Brooklyn, N.Y.—As early as the summer of 2007, a 40-story apartment tower may begin to rise in the heart of downtown Brooklyn. AvalonBay Communities, Inc., has just begun to design 650 luxury apartments for a site just off busy Flatbush Avenue, on the corner of Myrtle Avenue and Gold Street.
Projects like this are the first trickle of what may soon become a flood of new development in the outer boroughs of New York City. For decades, very few market-rate rental apartments have opened in these areas. The shortage of places for people to live has helped fuel New York’s seemingly unending housing crisis.
The city responded by rezoning huge pieces of the city for high-density residential development, including the site of AvalonBay’s planned building near Flatbush Avenue.
The city has also rezoned a two-mile stretch of the Brooklyn waterfront in the Williamsburg and Greenpoint neighborhoods to make room for 10,800 units of future housing.
In exchange, the developers who build there will need to set aside at least 20 percent of their units as permanently affordable rental housing.
The city’s strategy is to encourage the construction of new housing at all income levels to ease New York’s housing shortage, according to Shaun Donovan, commissioner of the Department of Housing Preservation and Development (HPD).
Until now it hasn’t taken much time to count the new, market-rate rental properties opening every year in the outer boroughs of New York City.
Builders finished roughly 1,000 units a year in the late 1990s. After 2001, that count shrank to just a few hundred a year, according to a tally of new, market-rate rental properties kept by Reis, Inc., a research firm based in Manhattan.
But condominium development has exploded since 2002. Builders received permits to build 23,106 units of housing of all types in the outer boroughs in 2005 alone, according to HPD. Nearly all of those units are probably planned condominiums.
It’s uncertain how many of those permitted projects will actually be built, but as interest rates rise and the condo boom cools, many of these projects may flip to become rental apartments.
AvalonBay, for example, is now considering buying land to build apartments from several condominium developers who have failed to pre-sell enough units to start construction in once-hot condo neighborhoods like Williamsburg.
Large-scale development has also come to Queens.
This spring, work began on two new rental apartment towers, one developed by Rockrose Development Corp. and the other by AvalonBay, as part of the massive Queens West project, which will eventually bring 3,000 housing units to the Long Island City waterfront.
These new apartments are entering a tight rental market. The percentage of vacant apartments in Brooklyn, Queens, and the Bronx has hovered at about 3 percent since 2002, according to a survey of 53,020 apartments conducted by Reis.
That’s a fraction of the total number of apartments in the outer boroughs, though it probably covers much of the market’s new and newly renovated housing stock.
Effective rents have grown steadily by anywhere from 2 percent to 3.7 percent a year since 2002, despite the recession and shrinking rents that plagued the apartment business in the rest of the country. That is still a slowdown, though, from the rent growth of nearly 7 percent that the market saw in 2000, according to Reis.
Apartment sales boom
Investors bought and sold $1.9 billion worth of apartment buildings in the outer boroughs of New York City in the 12 months that ended in June, according to Real Capital Analytics, Inc., a research firm based in Manhattan. That’s almost 50 percent more than the $1.3 billion in buildings that changed hands the year before.
It’s also much higher than the volume in Philadelphia, where $1.1 billion in apartment properties were sold during the 12 months ending in June, and more than twice the $910 million traded in Boston.
Most of the properties sold in the outer boroughs over this period are more than 50 years old.They sold for an average of $84,000 per unit, at a capitalization rate of 4.8 percent. A cap rate represents the net operating income of a property as a percentage of its sales price.
Most of these New York properties are owned by local, private investors, including New York’s ancient and sometimes famous real estate families, like the Trumps and the Hemsleys.
Roughly three-quarters of the sellers and half of the buyers of apartment buildings in the outer boroughs in the 12 months that ended in June have been private investors who live in the state, according to Real Capital Analytics.