Aug. 28 (Bloomberg) -- Julian and Danielle Katz budgeted $1.5 million to buy a home in their popular Brooklyn, New York, neighborhood of Fort Greene. The only places they could afford were smaller than where they already lived.
The couple, who have three young daughters, instead bought a brick townhouse in nearby Crown Heights. They paid almost $1.2 million and are spending another $300,000 to renovate the previously vacant three-story home that’s a short walk to hipster hangouts cropping up on Franklin Avenue and a newly opened beer hall partly funded by Goldman Sachs Group Inc.
“We were priced out of a lot of Brooklyn neighborhoods,” said Julian Katz, a 41-year-old advertising producer who works in Manhattan. “We loved Fort Greene but we could only afford a modest apartment there. We could get a whole house in Crown Heights.”
A surge in Brooklyn home values is fueling rapid gentrification in Crown Heights, where apartment prices are up more than 50 percent from a year ago and rents are rising at the fastest pace in the borough. Growth in the neighborhood and adjacent Bedford-Stuyvesant, which were known for crime and racial tensions during the 1980s and 1990s, highlights an affordability squeeze for both relatively well-off New Yorkers and the poorer people being displaced.
Young buyers and renters who can no longer afford such established communities as Fort Greene, Park Slope and Williamsburg are moving to Crown Heights, Bedford-Stuyvesant and Bushwick, bidding against investors for townhomes that have been neglected for decades. Longtime tenants too poor to afford the new rents in the predominantly black districts are moving out to less-well connected, more dangerous places.
Redevelopment of dilapidated neighborhoods in New York and other global cities is accelerating as the world’s wealthiest people seek places to park their money, said Jerome Krase, an emeritus professor of sociology at Brooklyn College who studies urban change. That’s causing a “ripple effect” of rising values in close-in communities with good transportation options and housing stock, he said.
“I have not seen such a quick changeover in my professional lifetime,” Brooklyn-born Krase, 71, said of Crown Heights and Bedford-Stuyvesant. “A great deal of it is being fueled by this sense of disappearing possibilities of these kinds of brownstone neighborhoods. And the feeling if we don’t get it now, they’re going to be gone.”
Monthly rents for newly leased properties in Crown Heights averaged $2,110 in July, up 18 percent from a year earlier, data from brokerage MNS show. The median price of a home soared 58 percent to $600,000 in the first seven months of the year, according to StreetEasy, a New York real estate website.
Last month, Dixon Advisory, an Australian investment firm that has purchased 91 Brooklyn properties in the past two years, bought a fully renovated brownstone at 22 Arlington Place in Bedford-Stuyvesant for $2.25 million, a record for the neighborhood. A tenant this week agreed to pay the asking rent of $10,995 a month for the 3,000-square-foot (280-square-meter) 19th century house, said Josh Carney, Dixon’s leasing and marketing agent.
Central Brooklyn -- including Crown Heights, Bedford Stuyvesant and Bushwick -- is the most sought-after area for investors in the borough, said Jonathan Berman, vice president at Ariel Property Advisors. The price per square foot for multifamily buildings in Crown Heights has more than doubled to $241 this year from $102 in 2010, the brokerage’s data show.
A bidding war broke out for a one-bedroom apartment that Jonah Landman, 33, sought to lease in his Crown Heights townhouse, listed for $2,200 a month. While one would-be tenant offered as much as $2,400, he picked a woman who agreed to pay $2,250 and got him her credit report and deposit first.
“There’s a lot more demand than supply so anything that hits the market is valuable,” said Landman, a residential real estate consultant and co-founder of homecanvasr.com, a website for local properties that aren’t listed publicly.
Market rents can be more than three times what tenants in rent-stabilized units pay, giving landlords an incentive to drive out longtime occupants by taking them to housing court, withholding repairs or offering checks of $5,000 or more, according to Kerri White, director of organizing and policy at the Urban Homesteading Assistance Board, a New York-based nonprofit affordable-housing organization.
