The future of Site 5. A development site worth ≈$300 million? A market for housing, but not office space?

Crucial to the future of Atlantic Yards/Pacific Park--as well as offering leverage to advocacy groups, in the BrooklynSpeaks Crossroads effort--is Site 5, a very valuable parcel catercorner to the arena long home to big-box retailers Modell's and P.C. Richard. 

It was approved--as of 2006--for a 250-foot building, with 439,050 square feet. That's substantial, but, to the developers, it's not enough. That's because original developer Forest City Ratner never built the B1 (aka "Miss Brooklyn") tower once planned to loom over the arena, having never snagged an anchor tenant.

Site 5 outlined in green; 2018 photo from 333 Schermerhorn
proposed tower(s) could rise 1.5x height of clock tower

Now construction over the "temporary" plaza is untenable, since it would interfere with operations of the Barclays Center.

But master developer Greenland Forest City Partners--after Greenland USA bought out most of Forest City's share, in two transactions--doesn't want to sacrifice 1.1 million square feet of development rights.  

They want to move most of that bulk across the street to Site 5, creating a giant two-tower project, rising some 800 feet.

The leverage

In exchange for moving that bulk, which requires a revision to the guiding General Project Plan and new state approvals, advocates connected with BrooklynSpeaks seek a requirement for more, and deeper, affordable housing, as well as other commitments from the city and state to improve the area around the project. A few local elected officials are involved; others surely are alerted.

Many of those goals are worthy, but... we should be wary of an implicit assumption that the bulk transfer is fine, as long as it delivers more affordable housing, especially since members of the public, especially Site 5's neighbors, haven't weighed in.

Moreover, the City Planning Commission in 2006 called for the Site 5 building to be scaled down, albeit partly because of the B1 context, partly as a transition to lower-rise blocks nearby.

Also, we should be wary of an implicit assumption that the developers will/should avoid the fines of $2,000/month per missing unit, if they don't deliver 876 more affordable apartments by May 31, 2025--and that money is to go to a housing trust fund.

Pending since 2015

The bulk transfer was first floated in 2015 and 2016, when executives envisioned a giant office project, and it was later offered to Amazon.com, as the retailer searched for a second office campus. 

It also could contain a hotel, and housing, as well as retail one executive likened to the Time Warner Center.

From developer's 2016 presentation to Department of City Planning. The open space (arena plaza, Times Plaza) isn't green, but Brooklyn Bear's Garden is next to Site 5, though not visible.

How much is it worth?

At $263 per buildable square foot--TerraCRG's assessment of the 2020 investment sales market in Downtown Brooklyn--the B1 development rights are worth $289.3 million. 

Put another way, the 1,142,052 square feet envisioned at Site 5, including the originally approved square footage plus 760,000 square feet, a majority of the B1 bulk, is worth $300.4 million.

(What about the rest of the B1 bulk? We don't know, but I'd bet the developers aim to parcel it out among the six towers planned over the railyard, rather than sacrifice it.)

Is $263 per buildable square foot realistic? That figure that might be adjusted down by the pandemic, as well as whatever constraints state officials impose on the site, such as new affordability requirements. But it also must be adjusted up for the prime location. 

That's a lot more than the $200 million Greenland paid to acquire most of the project. (Yes, they have major infrastructure costs, notably a new railyard and a deck, plus payments for railyard development rights, which unlock sites for six towers. Also, modest condemnation costs at Site 5.)

Based on the project's recent history, Greenland Forest City might not want to build on it in the first place, but rather market the site to other developers: TF Cornerstone and The Brodsky Organization have bought leases to three sites, and Brodsky partnered with Greenland on another.

Developer close-mouthed

But the future of the site--long delayed because of a legal dispute involving P.C. Richard--is in question, because the market for office space has changed

In November, Greenland USA's Scott Solish said the settlement reached between P.C. Richard and original developer Forest City regarding a purported promise to include the retailer in the future complex at the parcel, known as Site 5, was "great news."

But he was nonspecific about plans for that site catercorner to the arena, saying it "gives us the opportunity to continue thinking about opportunities for the site in the context of the General Project Plan."

Office space questionable

However, in the COVID-inflected world, the market for office space is questionable. 

Yes, it's more plausible to locate office space near a transit hub at Site 5 compared with, say, less accessible recent projects at the Brooklyn Navy Yard (Dock 72) and the Williamsburg waterfront (25 Kent Avenue), that doesn't make it happen, especially without an anchor tenant.

And large office tenants are tending to downsize and spread out their workforce, rather than look for marquee projects.

Last February, I cited a Commercial Observer article that quoted a broker re Brooklyn office space: "There’s really nothing large happening.”

That said, interviewees suggested that Brooklyn office space, closer to many residences, may be attractive to certain companies, and also that more out-of-the box leasing, such as the Whittle School in Downtown Brooklyn, could happen.

As I wrote, could Site 5 become a work-from-home special tower? Who knows--but housing seems like a more viable plan.

Is there a market for housing? Surely more than office space, especially since, as I wrote last July, residential real estate in Manhattan was bouncing back, as office vacancies increased. In fact, there are plans to convert hotels and, possibly, older office buildings, to housing.

Office markets struggling

The Times reported in July:

A third of leases at large Manhattan buildings will expire over the next three years, according to CBRE, a commercial real estate services company, and companies have made clear they will need significantly less space.

Real estate companies were pessimistic about the Brooklyn office market. I quoted Newmark's 1Q21 Brooklyn Market Report, which noted:

Brooklyn’s average asking rent fell for the second consecutive quarter to $52.41/SF, with declines across all submarkets... In addition, several new competitively priced availabilities influenced this quarterly drop. 

Let's look at a few more recent reports. Newmark's 3Q21 Brooklyn Market Report notes:

• The Brooklyn availability rate rose to 19.8%, a quarter-over-quarter rise of 50 basis points.
• Asking rents remained stable, falling just $0.18/SF from the second quarter to $53.03/SF. 
• Six projects are expected to deliver in the next 24 months, bringing more than 1.6 million square feet to market inventory.

CBRE's Brooklyn Office Figures Q4 2021, using somewhat different metrics, sounded optimistic ("Leasing activity rebounds as renewals surge"), but the statistics still suggest a challenging market:

• Leasing activity totaled 241,000 sq. ft. in Q4 2021, a 95% increase from Q3 2021 and an 8% decrease from Q4 2020. The quarterly total was 26% below the five-year quarterly average.
• Renewals accounted for 230,000 sq. ft. in Q4, bringing the year-to-date total to 356,000 sq. ft., up 38% from one year ago.
• The availability rate decreased 10 basis points (bps) from the previous quarter to 23.1% and was 70 bps higher than the prior year.
• Net absorption totaled positive 50,000 sq. ft. for the quarter, though the year ended with negative absorption of 393,000 sq. ft.
• The average asking rent was $46.66 per sq. ft., virtually unchanged from the prior quarter and one year ago.
• The sublease availability rate remained at 2.0% and represents 9% of all available space.

None of that screams "new office tower."