Looming L train shutdown dampens demand for Bushwick development sites
Eye On Real Estate
The L train shutdown is looming.
Already, it’s dampening demand among purchasers of development sites in one of our favorite places, Bushwick.
L train service is vital to this neighborhood, which is a picturesque amalgam of Hispanics and hipsters. Because Superstorm Sandy damaged the L train’s Canarsie tube, the Metropolitan Transportation Authority (MTA) plans repairs that are expected to start in 2019. Possible scenarios include a full shutdown of service in and out of Brooklyn for 18 months or a partial shutdown for three years.
“The L train was the catalyst for Bushwick’s growth in the last three years,” D.J. Johnston, an associate director at real estate brokerage Cushman & Wakefield, told the Brooklyn Eagle. He handles investment-property sales in Bushwick, meaning transactions involving residential buildings with three units or more and development sites.
Small residential-development sites that are 25 feet wide, where eight units at most would be built, are still selling in Bushwick.
“But there’s a new element of caution among the buyers,” Johnston said.
The construction-financing market is tightening a little and the rental market in Bushwick is relatively saturated, factors that also contribute to developers’ cautious behavior.
A builder who buys a 25-foot-wide site today will be ready to break ground in a year, then will spend 12 to 18 months doing construction, Johnston said. He will be ready to deliver the new apartments right around the time when the L train service shutdown is expected to begin.
It’s possible the L train shutdown will spark interest in development along the J, Z and M lines, and thereby “create a more balanced Bushwick,” Johnston suggested.
Demand for larger development sites in Bushwick is impacted by the expiration of the 421a tax abatement program, which gave developers tax breaks for including affordable units in new residential buildings.
In 2015, his firm brokered a record-setting sale for Bushwick development sites — the price was $275 per buildable square foot. Currently, similar sites are drawing interest from potential buyers with offers of $250 per buildable square foot, he said.
Eighteen offers for a three-unit rowhouse
The type of residential property that investors are interested in buying in Bushwick is changing.
“Right now, we are seeing a trend of mid-level investors leaning towards unregulated product, such as retail, multifamily buildings that have been [rent-]destabilized through capital improvements, and more commonly, unrenovated multifamily buildings that have less than five units and are not subject to rent stabilization guidelines,” Johnston said.
For instance, prospective buyers reacted enthusiastically when 675 Knickerbocker Ave. went on the market — despite its location south of Myrtle Avenue, which is traditionally considered less desirable than the area north of Myrtle Avenue.
Cushman & Wakefield is the listing broker for the 3,600-square-foot vacant brick rowhouse with a $1.2 million asking price. It has three large apartments.
“We got 18 offers,” he said. “Seven of them were within 10 percent of the asking price.”
Cushman & Wakefield sent out three contracts at the full asking price. Now there’s a signed contract for the full asking price.
This year, buildings with six to eight apartments have sold for $240,000 per unit on average, Johnston said. In contrast, 675 Knickerbocker Ave. is in contract for $400,000 per unit.
Demand for rent-stabilized buildings levels off
“For the last three years, there was an upward trajectory in demand for rent-stabilized buildings from buyers in Bushwick,” Johnston said. “Now buyers’ demand has leveled off for these buildings.”
What factors are causing their diminished ardor for this type of investment? we wondered.
“Buyers are no longer speculating that they can relocate rent-stabilized tenants, due to stricter city guidelines and regulations,” he explained.
“There is also more transparency in the rental market, which prevents investors from over-projecting their rental analysis,” he added. “In the past they may have underwritten a three-bedroom for $3,300 [per month rent] but in many cases, the market shows, that projection should be closer to $2,750.”
There has been big growth in the Bushwick real estate market in recent years.
In 2011, when Johnston started working for Massey Knakal Realty Services, investment-property sales in Bushwick totaled about $35 million, according to statistics the firm kept. (Cushman & Wakefield later acquired Massey Knakal.)
In 2015, Bushwick investment-property sales totaled $425 million, he said.
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