Investors Abandon Bed Stuy?

We read with great interest in the Daily News that prices are so high now in Bed Stuy, investors are fleeing the area, which means it’s going to be easier for regular people — that is, owner-occupants — to buy there. The story didn’t quote any actual investors, though, so we spoke to a few.

Their take? We are entering the next stage of gentrification and prices are still increasing. Investors are not pulling back, and properties are not sitting on the market. (One source we spoke to had just sold one $2,100,000 property a few weeks ago and has a closing date for another $1,850,000 property next week. A commercial broker was prepping for a Bed Stuy closing later this morning.) But buyers are getting smarter, said one.

Here are a few representative quotes:

“The real story is that owners/brokers are pricing things 30 to 40 percent higher year over year so they aren’t selling! But anything that’s about 10 to 15 percent higher then 12 months ago sells like fire. Prices are still up 20 percent year over year on any asset type!”

“There are bidding wars on every house! Investors didn’t pull back! It’s the opposite! End users became savvy and are bidding on houses that are in the need of work!

“Bed Stuy has a bigger pool of buyers for all asset classes than ever before.”

And here is what Alan Dixon, head of one of the biggest Bed Stuy investors, had to say. (Dixon is Managing Director and CEO of Dixon Advisory USA. Part of a publicly traded Australian company, Dixon buys, renovates, and holds to lease out, not flip.)

“We are still active buyers in Bed Stuy. Whilst prices have risen substantially in the last five years we think they still present very good value,” he said, citing the architectural beauty of the area and good subway service. “The prices are still cheap compared to the more established brownstone areas like Park Slope, and whilst improving, the neighborhood has plenty of room to offer even more amenities in the form of restaurants, bars and other retail.

In our view, a homeowner or investor that buys now, puts on a historically incredibly cheap mortgage and waits till 2025 and beyond will be very very happy indeed,” he continued. As for flippers, they “need prices to be up 10-plus percent in 12 months time or their business model starts to break down. Each one is different, but typically they are borrowing with hard money at 15 percent plus and they have to be able to cover the legal and transfer costs in and out of having such a short holding period.” But even they should be doing fine too, he said, because even short term the situation still looks good.

“As it happens, we still have a very positive short-term forecast as well, so I think we are headed for another 12 months where all three — the homeowners, the investors and the speculators — will all make excellent returns.”

We also spoke to Matt Cosentino, TerraCRG’s go-to guy for Bed Stuy investors and commercial property. Here is his take:

“Bedford Stuyvesant had 123 mixed-use and multi-family sales (five units and up) in 2014, making it the second most active market in all of Brooklyn for commercial investors (second only to Bushwick). All indications support that Bed Stuy will again stay at the top of this list in 2015.

Over the last few years the Bed Stuy market has been one of the most targeted areas for commercial investors in New York City. While we have seen an increase in pricing in the area and are no longer at the ground floor in the neighborhood, compared to more established areas in Brooklyn there is still significant growth in Bed Stuy in rents, price per square foot, etc. This growth potential is one major factor that continues to make Bed Stuy so appealing to the commercial investor. As the neighborhood continues to improve, more and more end users will be buying the brownstone properties and living in them. As we have seen in other neighborhoods, this will only enhance investor interest in the area.”

What do you think? Are prices slowing? Are we at the top of the market or just getting started?

Investors Are Backing out of Bed Stuy [NY Daily News]
All Cash Investors Beating Buyers of Townhouses in Brooklyn [Brownstoner]