Flood of Luxe rentals hits Brooklyn

Three huge apartment towers to hit downtown market; unsold condo units add to th

Author: Amanda Fung, Crain's New York
Date: Sunday, October 11

October 11, 2009 5:59 AM

Flood of Luxe rentals hits Brooklyn

Three huge apartment towers to hit downtown market; unsold condo units add to the glut

OVERSUPPLY: Residential towers Avalon Fort Greene (left), 80 DeKalb (center) and The Brooklyner are all vying for tenants.

Downtown Brooklyn is awash in fast-food shops, shoe stores, subway stops and cutting-edge culture. Now it's about to find itself inundated with something unimaginable just a few years ago: luxury rental apartments.

Next month, The Clarett Group will open the leasing office for the tallest building ever built in Brooklyn, the 54-story, 490-unit apartment tower dubbed The Brooklyner. At the same time, Forest City Ratner Cos. will begin marketing its 365-unit rental at 80 DeKalb Ave. Both are following the lead of nearby Avalon Fort Greene, which began aggressively pushing its own 650-unit entry at 343 Gold St. in September.

“This is the most rental units I have ever seen in the neighborhood,” says Joy Cox, who grew up in the area and is now a broker at Urban Sanctuary. “There are too many, too close together, and I think a lot of units will sit there for a while.”

Collision course

The three new luxury towers—the first high-rise rentals ever to hit the local market—are debuting at a bad time. Landlords at several nearby stalled condominium projects are busy converting their unsold units to rentals, and several failed projects that have been turned over to their banks may follow suit. It also comes as rents on similar units in Manhattan have fallen as much as 10% in the past year, according to brokerage Citi Habitats.

“I would have loved not to have [so much] competition,” says Veronica Hackett, Clarett's co-founder. “But we are in it for the long term.”

She and her rivals may have to be. Since December 2006, construction on 2,780 rental units has either begun or been completed, according to the Downtown Brooklyn Partnership. In addition, 1,902 condo units have come on stream, many of which may turn rental, industry experts say.

With supply soaring just when the recession is dampening demand, something has got to give. Most likely, landlords will opt for rent cuts over carrying boatloads of empty apartments on their books.

“Maybe we will take lower rents in the initial round,” concedes Ms. Hackett, who is pinning her longer-term hopes on the needs of thousands of Brooklynites “to upgrade” their living accommodations.

Clifford Finn, managing director of new development at Citi Habitats, which is marketing Forest City's DeKalb Avenue tower, is not intimidated by all the competition.

“I am not so worried, as long as pricing is correct,” he says. “People still pay for superior product.”

Mr. Finn estimates that prices for studios at 80 DeKalb will start roughly at $1,700 a month and one-bedrooms at $2,200, but those numbers have not been finalized. Those figures are in line with Avalon Fort Greene, where monthly rents for studios start at $1,699 and one-bedrooms start at $1,801. Rents for studio to two-bedroom units at The Brooklyner have not been released yet, but Ms. Hackett says they will be in the same range.

Already, though, those prices are under pressure. From the start, Avalon has been offering two months' free rent on leases of 12 months or longer. More recently, it will throw in $500 toward the security deposit if the tenant signs a lease on the first visit. The developer hastens to add that those concessions come on top of what it calls a “youtopia,” with amenities including a 1,000-square-foot residents' lounge and a one-acre urban park plaza.

Failed condo projects

As developers ramp up their marketing efforts, however, they will also face rising competition from the owners of BellTel Lofts and other condominium projects that were launched at the peak of the market and are now trying to rent out unsold units.

Similarly, several other condo developments that have been taken back by their lenders, including the 108-unit Forté Tower and the 246-unit be@schermerhorn, may also be remarketed as rentals.

“It will be competitive, with so many units thrown on the market at once,” says David Maundrell, president of brokerage Aptsandlofts.com. “May the best man win.”

What makes that harder still is that downtown Brooklyn's new luxury rentals compete not just with each other but with big projects elsewhere around town—especially in the glutted lower Manhattan market. There, a luxury studio in La Rivage, at 21 West St., with a 24-hour doorman, concierge service and other perks, is listed on StreetEasy.com for $1,795 with no broker's fee.

“It will be a challenge,” says Daniel Baum, president of brokerage TDG/TREGNY. “I don't know if there is much demand for these upscale [Brooklyn] properties if someone has the option to live in Manhattan in a similar apartment.”

Developers of the Brooklyn projects insist their proximity to downtown Brooklyn's charms—including the nearby Brooklyn Academy of Music, trendy Smith Street restaurants, Fort Greene Park, and access to a dozen major subway lines—will give the area the edge.

If not, a second round of price cuts could be looming.

 

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