Downtown Brooklyn boasts more than 100,000 office workers, 35,000 students, 80,000 residents, 14 subway lines, 15 bus lines, and the Long Island Rail Road. On its own, the borough is the fourth-largest city in America, and its commercial district is one of the nation's busiest and most dense. But the area has not attracted a critical mass of offices, stores, and apartments to transform it into a 24/7 community.
That is, many say, until now. There is now more than $9 billion worth of development under way in downtown Brooklyn, including millions of square feet of office and retail space and the arrival of 35,000 residents over the next five years.
Last week, the Downtown Brooklyn Development Partnership unveiled renderings of the proposed redevelopment of downtown Brooklyn that would include increased residential and commercial space, as well as the new Willoughby Square Park.
"Brooklyn has morphed into a 24/7 community. The area is teeming with activity — artsy and cool Generation Xers and Yers, families with strollers, Manhattan exiles, office workers, and out-of-town visitors are coming to take advantage of the new venues that big-bucks bohemia has to offer," the president of Troutbrook Companies, Marc Freud, said. "Redevelopments, new developments, and the continuity of change dot the skyline. The vaunted destination known for haute cuisine and eclectic art galleries, shopping, and culture has created an urban modernity that when you leave has you yearning for more."
This transformation of downtown Brooklyn is not taking place overnight; it has taken at least three decades, and many say it will not be completed for at least a decade.
One prominent owner-developer in Brooklyn, who requested anonymity, said, "Things do not happen overnight, even if the hype would lead you to think so."
"It has taken Forest City Ratner Companies and Muss Development more than 25 years to arrive at this point," the developer said. "What has been happening over the past five years is very noteworthy, but to expect complete and immediate success without a hiccup is not to understand the real estate development process, even when it is goosed and subsidized by government and quasi-government agencies. The process and cycles that are inherent in the regeneration of downtown Brooklyn, which first started over 25 years ago, is still in its formative stages. The completion of the residential makeover, the evolution of a commercial office pattern of need, perception, availability, economics — rental levels, bank lending patterns, interest rates, abatements and incentives — remains an imperfect science."
Mr. Freud called Brooklyn "a fantastic area of broad avenues and quaint streets." However, he said, "It is an area still very much in transition, with an as yet undetermined ending. For example, it was only less than two years ago that 4.5 million square feet of office space was announced. The market now seems to only have a need for 35% of that. There's no question that Brooklyn will continue to evolve to be a destination sought out by businessmen, New Yorkers, and tourists from across the globe."
In the newly issued report by the Downtown Brooklyn Development Partnership, the plans included about 1.9 million square feet of office space, while the original plans envisioned 4.5 million square feet. New York City is in need of office space, and it is surprising that the partnership has reduced the amount of office space and converted that space into residential. The president of the partnership, Joe Chan, said a number of private sector tenants are looking for office space in downtown Brooklyn in the 30,000- to 200,000-square-foot range.
He added: "For the first time in many years, companies have the opportunity to lease Class A space in a building in downtown Brooklyn, at rents as low as $27 per square foot. If you take into consideration as-of-right incentives that effectively lower operating costs by $15, it's an incredible compelling proposition."
Perhaps the most positive effect to the office market in downtown Brooklyn was the purchase this spring by a joint venture of SL Green Realty and the City Investment Company of the Montague Court Building at 16 Court St. In June, the joint venture paid $107.5 million, or $338 a square foot, for the 317,625-square-foot Class B office building, built in 1928.
The president of the City Investment Fund, Thomas Lydon, said, "The purchase of 16 Court St. in partnership with SL Green was a belief that the office market in downtown Brooklyn is able to accept a higher finish, B-plus building and with it rents which reflect loss factors and operating escalations more consistent with the Manhattan office market."
"SL Green has a track record of achieving excellent market penetration for buildings of this vintage, and the partnership will be spending upwards of $15 million over the next five years in building upgrades and tenant improvements," Mr. Lydon added. "The combination of new residential development, retail transformation, and favorable transportation access gives us the confidence that the downtown Brooklyn office market will be a beneficiary of these economic factors in the upcoming years."
"Office leasing in downtown Brooklyn has showed tremendous improvement over the past few years attracting a number of high profile tenants including global law firm Sullivan & Cromwell, Health Insurance Plans, and Bowne & Company," the president and CEO of Acadia Realty Trust, Kenneth Bernstein, said. "Due to the increased demand for quality office space by large corporate users, developers have stepped up to the plate. In addition to our mixed use project, called City Point, 4.5 million square feet of office space is planned over the next several years, which will completely transform downtown Brooklyn's landscape."
