Skip to main content

Forest City's Gilmartin: Brooklyn residential bet depends on spread vs. Manhattan; incentives needed for office market

There are some interesting quotes from Forest City's CEO in the Real Deal's Downtown Brooklyn’s second act: Q&A, part I: Forest City's MaryAnne Gilmartin and RXR's Seth Pinsky offer their takes.

First, the reasons

So, why did residential outpace office development after the 2004 rezoning?
I don’t think anybody, including Forest City, ever imagined the residential market would kick in like it did. We thought we’d see a third central business district thrive and an expansion of the office market as a result of the zoning, but that didn’t happen. It started with the food movement and then the artists. They all flocked to Brooklyn. Certainly, government policies, including the allowance for taller buildings to spur the office market, allowed for market forces to respond so that residential development took over.
It started with the food movement? C'mon, Smorgasburg didn't start until 2011. The artists were in Williamsburg, not Downtown Brooklyn decades earlier. (They got kicked out of DTB for MetroTech.)

People were moving to condos and rentals in Downtown Brooklyn because they offered new residential units near transit at a relatively low price point, given the price of land and tax breaks (as noted in the doc My Brooklyn). As to the "third central business district," everyone knew the projections were overblown.

Brooklyn vs. Manhattan

She was asked what kind of residential buyers/renters are coming to Downtown Brooklyn:
It’s really about the spread when living in Brooklyn versus Manhattan.... If you look at the $1,500-per-square-foot condo in Brooklyn then look at what’s available in Manhattan, there is such a stark comparison. For the same quality you’re looking at north of $2,000 a square foot in Manhattan. That’s what we’re betting on in Brooklyn. If you’re a renter, an apartment at our luxury tower at 80 DeKalb goes for $60 a foot, which nobody believed would happen in Brooklyn. But then you have a similar building in Manhattan, like the Gehry building, where rents easily pierce $80 a foot. If I’m chasing $20 of spread, I think I’ve got a pretty nice runway in Brooklyn.
In other words, luxury, luxury, luxury--aiming at people who see Brooklyn as a bargain compared to Manhattan. Greenland Forest City is aiming at around $1500 psf for 550 Vanderbilt.

(Remember how Atlantic Yards was supposed to help solve Brooklyn's housing crisis? See flier at right.)

And we'll see whether they can get $60 psf in the market-rate units at 461 Dean Street, which may have an asterisk attached, given its proximity to the Barclays Center and its history of modular troubles.

New office demand

She was asked if Downtown Brooklyn compete with neighborhoods like Dumbo for TAMI-sector [technology, advertising, media, and information] tenants and if a major company headquarters would come to Downtown Brooklyn:
The TAMI worker, the TAMI professional and student, all want to be in Brooklyn. The relative cost of a company to relocate to Brooklyn is highly compelling. The fact that there’s an engineering school going up on Jay Street, for example, allows for the creation of the new kind of 21st-century worker in Brooklyn. The traditional finance sector that was located in MetroTech has been replaced by NYU, Tough Mudder and Makerbot. 
That's because the "traditional finance sector" has shedded jobs, or moved them out of Brooklyn or remotely, so Forest City has had to scramble to find smaller tenants for MetroTech.

It's interesting that Gilmartin did not directly answer the question about a major company moving its headquarters to Brooklyn--surely Greenland Forest City, if it builds more than a million square feet of office space in the B4 tower and at Site 5 (aka the "Brooklyn Behemoth," for now on hold), would want an anchor tenant.

Biggest challenges

Asked about the biggest threats, Gilmartin cited rising land prices and the absence of the 421-a tax break:
You can’t build unless you have a tax benefit. Without it, you can’t make the numbers work. So you have to offer a combination of “as of right” benefits, including reduced energy costs and relocation benefits. Those benefits are essential to making the numbers work. It still costs the same amount to build a new building in Brooklyn as it does in Manhattan, but we have to factor 30 percent less in rent. To remove these kinds of benefits, which are renewable every few years because it’s a legislative process, would be a death knell for the emerging office market in Downtown Brooklyn. 
Land prices "are being driven up so much by demand"? She can't really complain. Didn't Forest City sell a development site at 625 Fulton for a nice sum? And doesn't Greenland Forest City control a whole bunch of development sites?

Gilmartin, like the Downtown Brooklyn Partnership she co-chairs, seeks permanent incentives to make the numbers work. Perhaps we won't see office towers rise in Atlantic Yards/Pacific Park until those benefits are renewed and/or made permanent.

What's next?

Asked about upcoming deals, Gilmartin responded:
Obviously we’ve got our work cut out for us over in Pacific Park, but I’m a big believer in the office market. Brooklyn is ready for a sophisticated office tower; the idea that it could be built on Flatbush and look straight across at the Manhattan Bridge would be ideal... There’s some unused air rights that NYU has in that [MetroTech] area that could be interesting.
"Brooklyn is ready for a sophisticated office tower" sounds like "we're ready to build at Site 5," with our Shanghai government-owned partner/overseer, as long as the state agrees and we can put some expensive condos on top.

As for "some unused air rights that NYU has," well, that was a key, I suspected, to the amazingly under-the-radar 2008 absorption by NYU of Polytechnic University (which then became NYU Poly, then, after a donation, was renamed NYU Tandon).

Pinsky's take

The Real Deal Q&A is also worth reading for the answers from RXR Realty's Seth Pinsky, a former city official, who talks about how the Brooklyn office market has grown because it's closer to the workforce, how office buildings may become more attractive if residential rates soften, and why he likes the mayor's proposal for transit expansion (others disagree).

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…

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…

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…

At 550 Vanderbilt, big chunk of apartments pitched to Chinese buyers as "international units"

One key to sales at the 550 Vanderbilt condo is the connection to China, thanks to Shanghai-based developer Greenland Holdings.

It's the parent of Greenland USA, which as part of Greenland Forest City Partners owns 70% of Pacific Park (except 461 Dean and the arena).

And sales in China may help explain how the developer was able to claim early momentum.
"Since 550 Vanderbilt launched pre-sales in June [2015], more than 80 residences have gone into contract, representing over 30% of the building’s 278 total residences," the developer said in a 9/25/15 press release announcing the opening of a sales gallery in Brooklyn. "The strong response from the marketplace indicates the high level of demand for well-designed new luxury homes in Brooklyn..."

Maybe. Or maybe it just meant a decent initial pipeline to Chinese buyers.

As lawyer Jay Neveloff, who represents Forest City, told the Real Deal in 2015, a project involving a Chinese firm "creates a huge market for…