Commercial Grade

By James Dunne – The CREative Department

I’ve been working on project in Prospect Heights, Brooklyn, a neighborhood just north of Prospect Park, which has become greatly gentrified over the past decade. Many of the buildings in Prospect Heights are under cooperative ownership. Washington Avenue, which runs diagonal through the photo below, is the traditional boundary between Prospect Heights on the west side and the neighboring Crown Heights neighborhood to the east. The stark contrast of the revitalization of Prospect Heights is apparent by the building roofs: on the Prospect Heights side most roofs are covered in fresh “silver coat” (aluminum-based reflective material to keep energy-costs down in the summer), whereas on the east side of Washington Avenue, Crown Heights, the roofs are clearly not as well maintained.

This one caught my eye.  I’m no architect critic and don’t know what makes for “good” architecture or “bad”, but no question that this is “cool” architecture (does that make it good?).  The “Dancing Towers” opened in Williamsburg, Brooklyn, making the neighborhood that much hipper:

467 Keap Street, it’s real name is Ainslie Tower and, as far as I can tell, they’re condos.  Designed by Gilman Architects. Don’t know anything yet about amenities or price points…or whether it will achieve a “hipster premium.”

from James Dunne – The CREative Department

I recently performed a valuation on a multi-building office complex in Brooklyn that will be installing a new cogeneration energy system to replace the complex’s current boilers, while supplementing its electricity usage. This is the second such property in Brooklyn I’ve appraised in the last year that has installed or will install a co-gen system to power its buildings.

Cogeneration is system that creates heat and generates electricity through the burning of natural gas along with the recirculation of excess heat in a system. Typically, the use of microturbines or reciprocating engines generates the electricity through the combustion of natural gas, plus the system can also drive the chillers for a large HVAC unit.

Initial capital costs for a cogen system can be significant. In the complex I recently looked at, capital costs would be roughly $2.8 million for removal of the old boilers and replacement of old equipment with the new system; however, with cost savings of roughly $500,000 per year, or between a 53% to 58% savings in energy costs, the payback would occur in about 5.5 years. With a life expectancy of over 20 years, substantial savings would occur over the long run.

What was more interesting was that a bank was willing to fund this capital cost, with no up front capital outlay from the building owners. Even with the financing payments, there was still a significant net savings. The cost was further brought down by a NYSERDA (New York State Energy Research and Development Authority) grant to cover a portion of the capital costs.

With increases in taxes, labor costs, materials, and energy costs in recent years, building owners in NYC should explore cogeneration. It will benefit the environment, and the bottom line.

Additional note: NYU upgraded to a new gas-fired cogen system at it’s main campus last year.  There’s a lot of good info on the system and cogeneration here.

by James Dunne – The CREative Department

I recently paid a visit to the new DeKalb Market in Downtown Brooklyn. DeKalb Market is temporary market place located on the future CityPoint development site located on the corner of Flatbush Avenue and Fleet Street (one block south of DeKalb Avenue). The market has a variety of boutique shops and food vendors situated in metal shipping containers. With about 20 stores, it’s open seven days a week, but most vendors are only there on the weekends.

Utilizing shipping containers for purposes other then shipping goods is a practice that was once only associated with third-world countries, where old containers were out-fitted to serve as housing, or often shipping containers were brought into natural disaster areas to serves as temporary housing or disaster relief command centers.

However, in recent years I’ve noticed a surge in the popularity of shipping container use – it seems to have become a trend with architects and designers to tinker and work creatively with the containers. There have been large houses created from combining the containers, with the results barely resembling the original containers.

The photo below is an office that runs on solar panels that I spotted at the new Brooklyn Bridge Park.

NYC is an ever-changing landscape. Big projects such as CityPoint often take years to get off the ground, and are typically constructed in stages. A temporary market place constructed of shipping containers is a great interim use. With new and creative shipping container uses popping up all over, I think this shipping container trend, whether in the third-world or the developed world, is here to stay.

by James Dunne – The CREative Department

Brooklyn Bridge Park recently opened its latest addition, Pier 6.  I took a bike ride down to the park, beginning at Pier 1, to view the progress, and I have to say that it is impressive.  When I arrived in Brooklyn 10 years ago, the area that is now Brooklyn Bridge Park was a largely desolate and under-utilized strip of prime New York real estate.  I used to take walks in DUMBO when it was a warehouse-land with just one old bar and a Mexican restaurant – now, the Brooklyn Bride Park Conservancy, which runs the show, holds yoga classes on the waterfront, along with a host of other activities.  Pier 1, where I started, now has a wine bar, a gourmet taco stand, and locally made ice-cream food cart serving the area.  The landscaping has expanded since the last time I was there, as shown in the picture below:

