What’s Happening in the Gowanus | The Stoler Report-New York's Business Report

What’s Happening in the Gowanus | The Stoler Report-New York's Business Report

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♪ [Theme Music] ♪ ♪ [Theme Music] ♪ >>> Michael: It's called the Gowanus. It's in Brooklyn. It's a prized neighborhood and it's recently been rezoned. So, I don't know what's happening in the Gowanus. So today I've assembled this group of leaders to provide us insight in what's happening in the Gowanus. My guests include Nick Silvers, who is the founding partner at Tavros Capital. The eminent

Mitch Korbey, who is the partner in charge of land use and zoning at Herrick. And last but not least, the individual really responsible for bringing the whole group together, Dan Marks, who's a partner at TerraCRG. So, I have a question. Is the Gowanus similar to Colorado? [guests laugh] I mean, since you grew up over there. What, what do you see -- I mean, you've been involved with New York for a number of years. You're very bullish on the Gowanus, and a lot of people are bullish. What do you attribute that to? And where is the Gowanus, for people who are watching the show? >>> Dan: Sure. Well, to set the record straight, I'm from

Glenview, Illinois originally. But I, but I did come to New York through Colorado and, and Gowanus is, is nothing like -- >>> Michael: Glenview, or -- >>> Dan: Or, or Boulder, you know, for that matter. But Gowanus is located just south of downtown Brooklyn, between Park Slope and Carroll Gardens in, in, in, in the sort of center of, of Brooklyn. It's named after the canal that cuts through the neighborhood that, that exits out into, in, into Red Hook. Yeah. And like you said, it just recently got rezoned in November of 2021, after about a 10-year process, which, which Mitch has been a part of since the very beginning. >>> Michael: Mitch, since [clears throat] Dan said you've been responsible over the period. You were in the city

planning, you've been involved with Brooklyn. Let's talk about the history of the Gowanus rezoning and what recently happened today. >>> Mitch: I was fortunate enough to be the director of city planning's Brooklyn office in the mid '90s. And I think it was my first or second phone call was from Buddy Scotto, who brought me aside and said -- I think he took me to breakfast - “Mitch, I have this vision of Venice in Brooklyn.” And I had no idea what he was speaking of. And then he went on at length

about the Gowanus Canal and how it could be something very special. And that was 1995. And since then, it's been the dream in the vision of urban planners and folks who own property, to connect Park Slope and Carroll Gardens in a way that might allow for new development growth, a transformation of an older, mostly vacant, underused industrial area. >>> Michael: So, let's talk about, [clears throat] because a couple of years ago there was significant redevelopment in the Gowanus. Then it stopped. >>> Mitch: Well, there was a lot of development along 4th Avenue -- >>> Michael: Right.

>>> Mitch: Which folks characterize also as being part of the neighborhood, and that's because of a rezoning that was done there, and economic growth and, and in, in the housing market, and a number of new buildings have gone up along 4th Avenue, transforming that corridor, transit rich, the N and the R line, and that growth in development has also sort of spurred on the idea and added sort of more emphasis and a boost to the idea that the Gowanus could work as well. So that rezoning is probably 10 years old. >>> Michael: Okay. Now, do we consider the Whole Foods part of the Gowanus, or do we consider that the 4th Avenue corridor? >>> Mitch: That's part of Gowanus.

>>> Dan: It's squarely in the middle. Yeah, it's the corner of 3rd and 3rd but I think the other development project you're referencing is the Lightstone development along Bond. So that, that was a private rezoning application that was filed actually by Toll Brothers many years ago. And then they gave up that site and then Lightstone picked it up. And that's been extremely successful benchmark, I think, for developers to look at to see what the market actually looks like, what the market appetite is for, for that type of product and how to develop that product in a way that helps connect the neighborhood with all the residents that are going to be living there. And I think by all measures, it's been a very successful project. And I know it's probably one that, that

