New residential projects are coming online fast and furious, but some have expressed concern about how quickly they can be absorbed
When sales launched at the Baltic in Park Slope back in 2016, the condo building had the market to itself. But then things started softening, and more nearby developments started launching sales.
By the end of 2018, there were about 1,000 condo and rental units on the market in just that one neighborhood.
To sell the remaining apartments with that new competition, the project, developed by Michael Stern’s JDS Development, had to change its strategy, said Robin Schneiderman, the director of business development at Terra Development Marketing, which oversees Halstead Property Development Marketing and Brown Harris Stevens Development Marketing, the latter of which is selling the project.
The revamped plan offered new broker incentives, including increasing commissions for buyers’ brokers to 4 percent from 3 percent, for contracts signed by Feb. 15. The brokerage also struck a partnership with Restoration Hardware, which designed a model penthouse at the project. As of press time, buyers who close on units by that same date at the building will receive a $20,000 interior design allowance.
“We are adding strategic incentives to purchasers and the brokerage community to develop a sense of urgency,” said Schneiderman, who noted that about 70 percent of the 43 units are already sold.
“Unfortunately, that’s what is lacking in the condo market today.”
That lack of urgency stems largely from the inventory piling up.
As developers have rushed into Brooklyn at an accelerated rate in the last five years — putting shovels in the ground in neighborhoods ranging the maturity spectrum — they have created a big batch of condos and rentals.
And over the next three years another large wave of residential projects is slated to come online, including Two Trees’ Domino Sugar project; Greenland USA’s 810-unit rental 18 Sixth Avenue, which is part of the Pacific Park megadevelopment; RedSky Capital’s 470-unit 18 India Street in Greenpoint; and 9 DeKalb, a supertall tower with 400-plus apartments that JDS is also developing.
Those projects join large developments that are already selling, like Extell Development’s 458-unit Brooklyn Point project and Tishman Speyer’s 481-unit 11 Hoyt.
While the projects coming online are targeting a broad range of prices, the amount of inventory in some pockets of the borough is creating concerns.
Some say that unloading these units is going to take longer than developers were banking on and will require more financial compromises than they expected.
Jordan Sachs, CEO of Bold New York, said a previous sellout timeline of 18 months to two years may be pushed to three years now.
“Developers have had to reshape their thoughts and understand that things are a little different,” said Sachs. “For larger buildings, some are feeling the pain because absorption is maybe a year off from what they planned.”
In 2019 alone, the borough is expected to get hit with 1,917 condo units and a massive 14,127 rentals, according to data compiled by the Marketing Directors. In total, the borough is slated to add roughly 35,400 units by 2021.
Williamsburg, Greenpoint and Downtown Brooklyn are among those getting the biggest influx of product.
“Developers feel there’s a lot of inventory in most neighborhoods, and sophisticated developers want to see absorption,” said David Pfeffer, chair of the construction group at the law firm Tarter Krinsky & Drogin, which works with both commercial and residential clients in Brooklyn. “There’s definitely going to be a pause in the market.”
Testing market depth
In the last few years, Brooklyn has obviously seen its residential developments hit new scales in terms of both size and price.
Extell’s Brooklyn Point will soon be the tallest tower in the borough at 720 feet, but it will quickly be surpassed by 9 DeKalb.
The Extell project, at 138 Willoughby Street in Downtown Brooklyn, sold more than $100 million in inventory during the first seven months of sales, the firm said.
But according to Ari Goldstein, senior vice president at Extell, the developer is “very careful with our pricing.”
Condos at the project — which has a total sellout of $901 million — start at a modest $850,000 and rise to $3.9 million for the penthouse. “On the very high end, I think there’s always some appetite, but I don’t know how big or deep that market will be” in Brooklyn, Goldstein said.
And Extell is not leaving anything to chance. In late November, firm chief Gary Barnett said the company was offering to pay between three and five years’ worth of common charges portfolio-wide for buyers who bought units by the end of 2018. Between that and a 25-year tax abatement at Brooklyn Point, that could mean buyers would have almost no carrying costs for several years.
“They felt they wanted to find an incentive that helped the brokers but also motivated the buyers,” one source told The Real Deal in late November. “They recognize it is a buyer’s market.”
Anecdotal evidence suggests that projects in the borough are seeing a lot of potential buyers come through. But they seem to be in no hurry, given how many options they have.
In 2018’s third quarter, new development condos in Brooklyn saw a 46 percent year-over-year drop in sales and a 1 percent dip in median prices.
“We’re in a market that’s cooled off,” said Pfeffer. “Developers feel there’s a lot of inventory in most neighborhoods.”
Some developers have already exited the market. Forest City New York, for example, sold all but 5 percent of its stake in the 22-acre Pacific Park project to its joint-venture partner Greenland back in February 2018.