Thursday, June 14, 2012

6 Is Bigger Than 4: 655 Vanderbilt Avenue

Some large commercial brokers laughed at us last summer when they asked the question and we slapped a back-of-the-envelope $1.3M number on a mixed-use building in one of our favorite commercial strips: Vanderbilt Avenue between Prospect Park and Atlantic Avenue.  We were up and down this avenue all last year, so we kinda figured we knew what we were talking about.  The place in question grossed a "mere" ~$70K-$80K/year.  The brokers wanted to slap a number lower than $1M on it, even though they had a listing on a worse block of Myrtle grossing less that was asking over $1M.  Go figure.

We've been loving this stretch for years, but the cat's only really outta the bag once the hipster-approved highlights like Chuko (the ramen spot) start arriving on the scene.  On the same block there's even a mayonnaise store, which friends have called the "excessive touchdown celebration dance of gentrification".  Gentrification, by the way, recently hit the wire this week on Brownstoner after Michael Petrilli at the Thomas B. Fordham institute slapped some 2010 census numbers together for "places with a large increase in the white share of the population" and called it "gentrification".  Surprise, surprise - none other than Bed-Stuy and Billyburg popped up in the top ten.  The story immediately gave us (and others) pause because it equates white people with "gentrification".  Indeed, Petrilli points out his analysis "isn’t perfect, because you’d really want to look at changes in income levels, but those data aren’t available yet for 2010."  We'd rather he have taken the time to specifically point out that affluent, educated people of color moving into a neighborhood, for example, is gentrification too - but some people seem to be taking his study at face-value for now.

Race politics aside, Vanderbilt is a sign of the surrounding gentrification that's happening at a rate so fast, many can barely keep up.  Just a few months ago, Platinum Members were sniffing a mixed-use deal on this stretch of Vanderbilt under $1M, even after the huge corner opportunity at 603 Vanderbilt was in contract with a list price of $2.4M.  603 Vanderbilt is over 5,000 sqft and a 6.25% cap rate at asking price.  Well, guess who wants $2.4M now??

655 Vanderbilt Avenue is just over 3,000 sqft and a 4% cap, just came out for $2.4M.  4 thumbnail pictures, a sign out front, and a Corcoran listing is all they figured it would take to get the job done at this absurdly-inflated number.  How times have changed since just last winter when you could've gotten a bigger, better building for the same price - or essentially the same building for almost a third of this price just a few months ago.  $2.4M is a price and 4% is a cap rate that would make even properties in Brooklyn Heights blush.  We're not sure what they're thinking here, but this is what's happening.  Can you say, "Meh"?

If you think this commercial stretch is popping now, just wait until the stadium and surrounding development comes!

If even a fraction of the residential side of Atlantic Yards gets built, this Vanderbilt block will irrevocably change even more.  But that's still no reason to pay out the wazoo now for mediocre product.  Run, don't walk, to better buys not far east of here.

Pro's:  top-notch block for mixed-use, stadium & towers to come, 4% cap is better than 1% CD?

Con's:  should've bought 603 Vanderbilt if you would even consider this anywhere near this price, should've bought another mixed-use play we had a couple months ago, way better buys out there for this kind money

Ideally:  this block isn't finished yet if you have anywhere close to this kind of cash.  A few places come to mind...