Nick and his team have studied in depth as they were considering making investments into the neighborhood, you know, just a few years ago. >>> Michael: You know, you bring out an interesting point. I remember when Toll Brothers was involved and David Von Spreckelsen was heavily involved at that time. And basically, he thought that was, was going to be the disaster to kill his career at Toll Brothers. >>> Nick: Well, originally, I think that they had planned to do condos there. And then ultimately the reason why they

decided to sell the site was because it was at a low point in the cycle and they ended up selling it to Lightstone, who developed 363 and 365 Bond, both Lightstone and Atlantic. And they built about 800 apartments. But very much, those are the standard for the market to really understand what the promise and what the potential was for the site. That you could

bring, you know, these are tree-lined streets. These are brownstone streets in Carroll Gardens, in Cobble Hill and Park Slope. We needed to prove, someone needed to prove that actually people would live in a multifamily building and that they could bring out young professionals, 20 somethings, 30 somethings to really be able to enjoy the neighborhood. >>> Michael: So, who are the tenancy right now in the, the initial buildings at Lightstone? >>> Nick: It, it's very much young professionals. It's very much -- you know, the, the Google executive, it's the JP Morgan executive, it's the startup VC entrepreneur, and, and they're living and, and really enjoying all of the amenities that are available in Gowanus.

>>> Michael: How do you get involved with the Gowanus? >>> Nick: So, we started working on and studying and understanding the Gowanus dating back to about 2017 approximately, where we were trying to really get smart on where we thought the world was headed, where we thought the next greatest opportunity was within the city. And so, we were looking at a few different neighborhoods and a few different opportunities. Specifically, we were the most attracted to Gowanus. You know, we had to spend a lot of time trying to understand, could the rezoning get done? And frankly, this was a real nail biter all the way up until November, and, and we're still not even through the article 78 period. There's still potentially going to be an appeal, that will, will hit the market within another six weeks to two months. I think that it lasts all the way until the end

of March. But we, we spend a lot of time trying to make sure and figure out that this actual rezoning was going to happen. And then thoughtfully and intelligently, we were trying to plot out and figure out, okay, how would people want to live in Gowanus? What locations eventually would they want to, you know, position their lives in. where's the greatest quality of life? Where could we -- and then there are other issues of trying to really understand, who are potentially sellers of assets? There are so many people that have lived in Gowanus, that have built their lives, that have built their businesses there. Some of the most amazing real New York characters, who have, who have been there forever, and, you know, very much part of the fabric and that we love working with, and talking to, and making deals with.

>>> Michael: So, here's a question. So, and what happens to the former manufacturing in the Gowanus? >>> Dan: Very, very, very little, on a very small scale. As Nick referenced to -- those manufacturing jobs have left many years ago. And a lot of the lot of the sites that we were selling were businesses that were really severely scaled back, or they were moving or they're vacant properties. I think in 2017 people thought it was imminent. But also, you know, I've been selling properties in that neighborhood for now 10 years. We've -- we've done 14 transactions and every

deal we sold, we thought the rezoning was imminent. It felt like it was going to happen. And then it wasn't gonna happen. >>> Michael: And it brings out the point, there's potential litigation now. What is -- you're the attorneys. So, what's the potential litigation? >>> Mitchell: Well, within 120 days of a, 120 days of municipal decision, you can file a article 78 petition and challenging aspect of the rezoning. And now this has happened in New York for rezonings that the city has done. Inwood is I think a recent example. What tends to happen is, folks who don't like the

rezoning will find a way to attack a part of it that is frankly, the easiest to attack, which tends to be the environmental impact statement or the environmental review process. And that's what's happened, or what may happen here, as I say, a few weeks left in that and the totaling of that, of that period. I'm, I'm confident that the city did a, a very thorough job in the environmental review and that the document is solid and will withstand any, any challenge. But -- >>> Michael: Have -- are there public notices of challenges right now on this? >>> Mitchell: No, I mean, there's been some press and there's been some talk of it, and, and that sort, but nothing, nothing official. >>> Dan: Major legal challenges that, that people thought had some teeth and the court worked through those which allowed the rezoning to get certified. You know, but also, there's been a lot of support from the community and from city council. You know, at the end of the day, the vote was 47/1. And

there's overwhelming support for this across the city and within the community. Of course, there are going to always be people that are opposed to any changes that are happening in any neighborhood. And I think that's to be expected. I think it provides for healthy debate, and some good things come from that. Right? Keep in mind. You know, NYCHA is, is slated to receive

