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DOWNTOWN BROOKLYNMarket Update ■ 3rd Quarter 2014
INVESTMENT SALES RETAIL LEASING CAPITAL SERVICES | MASSEYKNAKAL.COMMANHATTAN BROOKLYN STATEN ISLAND THE BRONX QUEENS WESTCHESTER LONG ISLAND NEW JERSEY
3Q14 NYC Investment Sales OverviewThrough the first three quarters of 2014, the New York City investment sales market continued its strong performance, with nearly $39B in total dollar volume. 2014 has already surpassed 2013’s annual dollar volume, and is on pace for $52B. We expect a strong fourth quarter and for dollar volume to accelerate in the final quarter, ending the year north of $60B. While Manhattan leads the way with $28B in activity this year, Brooklyn’s volume is on pace to exceed 2013 by 74%, with $5B sold thus far. As with dollar volume, transactional activity has remained strong, with five consecutive quarters of 1,100 or more properties sold, putting NYC on pace to exceed 5,100 properties sold in 2014. Northern Manhattan is nearing an all-time best in turnover (measured as the percentage of properties sold over total inventory) with 6.7% of the total stock on pace to sell this year. Retail continues to drive up pricing, as price per square foot has increased by 15% from 2013 for core property (Manhattan +26%, Northern Manhattan +19%, Brooklyn +14%, Queens +6%, Bronx no change). Finally, scarcity of land continues to exert upward pressure on pricing citywide with price per buildable square foot up 25% from 2013, with Manhattan finishing out the third quarter at $655 per buildable square foot.
3Q14 Brooklyn Investment Sales Overview During the first three quarters of 2014 (1-3Q14), the Brooklyn property market saw 1,149 transactions consisting of 1,507 buildings sold. The number of properties that have sold thus far in 2014 is an increase of 45% over 1-3Q13. There have been 400 building sales in 3Q14, a decrease of 18% from 3Q13. The annualized turnover rate thus far in 2014 is 3.09% of the total stock of properties, which is the highest turnover rate since 2005. The aggregate sales consideration through 1-3Q14 was $5B, a 96% increase from 1-3Q13. If we examine this data on an annualized basis, we can expect the Brooklyn submarket to reach $6.63B, an increase of 74% from 2013’s sales volume of $3.82B.
3Q14 DOWNTOWN BROOKLYN MARKET UPDATE
MIXED-USE BUILDINGS
ADDRESS PRICE GROSS SF PRICE/SF
11 32 Remsen St $6,500,000 9,376 $693
12 487 Myrtle Ave $1,600,000 2,800 $571
13 634 Dean St $2,650,000 6,600 $402
14 1012 Fulton St $999,000 4,400 $227
15 700 Washington Ave $1,350,000 2,767 $488
16 466 Myrtle Ave $1,500,000 2,400 $625
MULTIFAMILY WALK-UP APARTMENT BUILDINGS
ADDRESS PRICE GROSS SF PRICE/SF
4 788 Classon Ave $2,110,000 5,850 $361
5 73 S Oxford St $3,895,000 8,372 $465
6 816 Dean St $8,400,000 7,335 $1,145
7 40 S Portland Ave $1,850,000 3,840 $482
8 218, 220 Park Pl $5,400,000 7,300 $740
DEVELOPMENT / CONVERSION SITES
ADDRESS PRICE GROSS SF PRICE/SF
17 438 Albee Sq $3,000,000 22,080 $136
18 291 Livingston St $5,000,000 25,000 $200
19 Pacific Park Project AKA Atlantic Yards $383,217,500 2,707,578 $142
20 929-933 Atlantic Ave Portfolio $3,000,000 15,732 $191
21 299 Livingston St $2,650,000 19,580 $135
22 24 4 Ave $20,000,000 70,650 $283
INDUSTRIAL BUILDINGS
ADDRESS PRICE GROSS SF PRICE/SF
1 73 Washington Ave $2,500,000 9,000 $278
2 81-87 Steuben St $2,900,000 10,000 $290
3 531-535 Grand Ave $2,300,000 5,550 $414
Downtown Brooklyn Sales During 3Q14
3Q14 Downtown Brooklyn Sales OverviewDuring 3Q14, the Downtown Brooklyn property sales market had 22 closed transactions, which included the mega-development project now known as Pacific Park. In total for 3Q14, the dollar volume for the submarket was approximately $539M. The submarket’s total dollar volume was primarily made up of the Pacific Park transaction, which represented approximately $383M of total dollar volume.
