Brooklyn Commercial Properties May Reap The Biggest Benefits From 421-a's Return
The potential return of the 421-a sent a shockwave through the real estate community—in a good way—when it was announced last week. Developers started making calls, and developments that were put on hold suddenly became much more likely. With this obstacle gone, surely Brooklyn would abandon the cautiously optimistic mindset from a few months ago, right? Nope, industry players say.
Heritage Equity Partners president Toby Moskovits (pictured) says the 421-a was only one of the challenges facing Brooklyn developers. The difficulty of finding skilled labor or acquiring construction financing are still high, and ground-up construction’s cost remains too high for most developers.
For Rudin Management VP Michael Rudin, the 421-a changes nothing. No project has caught the firm’s interest or fit its criteria and, although he’s expecting an increase in office demand, he’s not planning to change the marketing plan for Dock 72 (pictured).
CPEX managing partner Tim King expects another round of development activity and subsequent pricing increase, but also isn’t changing anything as CPEX “never stopped calling about development opportunities.”
Acadia Realty Trust EVP and COO Christopher Conlon—leading the development of City Point in Downtown Brooklyn—says his firm is in the same boat.
The abatement’s return is causing some sellers to increase prices or be more difficult with their terms. GFI Realty Services senior director Erik Yankelovich (pictured) says he's already seen some cases of this in Crown Heights. The sheer length of 421-a’s absence has caused many developers to be less aggressive in their approach to rental developments.
“I don’t expect things to be back to where they were prior to the program’s expiration,” Erik says.
Chris (snapped, right, with Bisnow CEO Will Friend at MAPIC in Cannes, France, last year) and Tim believe retail has the biggest room to grow, describing Brooklyn as “tremendously underdeveloped” in terms of retail, and predicting the increased population will draw authentic, Millennial-focused retailers to Brooklyn out of necessity.
“We need to look no further than the nearest American Apparel store to see the consequences of what happens when you don’t keep pace with your customers,” Tim says.
421-a’s return could cause developers to rethink their retail spaces. Rather than having it be an afterthought and creating a space that’s poorly designed—with odd shapes, obtrusive columns and low ceilings—developers will need to create spaces that will appeal to the new wave of tenants and fit retailers' needs.
Tim and Eastern Consolidated senior director Brad Cohen (pictured here with his family) point to City Point in Fulton Mall as a perfect examples of this trend.
Surrounded by residential towers, Acadia and Washington Square Partners’ 1.9M SF mixed-use development has already attracted the likes of Century 21, Alamo Drafthouse and Target. The surrounding area also saw a dramatic change in retail mix as new residential projects came online, with Ann Taylor, Banana Republic, the Gap, American Eagle Outfitters, T.J. Maxx and others having opened in the last few years.
Looking forward, Toby said the biggest thing to watch would be President-elect Donald Trump’s effect on regulation and the economy, hoping Trump’s developer roots would help him catalyze a bit more investment to the industry.
A potential game-changer, she added, would be the City Council doing more with zoning. By looking at zoning in Williamsburg, Bushwick and other areas, she says, the city can single-handedly increase Brooklyn’s appeal and incentivize further development.
“You don’t need to play ball at the city and state levels like you have to for the 421-a,” she says. “The city has control of its own destiny.”