upwards of $200 million, right? Towards the Wyckoff Gardens and the Gowanus Houses, which is long overdue. And it's too bad that it's taken this process for that money to become available. But thankfully through this process, it has, right? And since the beginning of the year, I think, almost 4,500 new units have been -- plans have been submitted for almost 4,500 new units of which 25% of those, it's about 1,100 units will be permanently affordable units in the neighborhood, which's -- >>> Michael: And aren't they permanently affordable at a lower, lower AMI as before? >>> Nick: Yes. Absolutely. And I mean, that was, I think, the last and final push from a really a social justice and an income equality perspective, which I think gave everyone the comfort and really understanding that we're taking, you know, that, that model that de Blasio is trying to, to, to include this idea of, you know, a gentrified -- you know, the opposite of the gentrification model. Where you're, instead of taking a neighborhood that is poor and making it wealthy, you're, you're hopefully bringing a neighborhood that has a very wealthy demographic and being able to bring affordable housing to that neighborhood, which I think was very much the model of his -- >>> Michael: How do you compare that to the Williamsburg rezoning? >>> Mitchell: Well, on Gowanus there was little fear of displacement because very few folks lived actually on the, in the canal area. Very few residents, because it had been

zoned for manufacturing for so long lived there. Instead, folks of course, were living, families were living in the neighborhoods on either side of the canal. It was then Greenpoint, the area had been, if you will discover it by hundreds of artists, who began occupying lofts, in many cases illegally. You simply

didn't have that kind of physical stock in Gowanus. You didn't have a strong residential presence in the area along the canal that's being rezoned. So th-- there's really very little threat of any kind of displacement, if you will. And

instead, the notion being, we're going to bring in hundreds of units of affordable housing in an area that hasn't seen any housing and in an area that at least in terms of the census tracks on both sides, is largely affluent, you know, in, in nature. So, in many, many ways, it's a, if you will, a, a win-win from a land use perspective. So. >>> Michael: What about the opportunity zone? Since it's part of it. Explain to my audience what the opportunity zone is and the benefits. >>> Nick: You know, we started looking at the, at the neighborhood in 2017. And from our perspective, the most

important thing was to really find and identify projects that we love, that that makes sense and work from a real estate development perspective. Fast forward to 2018 and, you know, Mnuchin and Trump had waved their magic wand and created the opportunity zones. Now, obviously it was actually a Cuomo, you know, every single governor was able to determine which the, and where the opportunities were and he, so he took the entire eastern portion of Gowanus and of this rezoned area, and essentially declared it as an opportunity zone. We are so accustomed to 1031, where you're taking, you're selling a building and then you're buying a building and you're deferring taxes. This was 1031 on steroids, where you're basically

saying any kind of capital gain that's out there, it could be in art, it could be in Facebook stock -- and ironically, it was actually Sean Parker, who came up with the idea, tried to get the Obama administration to use it and put it in place. But then ultimately it was Mnuchin and Trump who actually put it in place. So, you can take any capital gain, be able to invest it into an opportunity zone, and then based on, you know, certain qualifications and the amount that you're improving, the opportunity zone and in specific projects, you're then able to effectively defer your taxes on that capital gain for a certain portion of time. If you did it within a certain timeframe, you are able to then reduce those capital gains from, let's say 20% to as little as 17%. So not a massive step up, but significant. But the most important thing is that if you actually end up owning for 10 years that site that you've improved, you don't ever have to pay capital gains on the new project that you're developing. So, you're deferring capital

gains, and then on the future project that you've built, you don't ever have to pay capital gains. >>> Michael: So, so on the investment side, how has the, the rezoning and the opportunity zone increase the pricing in the Gowanus? >>> Dan: It's hard to say because we haven't seen any sales close since the rezoning's been finalized. So, there was some, some, and most of the sites quite frankly, were sold in advance of the rezoning getting approved. You know, developers like Tavros and Charney and, you know, PMG and Domain, and Avery Hall, you know -- >>> Michael: And Monadnock.