Downtown Brooklyn is, by far, the strongest market in Brooklyn and all of the outer markets. After Manhattan’s SoHo market, Downtown Brooklyn was NYC’s strongest market according to Massey Knakal’s proprietary Sales Performance Index. Its transformation into a top notch live/work area, its favorable location, and availability of public transportation makes it an increasingly sought after location for investors.
MULTIFAMILY ELEVATOR APARMENT BUILDINGS
ADDRESS PRICE GROSS SF PRICE/SF
9 415 Washington Ave $10,300,000 25,600 $402
10 The Chocolate Factory $68,000,000 184,411 $369
Brooklyn Market Reaches New Heights After the first three quarters of 2014, Brooklyn’s dollar volume is $5.1 Billion, which is higher than any other given full year. Furthermore, each of the three quarters in 2014 had an average dollar volume of $1.7B – strongly exceeding the quarterly average of $900M of 2005 to 2007. Annualized projections have total dollar volume on pace to be 80% greater than 2013 totals, also total number of properties sold is slated to reach 2,000 – exceeding the 2006 peak volume.
BROOKLYN – INVESTMENT ACTIVITY
$8
$7
$6
$5
$4
$3
$2
$1
$0 0
500
1,000
1,500
2,000
2,500
$3.1$3.7 $3.8
$2.0
$0.7$1.1
$1.7
$4.8$3.8
$6.8
Dollar VolumeProperties Sold
Source: Massey Knakal Research05 06 07 08 09 10 11 12 13 14*
Billions
*Annualized
3Q14 DOWNTOWN BROOKLYN MARKET UPDATE3Q14 DOWNTOWN BROOKLYN MARKET UPDATE
Brooklyn Price Appreciation Accelerates Through 3Q14, the average price per square foot was $308, a 14% increase from 2013’s annual average. Moreover, since the trough of the market in 2009, the average price per square foot increased 40%. Elevator buildings experienced the strongest gain in price per square foot being up 172% since 2009 – this reflects that higher quality buildings are being sold in today’s market compared to 2009. Similarly, price per buildable SF was up 22% from a year ago as it reached $165 during the first 3 quarters. Both price per square foot and price per buildable SF started increasing rapidly in 1Q14, which is a trend that is predicted to stay as Brooklyn transforms into a more mature live and work environment.
$325
$300
$275
$250
$225
$200
$175
$1502009 2010 2011 2012 2013 1-3Q14
$221$232 $225
$247
$271
$308
5% -3%
9.6%
9.8%
13.9%
BROOKLYN – AVERAGE PRICE PER SF
*Average of Elevator, Walk-Up, Mixed-Use, Office and Retail
manner and are expected to remain. At the same time, value increases in Brooklyn have been strong and locally outperforming Manhattan. For example, in Williamsburg, Greenpoint, and Bushwick combined, the average price per SF in 1H14 was up 26% over 2013, compared to 12% in Manhattan. Additionally, average cap rates in the outer markets are 180 bps higher than Manhattan. As such, Brooklyn and other outer markets are attractive targets for yield seeking investors.
Outlook: Ending the year on a high note
• On the basis of preliminary data through October 2014, we expect the number of properties sold in 4Q14 to be between 1,000 and 1,250. We believe the fourth quarter will close on the top end of that spectrum due to the “year-end-rally” as firms look to close the year out. With a few large-scale transactions pending and some having just closed, we expect dollar volume in 4Q14 to exceed 3Q14.
