Brooklyn Investment Market Booming

Massey Knakal, Chart from BK PSR

A new report out from real estate firm Massey Knakal finds that the Brooklyn investment market is on track for another record year, eclipsing even the bubbly markets of 2006 and 2007. In the first half of 2014, 1,068 investment propertiesĀ (apartment buildings, mixed use, industrial and office buildings as well as development sites) sold, a 92 percent increase over the first half of 2013. And that is the largest number of sales of any year, beating out the previous high from the first half of 2007. Purchases of elevator buildings were up 342 percent in the first half of 2014 over the same period the previous year. Even the total dollar amount of sales was up dramatically: 142 percent over the first half of 2013. The total dollar figure of all Brooklyn deals, $3.4 billion, far surpassed the previous high of $2 billion in the first half of 2006.

For investors, this boom is drawing in far more cash and resulting a lot more deals than we saw during the real estate bubble in the run up to the financial crisis. If investors are throwing this much money around, should the rest of us be worried?

Chart: Massey Knakal

19 Comment

  • “If investors are throwing this much money around, should the rest of us be worried?”

    This question shows a lack of understanding of the economics of the velocity of money. What could be better than “outside” money being channeled into neighborhoods? A portion of this money is likely to be spent and reinvested by the sellers, benefitting others within the neighborhood. Sure, some people sell and move far away, but not everyone. Others, who remain, have a more positive outlook towards spending when they see their property values rise.

  • What I meant was should the rest of us be worried that we’re in another bubble and its about to burst. Given that all of the above records were set in the run up to the financial crisis, and we have now significantly eclipsed those records, is this a sign that the market has gotten far ahead of itself like it did in 06-08, that investors are being driven by wishful thinking and an abundance of money looking for a home rather than fundamentals, etc.

    • Many people, myself included, believe the Fed willkeep short rates low for quite some time. There is still no sign of inflation as measured by the traditional numbers. Low rates continue to make properties attractive be they financed or the low rates the opportunity cost of not investing the money. Yes, it has got to plateau at some point but I see nothing to cause a bursting.

  • DIBS is exactly right, the last thing the Fed wants is a spike in interest rates and history has shown that while rates are cyclical, its generally over decades and the rise from the troughs has actually been very slow. A modest rise in rates over time is actually a good thing for both the economy and investors in real estate domestically. The bubble that occurred in 08/09 actually had a fairly muted impact on the NYC metro area relatively speaking was related more to too much leverage and poor underwriting from large lending institutions. Sure sales activity might have slowed but wise investors bought from those who sold on a temporary dip, just ask Warren Buffett or the Silver Shore guys who have killed it using a sound strategy of purchasing good assets when pricing has been temporarily depressed, that timing of purchases is referred to as a tactical investment aka alpha generation. But today credit is far more strict from most lenders, probably still too strict which is why banks are seeing loans volumes fall off the table as other companies jump into the mortgage market. Demand for living space coupled with the reurbanization of the economy are far stronger drivers of value in Brooklyn than the single family markets in secondary and tertiary regions that really got killed during the crash and are still bouncing back. Its all supply and demand at the end of the day.

  • Not to mention the demographic numbers that predict a shortage of units in the NYC area over the next 5-10 years which is one of the primary reasons the downturn in NYC was so short lived

  • Also if you look at a trailing average of the data like that in the chart above you will see that the growth trajectory is actually at pretty sustainable levels long-term when compared to the metro areas economic and population growth. We’ll know things are getting bubbly when zero down loans come back into the mix. There is a ton of cash on the sidelines in the globally which is why even mid single digit yields on investment properties in a stable and growing market like brooklyn look attractive on a risk adjusted basis.

  • Brooklyn Real Estate has proven time & time again through all the cycles of up & down that it is a safe place to put your money. Yes, there have been some nail biting periods for rental investors, but those that stayed calm and carried on through the 60’s & 70’s are mostly the ones selling now. It was hard work and hopefully City politicians will not make the same mistakes again, but Rent Stabilization is self destructing so it will be difficult to go back to that destructive faze. NYC is and always will have a long term rental market.
    Sales can go boom & bust but that is mostly due to if the Banks are in the home owner mortgage market, when they are not…just rent your space out and the rents go up and the sales market comes back stronger than ever with the pent up demand to buy caused by the Banks and the Fed doing what it does to slow the market for a while. Other Cities do not have the strong rental back up to float all property owners through the dips of the market.
    The other equation to this high buying is that investors either write a check to the IRS or buy another building to absorb the cash flow, they can carry the losses for a few years. It obviously makes more sense to buy more buildings than to pay more taxes, that they will never see again.
    Investors and home owners are not on the same market swings but they do cross paths at the roundabouts!
    It is much better than putting your money in the stock market for unknown robots and other volatile unknowns to control your investment.

  • The stock market will have the greatest effect on the real estate market. Medians valuations are higher today than they were at the peak in 1999-2000. The median stock today is 20 times earnings. In January 2000, it was 16 times. The median stock today trades at 2.5 times net asset value. At the start of 2000 it was 2.2 times. The median stock today trades for 1.8 times annual per-share revenues. In 2000: just 1.4 times. Whenever the market bubble bursts it will effect housing. The culprit this time will be bogus valuations, not debt.

    • that being said NY real estate is a good long term investment strategy in my opinion šŸ˜‰

    • Actually, 2014 S&P 500 earnings are projected to be 119 and 133 for 2015, putting it at 16.6 x 2014 earnings and 14.9 x 2015 earnings. I will assume that the rest of your metrics are inaccurate as well.

      Not expensive.

      • i was looking at recent analysis based on the top 1500 stocks by market value. i do however appreciate your snark

        • It wasn’t snark. It was facts. Convention is that when you speak of the “market,” it’s the S&P 500.

          To include another 1000 smaller stocks is a misrepresentation.

          Your welcome.

          • ok. then please know i was basing it on the top 1500 stocks by market value. ahem. 1999-2000 was thrown out of proportion by a relatively small number of psycho stocks – like Cisco Systems, Microsoft, Intel, Yahoo, eBay and Amazon. But everything else on the stock market was relatively normal. Indeed “value” and “old economy” stocks, especially smaller value stocks, were cheap. The point I’m making is that the market today is not being influenced so much by a few psycho stocks. The top 1500 are over valued. That’s all.

        • Believe what you must.. Like I said, when people speak of “the market” it’s the S&P 500. Period.

          Small tech, biotech, etc stocks are far more volatile and do not represent what is the conventional use of the word “market.”

          Compare the trading volumes of the S&P 500 and the volume of the next 1,000 stocks. Big difference.

          I’ve been in “the business” since 1980.

          • yes, i understand what the market typically refers to. i should have clarified.. it’s a pretty unprecedented thing we’re seeing now. will be interesting to see how it shakes out.

  • and let me be even more clear. i’m not pulling money out of the market and i think NY real estate is a safe bet. i’m just saying that stocks will probably create more of a real estate correction than anything else which is very different from the debt crisis.

    • Well, that assumption is probably correct; the stock market does drive the real estate market to a great extent but so does the credit market and, more recently the currency markets and a flight to safety (the US vs. the rest of the world).