In the background you can see the Brooklyn-Queens Expressway (BQE) carved into the granite, with Brooklyn Heights and the promenade perched on top.  There is a bike and jogging path that connects Pier 1 to Pier 6 that passes the other yet-to-be-developed Piers 2-5.  Pier 2 is shown in this picture:

When I arrived at Pier 6, they had a sand-filled volleyball court open, plus a children’s play area with sprinklers, which was swarming with kids.  I often used the service road under the BQE, which passed by this area, as short-cut when driving though Brooklyn and I would wonder if this area would ever be developed. It was still partially used as a shipping-container port back then, so I’m excited to see the area thriving, but now my short-cut is full of taxis and tour-buses.

by Tyler King, Resident Hipster

Back in November, I mentioned a new condominium called the Allan Building that had just listed a handful of units for sale.  At that time, the asking price of these particular units hovered around $657 per square foot.  Well folks, closings have begun at the project and it looks like all the units are now spoken for.  Brownstoner.com reported the building 100% in contract in April, indicating an absorption of almost 8 units per month.  That kind of sales velocity is a story unto itself, however it was not until the trusty public record starting letting the whole world know exactly what these units had been selling for that things started to get interesting.  Because remember kids, an asking price means nothing.

For some reason, the usually reliable Streeteasy.com is missing a handful of the closings and I put on my data suit and took a dive into the public record myself to fish out some additional closings.  The numbers are pretty interesting after you do a little digging.  Including all 26 closings, the overall average price was $683/SF with units selling for about 1.6% off the asking price.  However this is a bit misleading because 15 of those units sold with a parking space (with one buyer purchasing two parking spaces (boy, is he going to be disappointed when he realizes he wont be able to convert it into a second bedroom!).  Sometimes the parking space was a concession and in some instances it appears the buyer paid slightly over asking for the space.  If the 11 units that sold without a parking space are analyzed, the building averaged about $656/SF with units selling at an average discount of 3.2% off the asking.  Conversely the other closed units sold at a premium, with an average price of $715/SF, a function of both having parking spaces and including two penthouse units that sold for $739/SF and $813/SF, respectively.

So what does this mean?  Well, it shows the continued pattern that the new baseline in terms of pricing in Williamsburg is around $650 per square foot.  It also means that if priced correctly, units are flying off the shelves.  Also, and less importantly, it looks like I was pretty much dead-on back in November about pricing in Williamsburg.

By Tyler King, Resident Hipster

Here at Miller Cicero, LLC we offer valuation services involving a wide swath of property types.  Furthermore, our services are often requested for a wide range of reasons.  Litigation, refinancing, asset management, the list is about as long as my arm.  During the last building boom, we did a lot of work involving new construction.  New construction is always an exciting venture because it involves lots and lots of different people.  When you look at the soft cost budget for a project you have architects, engineers, lawyers, consultants, and, about 14 items down, you have the appraiser.  All of these people are working together to create a brand new building.  This new building will forever (or at least into the foreseeable future) alter the landscape of the surrounding area.  Where before there was an underutilized site, there will now be apartments or offices, with people living and working inside of them.  I don’t want to get all existential on you, but it is like a total happening.

Any new building will greatly influence the surrounding area.  Often, these influences are what all the fuss is about when a new building is purposed.  Neighbors are concerned about context, aesthetic and density, among other things.  However, besides the long-term impacts the construction process itself will also have an immediate and substantial affect on the surrounding area.  When a building is built, during demolition and foundation work  a lot of earth that was previously lying still is moved around.  Also, older neighboring buildings which had begun to lean a bit on adjacent structures lose that comforting shoulder after demolition.

I was on an inspection today in Williamsburg and snapped a few photos of a development site across the way.  Looks like the building next door to the big hole in the ground lost its friend and its shoulder to lean on.  Cracks can be seen all up and down the western portion of the building.  Shoring has been put up, presumably after the fact, to prevent further damage but it looks to me like that corner is about to take a swim in the mud pit next door.  If I owned that building, I would open a burger shop and exclusively serve “lean” beef.

