A toxic canal in Brooklyn, N.Y., made the federal Superfund list in 2010, which means that it'll be the target of clean-up efforts for years.
But that hasn't stopped a developer from building high-end rental apartments along the oily, black waterway called the Gowanus Canal.
Waterfront is waterfront.
"We liked the fact it was on the canal," said Mitchell Hochberg, president of Lightstone Group. And it's near "some of the nicer neighborhoods in Brooklyn.
It doesn't hurt that a Whole Foods (WFM) store opened a few blocks away. "That's always game-changing," he said.
Brooklyn is having its moment.
The borough is not only the fastest-growing of New York City's five boroughs — topping Manhattan, Queens, the Bronx and Staten Island — it's also one of the fastest-growing metro areas in the U.S.
Brooklyn's population grew 3.5% from 2010 to 2013, or by 87,449, to nearly 2.6 million, according to the Census Bureau.
Manhattan's populace also grew over that time but only 2.5%, or by 40,286, to a total of 1.6 million.
If it weren't part of New York City, Brooklyn would be the fourth largest city in the U.S., behind New York, Los Angeles and Chicago.
"Brooklyn has changed from a fallback destination to Manhattan to a primary destination," said Ofer Cohen, president of TerraCRG, a commercial brokerage firm that focuses solely on Brooklyn. "It used to be people wanted to be in Brooklyn because they could not afford Manhattan. Now they want to be in Brooklyn because they want to be in Brooklyn.
A Spree Grows In Brooklyn
The borough, situated largely to Manhattan's southeast on Long Island, is teeming with bars, new farm-to-table restaurants and entertainment venues. The Barclays Center basketball and concert arena is a high-profile case in point.
"Brooklyn has a lot more options now, with the same economic vitality of Manhattan," Cohen said.
Hochberg says that his company jumped at the opportunity in 2012 to take over the Gowanus Canal site after homebuilder Toll Bros. (TOL) backed out two years earlier because it feared that the canal's new Superfund status would scare away financial backers and buyers.
By 2012, "the economy had changed," said Hochberg. "And we love Brooklyn. You have these beautiful neighborhoods. You still have the small shops and the mom-and-pop restaurants. There are more trees and parks and lower density in general (than Manhattan).
More trees will be growing in Brooklyn. And rental apartments, retail stores and offices, as developers step up the pace to meet demand from all the new people who've been flooding into the borough.
Many of them are young professionals affluent enough to afford housing costs that are nearing and sometimes topping Manhattan's.
Many of the new buildings come with parks, gardens and esplanades built into blueprints.
Lightstone's Gowanus project will include 700 "highly amenitized" rental units, as Hochberg puts it, in two midrise buildings, plus an esplanade along the canal, flanked by gardens. The first building is expected to open in 2015.
The $1.5 billion redevelopment of the retired Domino Sugar refinery on the Williamsburg waterfront facing Manhattan will also come with an esplanade and park open to the public. It'll offer up 2,200 apartments in several slim high-rises, 700 of them "affordable" units in a deal recently worked out with the city in order to obtain approvals to move the project forward.
In downtown Brooklyn alone, about 3,300 new residential units are in the pipeline, says Tucker Reed, president of the Downtown Brooklyn Partnership.
"The market is red hot," he said, adding that vacancies are currently very few. New units are mostly rentals, he says, but as land prices continue to rise, "we'll see a shift back to condos.
AvalonBay Communities (AVB) is one of the most active developers in downtown Brooklyn. The real estate investment trust is building a 57-story rental tower, its third, with 826 units expected to start opening in late 2015, at rents averaging $3,470 a month. Those rents are comparable to an Avalon project in San Francisco.
"San Francisco has 400,000 people. It pales in comparison to Brooklyn," said Reed.
Retail is also on the rise. A vertical shopping center with residential units above it, called City Point, is in the works in downtown Brooklyn. It's being likened to a more modest version of the high-end Time Warner Center at Columbus Circle in Manhattan.
City Kids Call It Home
City Point is targeting "this mass entry of young people moving to Brooklyn," said Christopher Conlon, chief operating officer of Acadia Realty Trust, a partner in City Point.
Toll Bros. may have backed away from the Gowanus Canal in 2010, but not from Brooklyn. It moved on to another waterfront site, where it's now building a townhome development in the newly opened Brooklyn Bridge Park, called the Pier House.
Townhomes, all facing the East River and the downtown Manhattan skyline, range from $2 million to $12 million. The development will also come with a new eco-luxury hotel brand from Starwood Capital Group, called 1 Hotel & Resorts, which is also launching in Miami and Manhattan.
"Brooklyn doesn't play second fiddle to Manhattan anymore," said Todd Dumaresq, marketing manager for Toll Bros. City Living. He says Toll is "actively looking" at other "exciting" projects in Brooklyn.
Where To Work
Once a back-office location to Manhattan, Brooklyn is increasingly becoming a prime office destination. Reed and news reports say that JPMorgan Chase (JPM) plans to move 2,000 front-office jobs to downtown Brooklyn's MetroTech Center in the next couple of years.
A number of tech firms have opened Brooklyn headquarters offices, including MakerBot, the low-cost 3D printing arm of 3D printing giant Stratasys (SSYS).
Crowdfunding platform Kickstarter moved its headquarters to a renovated industrial building in Greenpoint, a gentrifying working-class neighborhood north of Williamsburg, which is itself in advanced stages of gentrification as its once-forlorn waterfront morphs into glassy high-rises.
The East River separates Brooklyn from Manhattan. On the Brooklyn side, the waterfront is in full play now, with foreign developers jockeying for position along with domestic players. One of them is Xin Development Group, an arm of Chinese homebuilding company Xinyuan Real Estate (XIN).
Shanghai-based Greenland Holding Group recently agreed to invest heavily in a long-stalled residential project near downtown Brooklyn known as Atlantic Yards, near the Barclays arena. It'll be partnering with lead developer Forest City Ratner. The multitower development includes a mix of affordable housing and luxury condos.
Commercial real estate transactions in Brooklyn jumped from $1 billion in 2010 to $5 billion last year, Cohen says. His firm estimates that commercial transactions this year will climb another 15% to 20%.
"More and more institutional capital is flowing into Brooklyn," Cohen said, citing Carlyle Group (CG) and Invesco (IVZ) as two examples.
In one of the biggest commercial transactions of late, a consortium paid $375 million in October for five buildings near Dumbo, a former manufacturing hub by the Manhattan and Brooklyn bridges.
Dumbo's cobblestone streets now teem with luxury condos and the offices of small tech firms and start-ups.
Kushner Cos. and partners RFR Realty and Livwrk are spending $100 million to reposition the five buildings, which have been rebranded "Dumbo Heights," into a "technology campus.
The buildings, bought from the Jehovah's Witnesses, were once used to print Bibles and other religious books. The first major tenant to sign a lease: online shopping site Etsy, which will take 200,000 square feet.
Other old industrial sites are being repurposed for commercial use as well, including a 16-building warehouse complex on the waterfront in Sunset Park, known as Industry City.
"Brooklyn is the hottest borough right now," said Conlon.