>>> Dan: And Monadnock. You know, some of them have been in the neighborhood for a really long time, like Monadnock. And some of them -- >>> Michael: I mean, they've been there 40 years.

[laughing] >>> Dan: Right. And some of them were sort of pioneers betting on the rezoning, the folks over at PMG. And then, you know, groups like Tavros and Avery Hall and Domain, have coming towards the tail end of that. But, but still, you know, it took some, some real risk, you know, some zoning risk, right? And some, and 421a risk, in, in, in some respects to be able to do that. So, but a lot of the bigger sites, you know, we and other brokers have been really trying to, to, to establish relationships with those families for many years in advance of these rezonings. And every time a new framework came

out, it allows people to better understand what the potential value was going to be. >>> Michael: So, here's another question. Have many of the families who've owned property remained in the deals continuing, or they just left -- took the money and -- >>> Nick: It's difficult for the opportunity zone to work in that way. I think that there's a limitation of 20% for that sort of ownership interest on an ongoing basis to benefit from the OZ overlay. So, we haven't seen as much. We just seen

mostly outright sales. We have seen some people who have, as a result, they own a house, and they have air rights that have now been created as a result, they've sold the air rights, maintain their ownership in their own house, and will continue to live in the neighborhood. Which also limits how much development is actually going to go on. Right? People expect there to be 8,000 to 10,000 units built. It'll be staggered. It's going to take a very long time for that to

actually occur because of leases, because of home ownership, and all those other things. >>> Michael: How many of the units are going to be for sale units? Or are they going to be all rental? >>> Dan: Very, very few. >>> Nick: I'm expecting most of them as, as for rental. In fact,

I don't think that I've heard of a single condo project in Gowanus. >>> Dan: So, we're gonna start -- we're going to put a few properties to market this week, actually. But you're now required to build affordable housing units beyond 12 and a half thousand square feet. So, there's a lot of smaller sites,

not tiny sites, but medium sized sites where you're zoning -- won't be more than 12 and a half thousand square feet. And you're going to see a lot of these small boutique condo sites get developed in the neighborhood. That's where the for sale housing is going to come. But the bulk of the units are going to come to the neighborhood are going to be rental. Because it's very challenging, under the mandatory inclusionary housing, to build condo projects because of the way that the 421a and, and mandatory inclusionary rules work. That may change with the new 421a and there's some discussion and the -- >>> Michael: So, let's go to our zoning.

>>> Dan: Yes. [laughs] >>> Michael: What's, what's this inclusionary housing in the 421a's and how do they look like? >>> Mitchell: Well, thankfully the programs work together. But there's a lot of concern of course, about the expiration of 421a in, in June of this year. And a tremendous effort on the part of lots of our clients and others to vest under the current program. Working closely with the city -- the city has a real

interest in seeing to it that, the, the program works and that we're able to vest, because that's how the affordable housing is unlocked. And without the program, it's impossible really to build affordable housing and, and extraordinarily difficult to build rental housing at all, of course. So, the, the, the replacement idea of the governors is sound, and I think is imaginative and lots of very good things in it. Let's hope the state legislature does the right thing and, and adopts it without too many, too many amendments. And if they do, I think we'll continue to have the ability to move forward. If they

don't, many of us are very, very concerned. But for the moment, there, there is an effort underway of course, to vest under the existing program. And I think many of our, many of the folks will, will be able to do that. >>> Dan: Well, then I remember back in 2015, when the last 421s program expired, it was well over a year before a new program put into place. And if you look --

>>> Michael: That I remember well. >>> Dan: Yeah, if you look at the building, I think we, I was on a show actually, is that was happening. And, and I was in, in 2016, and we were talking about where's all the development sites. Well, nobody was prompted to, to start new sites, because the program didn't exist. So, it seems like they've gotten a little bit of a headstart on this. And the governor seems to

