Brooklyn Boro

When It Comes To Multifamily Properties, The Sun Is About To Shine Brighter On Sunset Park

December 5, 2018 By Stephen Vorvolakos, Director – Investment Sales David Baruch, Senior Analyst – Investment Research From Ariel Property Advisors
Stephen Vorvolakos. Photos courtesy of Ariel Property Advisors

Brooklyn is undeniably one of the hottest destinations for multifamily properties, with the asset classes’ steady returns and capital preservation being significant draws. As some regions become overwhelmed with supply, investors will likely turn their attention to neighborhoods that are poised to become the “next big thing,” and Sunset Park is high on their list.

In the first three quarters of 2018, New York City’s biggest borough recorded 284 multifamily transactions consisting of 372 properties, totaling approximately $2.75 billion in gross consideration, according to Ariel Property Advisors’ Investment Research Division. On a year-over-year basis, transaction and building volume held steady, but dollar volume soared 71% due to a noticeable increase in large and institutional caliber sales.

For the past three years, Brooklyn has comprised almost 50% of NYC’s multifamily transaction volume. So far in 2018, the borough has constituted roughly 46% of NYC’s 500 multifamily sales.

After an active 2017, investors took a breather from Sunset Park’s multifamily market this year, a trend likely to prove transitory given the area’s slew of amenities and attributes. From its proximity to Manhattan and favorable zoning to its huge industrial waterfront, rapid population growth and strong retail landscape, multifamily buildings are poised to appreciate. And Sunset Park’s spectacular hillside views of Manhattan are icing on the cake.

Nearby Gowanus is in the midst of a major transformation, with Whole Foods, Royal Palms Shuffle Board, Dino BBQ and Ample Hills Creamery all planting their flag in the area. Residential demand followed, so it is no surprise that real estate developers, restauranteurs and artists have turned the once working class neighborhood into a trendy hot spot that is comparable to Williamsburg just ten years ago. Now investors are searching for the “Next Gowanus,” and their answer lies squarely on Sunset Park, which is quite similar in demographics and scenery.

Gowanus is awash with new development, with 1,650 new residential units in the pipeline, according to data collected by Recity. Sunset Park, on the other hand, is just getting started. Last year, Fairstead Capital purchased a 42-building portfolio comprised of 403 total units for north of $100 million. In mid-August, New Empire Corp. revealed plans for three mid-rise towers totaling well over one million square feet across multiple blocks, spanning from 8th Avenue to Fort Hamilton Parkway. The sheer size and scope of this massive complex is unprecedented for Sunset Park and is likely a sign of more to come.

David Baruch
David Baruch

 

Flurry Of Favorable Factors

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Sunset Park is located within the New York City Economic Development Corporation’s Southwest Brooklyn Industrial Business Zone. This zoning provides firms with economic incentives for relocation to the area, including business income tax credits of up to $3,000 per employee, property tax abatements and reduced energy costs.

With these improvements, major technology/advertising/media/information (TAMI) businesses have moved into the area. The decline in brick-and-mortar retail demand due to the rise of e-commerce continues to take a toll on retailers, namely in Manhattan and Downtown Brooklyn. As a result, stores have increasingly set their sights on more affordable rents, which can be found Sunset Park. The Brooklyn Nets’ practice facilities, Bed Bath & Beyond, Saks Off 5th, Five Borough Brewing Company, Brooklyn Kura Sake Distillery and World Market are all situated in the area.

The above attractions should continue to bring new residents. Since 2000, Sunset Park’s population has grown 7.2%, sharply above Brooklyn as a whole, which grew 4.3%. From a pricing perspective, demand for residential space will only continue to rise in Sunset Park, and some investors have already taken notice.

Right now, residential rents in Gowanus average about $38 per square foot, while Sunset Park’s average rent is only $28 per square foot, showing there is still plenty of upside to be unlocked for multifamily investors. Excluding residential homes and townhouses, about 30% of the properties located in Sunset Park are multifamily buildings. As developers begin to realize the future potential, this number will surely grow.

Through the first three quarters of 2018, property values in Sunset Park have spiked. The price per square foot for a multifamily building sale averaged $444, a remarkable 22% increase from 2017. Meanwhile, the average price per unit was $350,757, an impressive 25% increase from last year. Despite higher property values, there is still significant upside due to many of the above-mentioned reasons.

Lastly, while other Brooklyn neighborhoods that rely on the L-train face uncertainty next year when it closes for 18-24 months, Sunset Park will be largely unscathed due to its copious transportation options.

Looking ahead, the multifamily property market in Sunset Park is a bastion of opportunity. The region’s favorable zoning, beautiful waterfront views, thriving retail sector and relative affordability should continue to entice investors and residents alike, all but guaranteeing a strong investment sales market for the foreseeable future.  

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