BROOKLYN MEDIA GROUP MARCH 9 - MARCH 15, 2018 19
Finding our Brooklyn real estate rudder
“How is the market today?”
It’s a question I often get as a real estate broker. And even after
more than 40 years in commercial real estate, the former U.S.
Merchant Mariner in me can’t help but turn to a nautical analogy
to provide orientation in a market that has defied explanation.
The seas are choppy. Heavy fog is rolling in. Radar and radio
aren’t working. As captain of the ship, what course do you
take? Stop engines and drop anchor? Proceed at a crawl?
Abandon ship?
These are the predicaments an uncertain market presents to
today’s captains of real estate – landlords, tenants, buyers and
sellers.
Landlords are keeping their storefronts vacant to secure top
dollar rents. In CPEX’s 2017 Brooklyn Retail Report, we noticed
the number of retail corridors averaging $100 per square foot
has quadrupled over the last decade – including 10 which have
at least doubled in pricing.
In some cases, these corridors have fallen victim to their own
success – in a flurry of articles investigating New York’s empty
stores, even Manhattan’s Upper West Side had a vacancy rate of
12 percent.
Meanwhile, tenants, especially in the retail sector, are reluctant
to sign a lease at such a high price point. In an environment
where online shopping continues to undercut brick-and-mortar
retail, and many nationals are letting their leases expire, small
businesses in particular are having a harder time finding the
right space at the right terms.
On the sales side, buyers don’t want to pay a premium at
this point in the extended cycle. The turnover rate for elevator
buildings in Brooklyn, for example, dipped from a 10-year peak
of 3.9 percent in 2015 to less than two percent last year. And
sellers can’t help comparing their properties to the peak values
they might have achieved in 2015.
For one of our clients, they were faced with offers 15 percent
lower than the same property received two years ago. Wouldn’t
you be a little salty?
In essence, we’ve gone from the Brooklyn Tech Triangle to the
Bermuda Triangle.
Take Smith Street, for example: Rising retail tides brought
average rents on Brooklyn’s “Restaurant Row” from $80 to $99
per square foot up to $150 per square foot in less than two years.
BY TIM KING
Photo by Flickr user Payton Chung
Suddenly, market-force gales closed the hatches on a dozen
stores. Only recently has it begun to regain its foothold, with
Leyenda, one of Esquire magazine’s top bars nationally, and
Stumptown Coffee opening on nearby Pacific Street.
We’ve lost our bearings, and we can’t see our way to safe
harbor.
Luckily, there is a maritime precedent to help navigate out of
uncharted waters.
After sailing their ships thousands of miles across the high
seas, captains approaching New York out of Asia, Africa, Europe
or the west coast will welcome aboard what is known as a
harbor pilot to determine the course and speed for the last leg
of their voyage.
Waiting outside the harbor to greet incoming vessels, the
harbor pilot uses his experience and intricate knowledge of
every reef, rock and other hazards to steer each ship safely into
port.
This is the role of the real estate broker. We know the constant
shifts in the current of the local market, the sandbars and
shipwrecks to steer around, and other ships passing in the night.
Perhaps it is an owner or tenant’s first lease, or first lease in a
long time. In other instances, the property may have never been
to market before. With so many headlines touting the “Brooklyn”
market, we as brokers can provide more nuanced advice and
education in the different submarkets that could range from as
much as over $1,000 a square foot for a multi-family walk-up in
Downtown Brooklyn to less than $200 per square foot in East
New York.
No, it is not our ship. But we have guided countless ships
just like it to that very same destination. Whether it’s a sunfish,
sailboat, steamer or yacht, we have brought it through low tide,
high tide, busy afternoons and pitch black nights.
It may not be clear where we are or where we’re heading. But
with the right tools – a compass, the north star and a trusty
navigator – we can always find an answer to “how.”
Where there’s a tiller, there’s a way, and a captain need not feel
rudderless, even out at sea.
Whatever you do, there’s no sense in going down with the ship.
Tim King is managing partner of CPEX Real Estate,
a commercial real estate firm in Downtown Brooklyn.
To learn more about today’s market, call (718) 935-1800
or visit www.cpexre.com.