Massey Knakal Releases Mid-year 2009 Brooklyn Building Sales Report

Massey Knakal Releases Mid-year 2009 Brooklyn Building Sales Report

Commercial News » Commercial Real Estate Edition | By Michael Gerrity | August 5, 2009 11:20 AM ET

(News Source: Massey Knakal Realty Services)

Transaction Volume and Turnover

(BROOKLYN, NY) -- During the first half of 2009 (1H09), the Brooklyn building sales market had 207 closed transactions consisting of 239 properties. The number of transactions was down 65.3% from 1H08, and 76.6% from 1H07, the most active half year.  Volume is running at 0.73% of the total stock of properties in the Brooklyn marketplace on an annualized basis.  To put this number in perspective, the lowest turnover we have seen in the last 25 years was 1.6% in 1992 and 2003, both of which were years at the end of recessionary periods and cyclical highs in unemployment. Transaction volume for the 2Q09 was down 42.3% from 1Q09.

Dollar Volume

The aggregate sales consideration in 1H09 was $307,599,926. This figure was down 74.9% from 1H08 and down 82.6% from the peak half year of 2H07.  While the volume figures above reflect activity across all property types, below we examine pricing trends based on product type. Please note that with regard to pricing below, cap rates and Gross Income Multiples (GIM) can vary widely between geographic locations and conditions of properties throughout the borough.

Walk-Up Apartment Buildings

The average capitalization rate for walk-up apartment buildings was 7.73% in 1H09, showing an upward shift of 113 basis points from 2H08 and 192 basis points from its low of 5.83% in 2H07.  The average gross income multiple (GIM) dropped to 8.4 in 1H09 from 10.5 where it peaked in both 2H08 and 2H07.  Correspondingly, the median price per square foot ($/SF) was $148, down 18.2% from 1H08 and 24.1% from its peak in 2H06.

Elevatored Apartment Buildings

Elevatored apartment building cap rates in 1H09 averaged 5.73%, up 83 basis points from 2H08 and up 133 basis points from its low of 4.40% in 1H06.  The average GIM dropped to 8.9 in 1H09 from 9.8 in 2H08 and its peak of 11.7 in 2H07. Moreover, the median $/SF was $91, down 22.9% from its 2H08 peak.

Mixed-Use Buildings

Mixed use properties produced average cap rates during 1H09 of 6.32% up 32 basis points from its low in 2H08 of 6.00%.  Median $/SF was $228, down 13.9% from 2H08 and down 14% from its 2H07 peak.

Other Property Types

In other property types, the median $/SF for industrial properties was $135 per square foot in 1H09 while the median $/SF for office buildings was $255 per square foot.

In general, the Brooklyn building sales market has seen a reduction in activity and value. The trend has certainly been toward smaller transactions, for which there is plentiful debt available from community and regional banks. We have also seen a resurgence of high net worth individuals, old-line families and neighborhood owners who had been overpowered by operators backed by institutional capital for the past several years.  We anticipate the volume of sales increasing slightly as we move past the paralysis in the market which we witnessed after the failure of Lehman Brothers on September 15, 2008 and the dismantling of Wall Street as we knew it. Based on current market activity, we expect volume to increase as prices drop in 2H09 due to eroding fundamentals caused by increasing unemployment.

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