• In terms of pricing, we expect the trend we have observed since 2011 to continue and values to increase. While there can be volatility on a quarter-over-quarter basis, the overall trend is up. With rents continuing to increase and demand for property remaining high, there is continued upward pressure on values.
• Geographically, we expect demand for property in the outer markets to remain strong as investors who are chasing yield increasingly acknowledge the markets’ attractive risk/return profiles. For Manhattan, we believe that demand, particularly from institutional firms abroad, will remain high as they consider prime properties as a high yielding alternative to government bonds.
A central theme of the market in 3014 is how well the outer markets are performing – the combined dollar volume of the first three quarters is higher than any prior year’s annual total. Annualized, dollar volume is expected to exceed the former peak of 2007 by 43%. A primary reason for the strength of the outer markets is a socio-economic shift that has led to a Manhattanization of their property sales markets. These trends include:
• The investor profile has become more institutional• The existing building stock has become higher quality and more
institutional in nature• Price appreciation in markets like Williamsburg and LIC have closed
the gap to some Manhattan submarkets and exceeded others
Contributing Factors to the Manhattanization of Brooklyn
Socio-Structural ComponentSustained transformation in submarkets like Downtown Brooklyn, Park Slope, and Williamsburg has paved the way for other neighborhoods in outer submarkets to follow. As gentrification spills over to adjoining neighborhoods, it generates an increasing influx of young, well-educated and wealthy residents who are able and willing to pay elevated rents.
The Building StockNew residential product has, and continues to be, built to satisfy the changing demographic demand. In Brooklyn, between 2000 and 2012, 70,000 new residential units were added to the market, an increase of 7.8%, which compares to 5.8% city-wide. Moreover, there are an additional 15,000 residential units currently being developed in Downtown Brooklyn alone.
Change of Urban Function• Once overlooked areas are blossoming into thriving retail/dining
corridors causing a migration of tourist and national retailers looking to establish their footprint outside of Manhattan
• Office tenants, particularly TAMI tenants, are increasingly attracted to Brooklyn searching for modern, stylish, but affordable office space
Attractive Risk-Return ProfileAs investors begin chasing yield, the outer markets are perceived as having a more attractive risk-return profile than in the last cycle. The building stock and demographics have changed in a sustained
The “Manhattanization” of the Outer Markets
205 Montague Street, Third FloorBrooklyn, NY 11201
Stephen P. Palmese, [email protected], (718) 307-6552
Michael Mazzara, Senior [email protected], (718) 606-7052
Thomas Freeland, Senior [email protected], (718) 238-8999
James Berluti, [email protected], (718) 238-8999
For more information, or if you would like to create a Complimentary Opinion of Value for your property, please contact:
BROOKLYN HOTEL LANDSCAPE
The information contained herein has either been given to us by the owner of the property or obtained from sources that we deem reliable. We have no reason to doubt its accuracy but we do not guarantee it. All zoning, buildable footages and uses must be independently verified. Vacancy factors used herein are an arbitrary percentage used only as an example. It does not necessarily relate to actual vacancy, if any. The value of this investment is dependent upon these estimates and assumptions made above, as well as the investment income, the tax bracket, and other factors which your tax advisor and/or legal counsel should evaluate. THE PROSPECTIVE BUYER SHOULD CAREFULLY VERIFY EACH ITEM OF INCOME, AND ALL OTHER INFORMATION HEREIN.