In Daniel Sandoval’s Bedford-Stuyvesant neighborhood, the arrival of wealthier people about two years ago hasn’t been all bad, said the 50-year-old, an unemployed tow-truck driver and U.S. Marines veteran who lives with his wife and four children. He’s noticed bike lanes and greater police presence, along with two wine bars, new luxury apartment buildings and a “yuppie” bread store across the street that sells $6 loaves, he said.
Yet Sandoval, an Ecuadorian immigrant, is fighting eviction and is the last of the tenants in his building after others were moved out to make way for renovations. The landlord and Sandoval disagree about whether his unit is rent stabilized, which would protect him from getting thrown out.
Sandoval receives a federal Section 8 voucher for low-income households that pays most of his $1,400 monthly rent. His portion is $448. One of the four young people sharing a renovated floor in a neighboring property told him they each pay $1,000 a month, he said.
“I came here when this block had shootouts and drugs throughout the place and now that it’s getting good, they’re kicking me out,” said Sandoval, who moved into the building in 2002. “There are now two police officers on each corner but I realized that they are not here for me. They are here for the new crowd.”
Crime in the area has plunged since the 1991 riots in Crown Heights, which erupted after a Jewish driver accidentally struck and killed the 7-year-old son of Guyanese immigrants. The police precinct that includes northern Crown Heights had 1,025 felonies this year, down 75 percent from the same period in 1993. The decline was 73 percent for the precinct that includes Bedford-Stuyvesant.
That’s helped to attract new residents to the neighborhoods, which are accessible by multiple subway lines and close to attractions such as the Brooklyn Museum and Botanic Garden.
Dixon Advisory is now restoring a Bedford-Stuyvesant brownstone two doors from its 22 Arlington Place townhouse, and has listed a four-bedroom property on Park Place in Crown Heights for $10,995 a month. The home has a sleek, modern look with a gas fireplace, landscaped Zen garden and open chef’s kitchen with a Sub-Zero wine refrigerator.
Dixon bought 22 Arlington Place from investor Adam Cohen, 30, who purchased it about 13 months earlier in an estate sale for $725,000. Cohen said prices started soaring in Bedford-Stuyvesant soon after he signed the contract last year and that persuaded him to spend six months and $800,000 on upgrades.
“I knew it was going to fly,” Cohen, owner of the Stuyvesant Group, said of the $2.25 million sale. “It came down to Dixon and an Upper East Side couple with two kids who were putting $1 million down. It was a hard decision because the couple’s offer was higher. But they needed financing and Dixon didn’t.”
Families with children are increasingly choosing to stay in New York City and if they don’t have millions to spend, their options are limited, said Kathleen Perkins, a Realtor at Douglas Elliman Real Estate who helped the Katzes find their Crown Heights townhouse.
“My cheapest house for sale in Fort Greene/Clinton Hill is $2.5 million,” Perkins said. “If you have $1.5 million and you’re my client, I’m driving you to Bed-Stuy or Crown Heights.”
One of her listings, a four-story townhouse on Clifton Place in Bedford-Stuyvesant, drew six bidders, one offering $305,000 more than the $1.8 million asking price.
The Katzes, who had been renting, chose Crown Heights in part because they’d be close to friends living in Prospect Heights, an established neighborhood with parks and playgrounds for their children and restaurants they’re already fond of, said Julian Katz.
The added bonus: their new home is less than a block from Berg’n, a 9,000-square-foot beer and food hall that opened this week, part of a redevelopment of a former Studebaker garage. The $30 million project is a venture of Goldman Sachs, BFC Partners and Brownstoner Media.
While Julian Katz said he’s confident in the investment, he’s uneasy about speed of change in Crown Heights.
“What we liked about Fort Greene is the change happened in a gradual, organic way so it’s still a diverse neighborhood that maintained its artistic sensibility,” he said. “We just have to hope that a lot of like-minded individuals come in so the new community will be one that we want to be part of.”
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