Example 1: Bushwick, Brooklyn
Bushwick has been a rough neighborhood since the 70's. (some would say since the 20's). Although Bushwick has improved dramatically since i was floating around there in the early and mid-90's, it's still a relatively high-crime location and also relatively poor. Despite its improvement, it was clearly not a natural for "luxury" condo development.
But at a time when many felt they needed to "get on the housing ladder", there was demand from a class of buyers that had not previously been an important market segment--at least for condos in NYC. That class was young, middle-ish and upper middle-ish class buyers whose incomes werent really upper middle class and hence certainly couldn't afford Manhattan, but were also priced out of Williamsburg as that area's price levels started to blow past $700/SF. Presto: a ready made market for the sub-$500-550/SF product that popped up here.
{BTW-although that price level was cheap compared to elsewhere, there were essentially no condos in Bushwick AND the monthly carrying cost associated with that price level dwarfed typical rents in the neighborhood, which has a mostly third-rate housing stock}
In a non-boom or non-bubble period, the majority of those buyers wouldn't have been buyers. They wouldn't have had adequate down payments, or adequate income even at these price levels. A number of brokers and developers saw/guessed at the potential demand. Hence the mini condo boom in Bushwick (maybe a half dozen projects or so--i don't intend to dig into my files to check exactly).
Again, no one in his right mind, five years earlier, would have attempted to build a luxury or semi-luxury condo in Bushwick.
But a confluence of market forces, shifting demand, readily available construction money, and the general euphoria present in bubbles, all allowed this development to proceed. Some of the projects built did relatively well; others ran into trouble.
But the end result for Bushwick is that a condo market now exists there, and 500, 1000, or 2000 new residents who are far wealthier than the pre-existing population, even if they are not at all wealthy in the absolute terms.
This kind of dramatic redevelopment (semi-lux condos in a poor, rental based area) can only really occur in a boom or a bubble, when banks are willing to take greater risks (or they have a misconception fo the risk factors), and develoeprs are convinced they can't fail. The first one is the toughest.
With each succeeding development in such an area, it gets easier to find investors, lenders, and buyers. A boom does have to go on for a very long time for a large neighborhood to change deeply. Still, a couple of sub-sections of Bushwick today look different than 10 years ago- because of the building boom.
Bushwick has been a rough neighborhood since the 70's. (some would say since the 20's). Although Bushwick has improved dramatically since i was floating around there in the early and mid-90's, it's still a relatively high-crime location and also relatively poor. Despite its improvement, it was clearly not a natural for "luxury" condo development.
But at a time when many felt they needed to "get on the housing ladder", there was demand from a class of buyers that had not previously been an important market segment--at least for condos in NYC. That class was young, middle-ish and upper middle-ish class buyers whose incomes werent really upper middle class and hence certainly couldn't afford Manhattan, but were also priced out of Williamsburg as that area's price levels started to blow past $700/SF. Presto: a ready made market for the sub-$500-550/SF product that popped up here.
{BTW-although that price level was cheap compared to elsewhere, there were essentially no condos in Bushwick AND the monthly carrying cost associated with that price level dwarfed typical rents in the neighborhood, which has a mostly third-rate housing stock}
In a non-boom or non-bubble period, the majority of those buyers wouldn't have been buyers. They wouldn't have had adequate down payments, or adequate income even at these price levels. A number of brokers and developers saw/guessed at the potential demand. Hence the mini condo boom in Bushwick (maybe a half dozen projects or so--i don't intend to dig into my files to check exactly).
Again, no one in his right mind, five years earlier, would have attempted to build a luxury or semi-luxury condo in Bushwick.
But a confluence of market forces, shifting demand, readily available construction money, and the general euphoria present in bubbles, all allowed this development to proceed. Some of the projects built did relatively well; others ran into trouble.
But the end result for Bushwick is that a condo market now exists there, and 500, 1000, or 2000 new residents who are far wealthier than the pre-existing population, even if they are not at all wealthy in the absolute terms.
This kind of dramatic redevelopment (semi-lux condos in a poor, rental based area) can only really occur in a boom or a bubble, when banks are willing to take greater risks (or they have a misconception fo the risk factors), and develoeprs are convinced they can't fail. The first one is the toughest.
With each succeeding development in such an area, it gets easier to find investors, lenders, and buyers. A boom does have to go on for a very long time for a large neighborhood to change deeply. Still, a couple of sub-sections of Bushwick today look different than 10 years ago- because of the building boom.
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