EXISTING
Name Address Size (SF) Units
Aloft New York Brooklyn 216 Duffield St 151,467 184
Sheraton 228 Duffield St 225,125 321
Hotel Indigo 229-231 Duffield St 104,172 128
Marriott 333 Adams St 364,448 666
Hotel St. George 55 Clark St 319,080 260
Bossert Hotel 98 Montague St 187,200 302
Nu Hotel 85-87 Smith St 136,797 93
Total 1,488,289 1,954
DOWNTOWN BROOKLYN HOTEL SUMMARY
BAY RIDGE
DYKER HEIGHTS
SUNSET PARK
WINDSOR TERRACE
OCEAN PARKWAY
MANHATTAN TERRACE
DITMAS PARK
PROSPECT PARK
PROSPECT HEIGHTS
BEDFORD STUYVESANT
FORT GREENE
BROOKLYN HEIGHTS
CLINTON HILLDOWNTOWN
WILLIAMSBURGEAST
WILLIAMSBURG
GREENPOINT
NAVY YARDVINEGAR HILL
CROWN HEIGHTS
PARK SLOPE
RED HOOK
CAROLL GARDENS
COBBLE HILL
PROSPECT PARK
SOUTH
OWLS HEAD PARK
FORT HAMILTON
BOROUGH PARK
BRIGHTON BEACH
BERGEN BEACH
REMSEN VILLAGE
OCEAN HILL
OCEAN HILL
CYPRESS HILLS
HIGHLAND PARK
BROADYWAY JUNCTION
SPRING CREEK
CITY LINE
STARRETT CITY
PAERDEGAT BASIN
FLOYD BENNETT
PARK
MILL ISLAND
SHEEPSHEAD BAY
MANHATTAN BEACH
GERRITSEN BEACH
MARINE PARK
MILL BASIN
SEA GATE
CONEY ISLAND
HOMECREST
BENSONHURST
GEORGETOWN
EAST NEW YORK
KENSINGTON
GOWANUS
EAST FLATBUSH
BROWNSVILLE
BUSHWICK
RUGBY
WINGATE
WEEKSVILLE
PROSPECT LEFFERTS GARDENS
MIDWOOD
FLATLANDS
CANARSIE
FLATBUSH
GRAVESEND
BATH BEACH
UNDER CONSTRUCTION
Name Address Size (SF) Units
Hampton Inn 125 Flatbush Ave Ext 46,840 117
Holiday Inn 300 Schermerhorn St 192,710 246
EVEN Hotel 40 Nevins St 97,110 204
TBA 85 Flatbush Ave Ext 99,696 240
Total 436,356 807
PLANNED
Name Address Size (SF) Units
95 Rockwell Place 95 Rockwell Pl 30,000 200
TBA 55 Flatbush Ave 46,371 TBD
TBA 237 Duffield St 89,843 108
■ Total Hotels: 59
■ ADR: $180
■ Occupancy: 80%
■ RevPAR: $14
BROOKLYN MARKET HIGHLIGHTS 2014
WILLIAMSBURG, GREENPOINT
Total 4 hotels
MAP KEY
DOWNTOWN BROOKLYN, BROOKLYN HEIGHTS, DUMBO, BOERUM HILL, CLINTON HILL, FORT GREENE
Total 12 Hotels
GOWANUS, PARK SLOPE, CARROLL GARDENS, COBBLE HILL, RED HOOK, COLUMBIA STREET, WATERFRONT DISTRICT
Total 7 Hotels
BENSONHURST, DYKER HEIGHTS, GRAVESEND, BORO PARK
Total 1 Hotels
BAY RIDGE, SUNSET PARK, WINDSOR TERRACE, SOUTH SLOPE
Total 5 Hotel
SHEEPSHEAD BAY, CONEY ISLAND, HOMECREST, BRIGHTON BEACH, MANHATTAN BEACH
Total 4 Hotels
BEDFORD STUYVESANT, BUSHWICK
Total 5 Hotels
EAST NEW YORK, BERGEN BEACH, CANARSIE, FLATLANDS, MARINE PARK, BROWNSVILLE, OCEAN HILL, CYPRESS HILL, MILL BASIN, NEW LOTS, WEEKSVILLE
Total 7 Hotels
DITMAS PARK, FLATBUSH, KENSINGTON, OCEAN PARKWAY, MIDWOOD
Total 1 Hotel
DEVELOPMENT SITE
Total 13 Hotels