I’ve been reading with much interest all of the hoopla regarding the Superfund designation of the Gowanus Canal.  The New York Times had a good article on it recently (from which I’ve borrowed this photo!).  Don’t really understand the controversy…I mean, isn’t it a good thing that this former industrial waterway full of PCB’s and sludge is finally going to be cleaned up?  I mean, sure, nobody’s going to want to pay the gazillion dollars required, but it’s a small price to pay to transform a canal that has historically been a punch line into a basin with clean water, happy fish and parks and new residential developments along its banks.   Think little kids on swing sets and puppies and kites replacing the concrete and block heavy industrial factories.  Think Gowanus Resort and Spa!

The City planner’s vision for the canal seems almost too far-fetched to believe, but then again, there were probably lots of non-believers when the city announced that one of the seediest areas in Manhattan, Times Square, was going to be transformed into a Disney-like theme park…

Source: Photo from the New York Times

by Tyler King, Resident Hipster

I have decided I am going to bid above ask on a new condo in a secondary location, Brooklyn preferably, in a building that is only 4% sold after a year of marketing and is not expected to be finished until the Fall of 2010 (at least that is what the broker says).  They just poured the foundation and man do the floorplans look nice!  According to the brochure, I will get Toto toilets, a soaking tub (as opposed to the standing room only tub I currently have), and heated towel racks.  Oh, and I decide to splurge and buy a $75,000 parking space along with the unit were I can park the brand new Toyoto I just purchased.  I know that people are worried about Toyota’s little accelerator pedal problem, but I have no problem with a faulty gas pedal, I like to go fast.

Wait a second, that is the mid-2007 me talking.  Boy do I sound dumb!  Things no longer work this way.  People are thinking rationally about purchases, and are not blowing their money on the next gimmick (pet spas?).  However, people are making purchases.  Units are selling.  Even in the unsure world of new development.  Just the other day I saw an unconfirmed tweet from The Real Deal chirping that at The Oro sales have picked up to 10 – 20 units a month.  And get this, The Forte is now reportedly 100% in contract.  This, after a stiff cocktail of bankruptcy and price-cutting.  What does this mean?  Prices in new development is coming down (or maybe plummeting is a better word) to a point where buyers are now willing to pull the trigger and buy something.  The bid/ask gap is beginning to close, with most of the give coming from sponsors.

So for 2010 I foresee some projects  selling steadily.  I predict the word of the year is going to be variations on “stable”.  Stabilizing, stabled, stableness, stably, etc.  (I hope this works out better then when I predicted 2009 to go down in history as the year of the land sale).  According to the Fourth Quarter 2009 Prudential Douglas Elliman Brooklyn Market Overview (prepared by Miller Samuel Inc., an affiliate of Miller Cicero, LLC), in the North Brooklyn submarket, condos are averaging $564 per square foot, down from a year ago.  At the same time the report is seeing increased sales activity as listing inventory is declining market wide.  Translation:  Things might just be stabilizing.  See, there’s that word again.

by Tyler King, Resident Hipster

Brownstoner.com brought to my attention an exciting commercial real estate transaction. It looks like as I was trimming my tree, sipping on eggnog, and singing “Jingle Bell Rock”, Toll Brothers was out buying a development site in DUMBO, Brooklyn. If you recall, these are the same folks behind the large-scale condominium development Northside Piers in Williamsburg. This is big news because in 2009 there were essentially no large residential development site sales in Brooklyn (at least no arms-length transactions). This made it very difficult to value land in Brooklyn (unless, of course, you were a seasoned commercial real estate appraiser in which case it was elementary). The lack of sales was further disheartening as I wagered a significant amount of money at the end of 2008 that 2009 would be go down in history as “the year of the land sale”. I better stay out of Vegas.

So lets look at the nuts and bolts of the transaction. The site is zoned for residential and manufacturing. Being that Toll Brothers is a luxury home builder I am assuming they are planning on a condominium development rather than building a widget factory on the site. It appears that the site straddles two zoning districts making zoning a bit complicated. However, with my very preliminary back-of-the-envelope analysis it looks like that with a 21,700± square foot footprint the site could conceivably be built to around 85,000± square feet. Being that the site was purchased for $8.6 million this equates to just north of $100/SF buildable. Kah-Blam!! There we have it kids, a baseline for 2010.

Although there is one small caveat: the site is in the DUMBO historic district. This basically means that any new development is going to have to be approved by the city. Being a vacant site, this should not be too much of a hurdle. Just keep it contextual Toll Brothers, keep it contextual and I am sure any plans will fly. Just like Disney’s Dumbo with a feather in his trunk.