An executive director at Cushman & Wakefield, Glenn Markman, said: "In my 20-plus years of representing landlords and tenants in downtown Brooklyn, I have never seen the demand for office tenants be stronger than today. The interest is coming from Manhattan office tenants, such as advertising agencies, media companies, law firms, and consulting companies."
More than 1,800 hotel rooms are planned for downtown Brooklyn, including limited service, suite, boutique, and five-star hotels. Projects include a 325-room Sheraton at 222 Duffield St., a 176-room aLoft at 216 Duffield St., the 180-room Hyatt Place at 37 Nevins St., the 247-room Holiday Inn at 300 Schermerhorn St., the 300-room Cambria Suite at 75 Schermerhorn St., the 93-room Smith Hotel, and a 174-room Marriott Fairfield Inn near the Gowanus Canal, to be developed by the Troutbrook Companies.
In addition, a Hilton Hotel is planned for development on Flatbush Avenue, adjacent to the new residential condominium the ORO, by its co-developer, Ron Herscho of United Homes. Industry leaders have confirmed that W Hotels is interested to developing a W Hotel and Condominium on Flatbush Avenue near the Brooklyn Academy of Music and the Atlantic Avenue transportation complex.
"With all these hotel rooms in various stages of development, and residential high-rises popping up, why travel back to Manhattan for a night's stay?" Mr. Freud of Troutbrook said.
Mr. Chan said, "The success of the Marriott Brooklyn Bridge and its expansion clearly demonstrates that the demand for hotel rooms in downtown Brooklyn has not been fully met. There are 1,800 rooms under development and hotel groups and hoteliers continue to scour the area for additional sites and several new flags."
The managing director of the hospitality and gaming group at Cushman & Wakefield, Eric Lewis, said: "Downtown Brooklyn, as opposed to many other areas surrounding downtown and Midtown Manhattan, has a legitimate existing business base which supports hotel demand. The ongoing developments in the area, Atlantic Yards in particular, will only increase that demand. The question becomes how many new hotel rooms can this market support, particularly if there is a downturn in demand for Manhattan room nights."
Historically, downtown Brooklyn has been the retail center of the borough, with the original Abraham & Strauss Department Store, now home to Macy's, at the Fulton Street Mall, where dozens of national, regional, and local retailers attract 100,000 shoppers each day. As the shopping destination for the borough, this open-air shopping mecca is home to more than 230 stores.
The nearby mall at Atlantic Terminal sits atop the largest transportation hub in Brooklyn. The retail center, developed by Forest City Enterprises, includes five levels and more than 370,000 square feet of retail space. Above the retail center is a new 470,000-square-foot office building for the Bank of New York. Employees and visitors to Atlantic Terminal will benefit from internal access to the retail shopping center, 10 subway lines, and the Long Island Rail Road.
According to the president of Brooklyn, Marty Markowitz, Nordstrom and Saks Fifth Avenue are in discussions about opening retail stores in downtown Brooklyn. Mr. Markowitz said he is also lobbying H&M and Apple to open stores downtown. A Trader Joe's supermarket is scheduled to open on Atlantic Avenue in the former home of the Independence Savings Bank, which Mr. Markowitz believes will be the highest-revenue store in the national chain. According to real estate sources, next year JCPenney will open a department store on Fulton Street, and Target and Best Buy could be interested in opening stores in the mixed-use development City Point, by Acadia Realty Trust.
"Retail in downtown Brooklyn is on the move, and we expect to announce the signing of a lease with a prominent national retailer at our Adams Street mixed-use development, which houses the Marriott New York at the Brooklyn Bridge," developer Josh Muss, chairman of Muss Development, said.
Next year, expect to see additional commercial development at the redevelopment of the Brooklyn House of Detention, at 275 Atlantic Ave., and United American Land Development, a block from the Fulton Street Mall and Metro Tech, for a 594,000-square-foot mixed-use retail and residential tower.
With major hotels, prominent retailers, the expansion of the Brooklyn Academy of Music, and developments on Flatbush Avenue and Fulton Street, things look great for commercial development in downtown Brooklyn.
Mr. Stoler is a television and radio broadcaster and a senior principal at a real estate investment fund. He can be reached at [email protected]