Brooklyn’s luxury developers feel the blues

Unlike in Manhattan, vacancy rates are starting to creep up on them

apartments made available below market rate through the new development, often draw tens of thousands of applicants per project.

Is Brooklyn’s moment over? Not likely — but developers are watching the clock.

The rental market, which makes up roughly three-fourths of the borough’s housing, peaked in 2014, when units leased for a median $2,936 a month, according to a Douglas Elliman Real Estate report. The median rent has since fallen more than 10 per cent, to $2,632 in February, as existing units vied with new competition.

To grease the skids, developers have ramped up their marketing, often offering concessions to fill units quickly, said Jonathan J. Miller, an appraiser who prepared the report.

Developers’ reliance on concessions “is probably the worst-kept secret in the rental market,” said Miller, who found that 47.5 per cent of Brooklyn rentals offered some form of sweetener in February, a record high. In the same period last year, just 15.7 per cent had concessions.

On average, renters received the equivalent of 1.4 months of free rent, with most of the concessions on oneyear leases, Miller said.

Expensive neighbourhoods

Incentives were most common in three of the borough’s most expensive neighbourhoods — Dumbo, downtown Brooklyn and Fort Greene — each of which offered concessions on more than 80 per cent of known leases in January. The analysis doesn’t capture the whole market, Miller said, because unlike sales, leases are not public record and developers are motivated to keep their numbers close to the vest.

“Developers want to maintain their listing prices and then futz with the numbers behind the scenes,” said Paul Johansen, an associate broker with CORE Real Estate. “A couple years ago, there were no concessions whatsoever.”

That hasn’t deterred builders from moving forward with thousands of new units, most geared toward the luxury market. In 2017, more than 5,700 rentals hit the market — the most units in a year since 2008, said Nancy Packes, the real estate consultant.

And the future pipeline shows no signs of slowing: About 6,100 units are expected this year, followed by almost 9,600 in 2019.

Packes, said the surge in supply is cyclic, with the glut clearing by 2019 or 2020. “They’re looking at the trees, not the forest,” she said about growth sceptics, noting that demand remains strong, fuelled by a strong job market and population growth.

The new supply remains heavily skewed toward luxury apartments. Overall, New York City had a rental vacancy rate of 3.63 per cent, which qualifies as a housing shortage, according to the city’s latest Housing and Vacancy Survey. New York has remained below 5 per cent rental vacancy since at least the Second World War, said Moses Gates, director of community planning and design for Regional Plan Association, a non-profit research and advocacy group.

But in the luxury segment, apartments priced at $2,500 or more had a vacancy rate of 8.74 per cent, which was “at or approaching” a record high, Gates said. While the full survey will not be released until summer, there are already signs of a shift at the top of the market, he said.

“We’re at or close to an inflection point, same as we were in 2007,” he said, referring to the recession, when luxury prices flattened and high-end development stalled.

Still, some developers are testing markets farther afield. In South Williamsburg, the former 11-acre Domino Sugar refinery site includes 325 Kent, where more than half of the 522 units have been leased since last summer. The waterfront development is about a 15-minute walk to the nearest subway; the copper-and-zinc structure with a hollow doughnut core, developed by Two Trees Management and designed by SHoP Architects, has studios for $2,620 up to two-bedrooms starting at $5,520.

Pablo Marvel, 25, a co-founder of Nova Concepts, a real estate marketing and tech firm that uses drone photography, moved into a studio apartment in the project in September. “I still feel like people think Manhattan is the epicentre of New York, which is simply not true,” he said.

While his office is in the nearby Brooklyn Navy Yard, he said that he uses the building’s waterfront common areas as a satellite office. Kate Treen, a spokeswoman for the project, said about 40 per cent of residents work from home.

To entice renters, the building also offered six to 12 months of free parking, which typically costs $350 a month, and will begin shuttle service to the nearest subways.

To address the affordable-housing shortage, the city has committed to preserving and creating 300,000 affordable apartments by 2026. But providing tax breaks to luxury developers to have them build a percentage of below-market-rate units may not be the most effective approach, critics say.

“When you talk about affordable housing, one of the questions is: affordable to whom?” said Bernell K. Grier, executive director of IMPACCT Brooklyn, which helps place applicants in the city’s affordable housing lottery. While Brooklyn developers can receive tax breaks to reserve about 20-30 per cent of their units for below-marketrate renters, the resulting mix of units can still be unaffordable to long-term residents.

For instance, at one coming project in Clinton Hill, the “affordable” units are reserved for tenants making 130 per cent of the area median income, which for a two-bedroom apartment could cost more than $2,700 a month.

For Dawn Trautman, a 45-year-old actor, finding an affordable apartment through the lottery took five years of searching and applications to about 40 buildings. She first entered the lottery in 2012; two years later, she was considered for an apartment in midtown Manhattan, but because she had difficulty verifying her income, she was disqualified.

Late last year, she was chosen for an opening at the Hub. After providing three years of income verification and notarised letters from seven previous employers, she qualified for a 17thfloor one-bedroom with a washer/ dryer and the same expansive views afforded to market-rate tenants.

Her apartment, reserved for tenants making 60 per cent of the area median income, costs $895 a month, while similar market-rate units start at $3,000 a month.

Trautman, who moved into the space in February, said that this will be her first permanent home in New York since 2008. For years, she has stayed with friends or subletted apartments while pursuing acting and other work outside the city.

“It still feels like I’m housesitting,” she said by phone, while wrapping up a job in Atlanta.