Pilings in empty lots behind dilapidated chain-link fences. Foundation pits filled with rainwater. Steel frames of five-story condos rusting, with no sign of further construction in sight. A walk around Williamsburg, Brooklyn is enough to tell you that its future is on hold.
According to a recent report by the New York City Department of Buildings, there are currently 18 stalled construction projects racking up citations and blighting the landscape of this North Brooklyn neighborhood and its sister district, Greenpoint. The view from the street, however, suggests that the number is much higher.
This signals a significant turnaround for the development hotspot. As recently as 2008, the picture was sunnier. The hip neighborhood, once the province of artists and students, was beginning to draw a larger contingent of families. The waterfront—an industrial landscape of garbage transfer sites and warehouses—was being transformed into a green swath by the opening of East River State Park and the city’s soon-to-come Bushwick Inlet Park. The future seemed wide open for continued growth.
A quick look at the numbers gives an immediate sense of the optimism that once imbued the area, as well as how much that optimism has faded. According to Aptsandlofts.com, a residential real estate broker, 2,818 new apartments will hit the Williamsburg market by the end of this year. Next year, the brokerage expects that number to hold, with 2,766 new apartments coming on line. According to real estate appraiser Miller Samuel, in 2008, buildings in Williamsburg and Greenpoint were selling for an all-time high of $668 per square foot on average. But in the first quarter of 2009, the average price had fallen to $519, a number likely to fall further.
The future of the waterfront is also in question. The State Parks Department cut its funding for East River State Park from $169.1 million to $112.1 million earlier this summer, and the New York City Parks Department cut its budget by $57 million, most of which was earmarked for Bushwick Inlet Park.
One thing making the downturn harder on North Brooklyn than on other parts of the city is its high concentration of new construction, said Miller Samuel CEO Jonathan Miller. Formerly a light industrial zone, the neighborhood has been deluged with residential units. In the last two years, new buildings have accounted for 75 to 85 percent of all sales in Williamsburg and Greenpoint, he said.
The problem starts with banks. A new rule prohibits Fannie Mae from guaranteeing mortgages for units in buildings that haven’t sold 70 percent of their units. And because Fannie Mae considers New York to be a real estate market in decline, that number goes up to 75 percent. With banks scrambling for their own survival, few are willing to take risks, especially on real estate. For new buildings, in particular larger developments like the Northside Piers or The Edge, reaching that figure is an increasingly daunting task.
As a result, smaller, better-funded buildings are still selling well, said Leah Ellis, an associate at Kutnicki Bernstein Architects. But many of the big buildings with over 100 units are struggling, she added, and developers are getting nervous.
The banks play another role in the woes faced by North Brooklyn developers. Architect Karl Fischer, whose firm has designed many of the modern condominiums that typify recent development in the neighborhood, said that one distinguishing characteristic of the Williamsburg real estate market is that many of its developers are not established or capitalized enough to withstand the downturn. First, they get squeezed by the banks, and then they paint themselves into a corner where they lose control of the property to banks that refuse to lower unit prices to sell.
In a sea of price cuts, no building illustrates this nightmare scenario as well as Warehouse 11, a Karl Fischer-designed, 120-unit development on Roebling Street. Construction on Warehouse 11 is 95 percent complete, and it’s in foreclosure, with the developer owing $50,766,000. The bank has pulled all sales listings for the individual units, and in May hired brokerage Massey Knakal to sell off the building’s senior debt. Massey estimates that the building’s potential gross annual rental income could be as high as $4.1 million.
With sales heading for a dip as low as $350 per square foot, developers and their architects are resorting to survival tactics, from rethinking the finishing touches to buying cut-rate treadmills for the fitness room. Many buildings have already gone from being condos to offering some or all of their units as rentals, Ellis said. Some developers are also retooling their condominiums as dormitories or eldercare facilities. In one luxury condo in Crown Heights, Brooklyn, a desperate developer went one step further, renting out the unsold units in his building to the city as housing for homeless families. While that’s an extreme example, it’s clear to most developers holding unsold units in Williamsburg that something has to give.