Brooklyn is here to stay! Manhattan's boom is a boon for Brooklyn development

Reports from all corners of the real estate sector this year have indicated a continued recovery from the recession. While that may finally be providing some relief for your cousin Joe in Toledo whose house is no longer underwater, New York, as always, is its own animal. Finding a place to live in prime Manhattan has never been easy, but various factors are contributing to a pricing boom that is punishing for both buyers and renters. Increased demand has elevated rental pricing to at or above pre-recession levels, and broker fees paid by landlords and concessions like a free month's rent are very distant memories. For buyers, inventory is the tightest it's been in years and lending requirements have tightened. Two recent city government initiatives also seem to acknowledge the limitations of this narrow island: Mayor Bloomberg's request for proposals for a housing project made up predominantly of "micro-units" below 300 s/f, and NYCHA's plan to lease millions of s/f within public housing sites to private developers for both housing and retail space. There is also comparatively very little new development going on in Manhattan. A recent Crain's NY Business article cited that so far this year plans have been submitted for fewer than 900 new condo and co-op units-a miniscule figure compared to the recent peak of 15,827 in 2006. And international buyers competing for luxury units are also driving up prices in this sector of the market (last year Stribling estimated that 33% of all condo purchases were completed by foreign buyers). So although Joe can finally sell his house and follow his dreams to The Big Apple, he's likely going to be living in a shoebox when he gets here (unless he can live with you or move back in with his parents). But bad news for Joe is good news for landlords in the boroughs, particularly Brooklyn, which is riding high after the opening of the Barclay's Center and a year of great press, such as having been named GQ's "Coolest City on the Planet." Developers who rode out the rough times of the past few years are now reaping the rewards there. With the average price per s/f of luxury condos in the most prime Brooklyn neighborhoods closing in on $1,000 and commercial spaces also commanding jaw-dropping numbers (the Triangle Sports building in downtown Brooklyn just sold for $900 per s/f), the opportunity to capitalize on demand has never been stronger. Developers who invested in Brooklyn and toughed it out through the recession by turning planned condos into rentals, also made out well. Large multi-family developments have been snatched up by major institutional investors who've finally turned an eye toward the borough with purchases like the Arias in Park Slope (bought by Invesco for $520 per s/f) and 163 Washington Ave. in Clinton Hill (bought by American Realty Capital New York Recovery REIT for $650 per s/f). The bullish Brooklyn market and loosening of construction financing has meant a steady increase in development site prices over the past year. While some buyers are balking, others see opportunity. Despite Brooklyn's popularity, construction starts were severely limited during the recession. In fact, Streeteasy.com's new development report recently cited Brooklyn as having the steepest decline in new development listings, falling to 343 in August, down 38.4% from the same month a year earlier. The developers who are now aggressively acquiring sites are attuned to fact that development has slowed significantly over the last few years and are looking ahead to the resulting shortfall of new units leading to increased demand and pricing. The sub $100 per s/f prices for development in the borough now seem like an incredible bargain. Sites in Williamsburg and Dumbo are commanding close to $200 per s/f and downtown area neighborhoods closer to $150. Brooklyn isn't "outer boroughs" anymore. It's one of the top destinations in the country for young and upwardly mobile professionals who want amenities and space. Manhattan's pricing may be fueling the trend, but regardless of what happens with conditions there, in this humble broker's opinion, Brooklyn is here to stay. Daisy Okas is an associate at Besen & Associates, New York, N.Y.