be talking about it -- >>> Michael: Speaking of the sites, what are the sites selling for today? >>> Dan: They were trading anywhere from $200 per buildable square foot, to $230 per buildable square foot. It's likely now that the rezoning -- the rezoning risk has been essentially been eliminated and hopefully, you know, through any sort of challenges to the article 78, without that risk, more people can, can take on the ability to buy it. >>> Michael: So, you think it's -- since you are the developer, do you believe it's like $300 a foot, today that you can make money if you pay 300 a buildable foot? >>> Nick: Not on rental. Not based on the rental rates that the neighborhood and the -- I mean, the, the other issue is that the soil conditions and concerns about flooding and other issues are really limited -- >>> Michael: The construction costs -- >>> Nick: Construction costs are high, limiting the amount that you can build down. So, a lot of your mechanicals have to be

above grade. There are strict regulations about how much parking you have to deliver per site. So, it's really not so easy to figure out how it all fits together. But at the end of

the day, it really -- that those types of costs are, are limiting the values for sites. >>> Michael: What about retail? How much retail is going to be playing for the community? >>> Nick: Well, I think that the most important thing about retail is, and I think that we've found it and seen it as a result of the pandemic, you really need to be able to have rational thoughtful pricing for, for retail you, and you need to have a true partner in a retailer, right? Whole Foods chose 3rd and 3rd in Gowanus, because they studied the entire city. They understood and knew that people wanted to and needed a Whole Foods in that area, to have Park Slope, to have Boerum Hill, to have Cobble Hill, to have Carroll Gardens. Even Brooklyn Heights have access to a Whole Foods. They, they fought for and got a huge parking lot, so people could drive to them. So, I think that retail, using a Whole Foods model, the critical thing is to balance, right? We're -- we've been spending a lot of time trying to make sure that we don't want just big box retailers. We really want to be able to celebrate all of the

neighborhoods, all of the, you know, the intricate mom and pop stores, be able to have them really have an opportunity to have a business, have rational, thoughtful retail in locations and, and, and very much make it a destination. The canal, when you look at what is going to be -- >>> Michael: You mean Venice. [laughs] >>> Nick: Venice, Venice -- >>> Mitchell: Absolutely. >>> Nick: It's going to be beautiful. And interestingly,

you know, the Toll Bothers sites, the 363-365 Bond, they were very much built initially, and it's more of a feel where it's like a, you know, a Battery Park. It feels a little bit more contrived in terms of the neighborhood, just because they're one-off in a location. And they very much put -- turn their back on the canal. We're looking at it really as an

opportunity to open up and use the canal almost as our front door. Because we think that this is going to be such an exciting destination, elevated to the point where people are going to be as excited about going to the Gowanus Canal, as they are excited about going to the Highline. >>> Michael: Look, we have the situation that you have good mass transit. Okay? The trains over there are fine.

Automobiles, that depends on how the infrastructure [chuckles] the city of New York and Brooklyn are. But it's an ideal location. >>> Dan: Well, I think it's one of the most strategic placed neighborhoods in the entire city. And I think that, you know, if we come back here in five or ten years, it's going to be one of the most popular places to live in the entire city. It's always been a special place. I've always loved the neighborhood. And I, and I think it's going to evolve in a really thoughtful way. Thanks to developers like Nick and all the

other folks that are, that have taken the bet there already. >>> Michael: Nick, quick, quick question. What's the configuration size of apartments? Studios, one bedroom, two bedrooms that you're planning.

>>> Nick: Yeah. I think that we're, you know, we've, we've definitely done a lot of work trying to understand exactly what the demand is, right? We've built a building that has -- we're, we're, it's done very well over in Williamsburg at the Dime. We had that as 40% ones, 40% studios, and then one line of, of two bedrooms and one line of, of three bedrooms. I think that this will be less studios, fewer one bedrooms, more -- >>> Michael: More two bedrooms. >>> Nick: -- more of a

two-bedroom demographic, a little bit more family incorporated apartment. But we're really taking the lessons that we've learned from a, a true amenity mix and quality of life that we were able to deliver there, and we're bringing it to our projects in Gowanus. >>> Michael: So, since my crystal apple is far from me, because of COVID, with a six feet even I can't get to it. But

one thing is, it's very shiny, and very bright. And I'm really happy what's happening in the Gowanus. And I'm really happy that Dan, our producer today, for bringing this great group. I'd like to thank Nick, Mitch, and needless to say, Dan. And I see you next week.

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2022-03-22 13:30

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