season, Islanders drew 11,200 (and have option to leave in 2018)

The Brooklyn Nets drew an average of only 11,622 fans per home game in their most recent (and lousy) season, more than 23% below the announced official attendance figure, and little more than 65% of the Barclays Center's capacity.

The New York Islanders also drew some 19.4% below announced attendance, or 11,200 fans per home game.

The surprising numbers were disclosed in a consultant's report attached to the Preliminary Official Statement for the refinancing of some $462 million in tax-exempt bonds for the Barclays Center (plus another $20 million in taxable bonds). The refinancing should lower costs to Mikhail Prokhorov, owner of the arena operating company, by and average of $3.4 million a year through 2044 in paying off arena construction.

According to official figures, the Brooklyn Nets attendance averaged 17,187 in the debut season, 2012-13, 17,251 in 2013-14, 17,037 in 2014-15, and 15,125 in the most recent season, 2015-16. For hoops, the arena holds 17,732.

But official…

So, Forest City has some property subject to the future Gowanus rezoning

Writing yesterday, MAP: Who Owns All the Property Along the Gowanus Canal, DNAinfo's Leslie Albrecht lays out the positioning of various real estate players along the Gowanus Canal, a Superfund site:
As the city considers whether to rezone Gowanus and, perhaps, morph the gritty low-rise industrial area into a hot new neighborhood of residential towers (albeit at a fraction of the height of Manhattan's supertall buildings), DNAinfo reviewed property records along the canal to find out who stands to benefit most from the changes.
Investors have poured at least $440 million into buying land on the polluted waterway and more than a third of the properties have changed hands in the past decade, according to an examination of records for the nearly 130 properties along the 1.8-mile canal. While the single largest landowner is developer Property Markets Group, other landowners include Kushner Companies, Alloy Development, Two Trees, and Forest City New York.

Forest City's plans unc…