While the government does not provide immunity from taxes at the commencement of a project, as it did with 421-a, it refunds the tax increases over that period. At the same time, some banks do not underwrite construction loans to the full tax abatement, which consequentially effects builders’ construction schedule. Bank lending is far more stringent with the new program as most are requiring a significant amount of due diligence, including tax opinion letters from an attorney.  

Developers are understandably wary about breaking ground, but as more clarity emerged, banks and builders are becoming more comfortable with the process. Realizing that the reward for buying land in Flatbush far outweighs the risks, developers have swiftly been scooping up land.  

In 2018, about 13 projects are expected to come online in the neighborhood, nearly doubling 2017’s 7 projects, according to data collected by Recity. From 2019 through 2022, an additional 35 projects are expected to break ground. About 410,000 square feet of new construction should emerge this year.

The Affordable New York tax incentive is enormously attractive in neighborhoods in Central Brooklyn where the Area Medium Income (AMI) requirements are close to market rents, such as Flatbush. The incentive allows developers to charge up to 130% of AMI, which corresponds to $2,993 for a two-bedroom apartment. For the same two-bedroom apartment in Flatbush, free market rent is $2,150.  

The law, consequently, provides a clear path for developers in Flatbush to utilize the advantages of the tax abatement while operating a rental building at market rent. This differs starkly with Manhattan, where the affordable rental rate is significantly lower than the market rental rate.

Palpable Price Appreciation

Developers have been fond of Flatbush for years, due largely to its attractive zoning relative to other neighborhoods in the borough. Indeed, parts of Flatbush offer some of the highest Floor-Area-Ratios (FAR) in Brooklyn, only trailing the rezoned areas of Williamsburg and Downtown Brooklyn. Therefore, for a developer looking to build more scale but pay a lower land basis, Flatbush is one of the few options around.

Nevertheless, the impact of Affordable New York over the past year on Flatbush cannot be overstated. At the current pace, dollar volume in the development market will likely outpace 2017’s tally of $33.5 million. From January through April, dollar volume in Flatbush reached $16.32 million, 22% higher than the same period a year earlier, according to Ariel Property Advisors’ Investment Research Division. This increase coincided with sizeable appreciation, with the price per buildable square foot for vacant lots costing $209, an astounding 64% jump year-over-year.

However, while Flatbush development sites have appreciated in recent months, the assets offer considerable upside as they remain significantly below the Brooklyn’s overall average price per buildable square foot of $245 in the first four months of 2018, and markedly cheaper than other neighborhoods, such as Clinton Hill, where land sold for $319 per buildable square foot.  

Lately, sites have approached and even exceeded the $200 per buildable square foot level, including 94 and 100 Lenox Road. The 45,500 buildable square foot property package, which was exclusively marketed by Ariel Property Advisors, recently sold for a collective $9.995 million, or $218 per buildable square foot, which is a record high in the area for Flatbush.  

Along with pricing, developers are also keenly aware of the rapidly changing dynamics in the neighborhood, including a recently built 243-room Holiday Inn, as well as Hudson Companies’ 170-unit, 65,000 square foot rental building on Clarkson Avenue. At 2100 Bedford Avenue, Flatbush’s first luxury condominium building, sell-outs were the highest in Flatbush’s history, with the average price per square foot at $859.

Looking ahead, with market uncertainty about Affordable New York dissipating, the development market in Flatbush should continue to flourish. Whether it be attractive pricing and zoning, or the Area Median Income component of the abatement, banks and developers alike will remain enamored with Flatbush, one of hottest development markets in Brooklyn. 

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