A Red Hook redux

Three years ago, a new high-water mark was set in Red Hook when the first house in the neighborhood sold for more than $1 million.

 

In the years that followed, a number of other houses in the Brooklyn neighborhood traded in the seven figures, making the largely industrial area one of the boom era's most unlikely Cinderella stories.

 

Nowadays, however, brokers say sales of homes priced at more than $1 million are generally not in the cards in Red Hook.

 

While deal volume and prices are down, the market for the area's small stock of single-family and two-family houses appears to be back to pre-2006 values.

 

However, the neighborhood is in the midst of a retail renaissance, bucking the retail trend citywide. And in a strange twist, it is also upending the traditional real estate logic that goods and services follow residents.

 

Mom-and-pop explosion

 

When Ikea opened in Red Hook last summer, many of the Brooklyn neighborhood's residents worried that traffic would overwhelm the area.

 

A year later, however, several new mom-and-pop stores and eateries have opened or are planned on Van Brunt Street, the neighborhood's main drag, and even some former opponents of Ikea concede that the store's presence has turned out to be a boon for Red Hook.

 

Retail and demographic changes in Red Hook have long provided fodder for media outlets: In 2007, the New York Post referred to the area as "Dead Hook," while a New York magazine story titled "The Degentrification of Red Hook" noted that "the neighborhood now seems to be going in reverse" after being hyped as the next 'It' area."

 

More recently, many news outlets, including The Real Deal, reported that the opening of the Ikea store was expected to give the area a boost. But few predicted that retail in Red Hook would be doing as well as it now is - particularly in the midst of a major economic meltdown.

 

Over the past couple of months, a clothing boutique called Tiburon, which specializes in handmade apparel and crafts, and a coal-oven pizza place called Anselmo's opened.

 

Meanwhile, a new caf‚ and bar called Fort Defiance was slated to open late last month. A number of other new spots - including a sausage-and-beer joint called Grindhaus, a hair salon, a vintage clothing store, a tapas restaurant and a roasting facility for Portland, Ore.-based Stumptown coffee - are all also planning to open soon.

 

"What's happening on Van Brunt is very reminiscent of what happened on Smith Street in the early '90s," said Sal Cappi, a vice president with Fillmore Real Estate, referring to the "restaurant row" that runs through Boerum Hill, Cobble Hill and Carroll Gardens.

 

Cappi said that 20 years ago, "you wouldn't have even felt comfortable walking on Smith . after dark, but then the city repaved all the streets, you had pioneering young chefs open nice restaurants, and before you knew it restaurants and antique stores came on. And now, you actually have American Apparel."

 

The newcomers join Fairway, the well-reviewed restaurant the Good Fork, several bars, an art gallery, the diner Hope & Anchor and the bakery Baked.

 

The newest openings have all been small businesses; in the wake of Ikea's opening some analysts predicted that the neighborhood would become an attractive location for other big-box stores, but the economic winds have since shifted.

 

Developer Thor Equities' plan to build a large mixed-use development on the waterfront anchored by a major national retailer is still in wait-and-see mode, according to a Thor spokesman.

 

Meanwhile, many businesses now set to open on Van Brunt have received grants from the Southwest Brooklyn Industrial Development Corp., according to Elizabeth Demetriou, the organization's director for revitalization and development.

 

Demetriou said that while the grants, which typically provide matching funds for storefront renovations, haven't been the main impetus behind the new businesses, they have likely resulted in higher-quality renovations.

 

Million-dollar question

 

On the residential front, Beth Frazier, a salesperson with Corcoran, listed a townhouse on Beard Street for $1.18 million in late April. She said open-house traffic for the property has been robust.

 

The property has been the most expensive residential listing on the market in Red Hook for the past couple of months, according to StreetEasy.

 

At any given time, brokers say, there are only a handful of houses for sale in Red Hook, and the most desirable properties are generally clustered on a few streets. As of the middle of last month, Frazier said, the sellers had received three offers that were around 10 percent off the listing price. But, she said, the property had yet to go into contract.

 

Plus, many would-be Red Hook buyers are reluctant to cross the million-dollar threshold, brokers who work in the area said.

 

Tina Fallon, an agent with Realty Collective - a brokerage that she said mainly represents buyers - observed that the only single- and two-family houses now selling in Red Hook are going for less than $1 million.

 

"The $1 million mark seems to be the number buyers have a hard time going beyond," she said.

 

She and her husband actually paid more than $1 million for a house in the neighborhood a couple of years ago. But she said the streak of sales priced in that range that began in 2006 has been cut short by the weakened market and by the fact that there was more high-end inventory for sale from 2006 to 2008.

 

"There are still renovated properties on the market in excess of $1 million, but they're just not selling," Fallon said. "Renovated properties that come onto the market under a million - those are selling, and at prices very close to $1 million."

 

After 2005, said Fallon, "the quality of the housing stock available improved" in Red Hook because fully renovated homes were coming on the market more readily.

 

"Pre-2005, we had a market of 100 percent unrenovated properties," she said. "And renovated versus unrenovated makes all the difference in Red Hook."

 

The largest recent sale appears to underscore Fallon's point.

 

A 2,620-square-foot house at 52 Dikeman Street sold for $980,000 in early April - $5,000 more than the property, which had been extensively renovated, was listed for in November.

 

Denise Cataudella, the Corcoran vice president who listed the house, said before it went on the market she and the sellers were looking at comparable properties for above $1 million. But in September, after the economy cracked, "It was very hard to go to the sellers and tell them that their expectations from a year ago were off."

 

Cataudella and most other brokers active in Red Hook say prices in the area are between 20 and 25 percent off peak - just as they are elsewhere in the city.

 

StreetEasy shows that only two houses in Red Hook sold in the first six months of 2009, both for less than $1 million. However, only three houses in the neighborhood sold in the first six months of 2008 - none over the $1 million mark either.

 

That tiny supply makes it difficult to extrapolate statistical trends there.

 

The land that condos forgot

 

While the condo-development frenzy swept the five boroughs during the boom, it largely bypassed Red Hook.

 

In fact, the most recent new-construction development to come on the market is a townhouse project, not a condo tower. The King Richard Townhouses on King Street, which began holding open houses last month, include five adjoining properties ranging in price from $750,000 to $1.15 million.

 

Nicole Galluccio, a broker with Prudential Douglas Elliman who is representing the property, said prices there work out to "a blended average of about $550 a square foot" and that setting the prices was very difficult due to the lack of comps in the area.

 

The developer of the project, Gino Vitale of Vitale Builders, said he has developed about 40 projects in the neighborhood over the past 15 years.

 

Vitale said that though he has another 20 townhouses on the drawing board for the neighborhood, "I'd be lying if I told you I wasn't worried" about the prospects for the King Street development in the current market.