I spent a few weekends this past winter heading out to Bushwick, Bed Stuy, Stuyvesant Heights trying to understand the investment upside.

I was seeing townhouses with asking prices of $1-2mm, all renovated, with promised returns of 5-6%.

That is, a net return of $50,000-60,000 per year on a purchase price of roughly $1,000,000.

Typical, Beautiful Bed Stuy

Saul and I drove around in his vintage VW touring the streets and deeply listening to the agents go through their townhouse sales pitch.

I must admit that while I enjoy watching other agents do their thing, my appreciation takes on new dimension when I’m in the position as potential principal in a purchase.

Some of my favorite comments:
“This developer likes to put in double shower heads in the master shower- he’s quite the romantic.”
“Yes, these tenants are month-to-month (paying $900 per person), and you can easily raise the rent to $1200 per person.”
(In a house 10 minutes from the Wilson L Train, a good 35 minutes from Union Square) “Yes, the tenants downstairs are NYU students – they love being in Brooklyn (Paying $4695/month).

It is such a better value than the East Village.

We left the upper unit vacant (for 6 months) so that we could show prospective buyers the finishes.”
“Yes, this developer is working on 10 other projects.

I’m getting him amazing prices.”
“Yes, it’s about 10 minutes to the subway in either direction.”
I love their confidence, their expertise in the area, their estimation of how long it takes to walk a mile.
What I noticed on a physical level was that after a while, almost all of the finishes started to look very similar.

I would call them IKEA-plus.

Occasional center bedrooms without windows, only skylights.

Roof access ladders removed.

Value engineered to death, and my eye would always catch odd angled walls, renovations with just the hint of rushing to complete the job.

That is, something was usually off.

Never mind that the locations were a tiny bit far from a subway line, or that the backyard was a sandpit, or that they were two-unit buildings that relied upon a guarantee that some group or family would be willing to pay $3000-3500 per month to live there, which usually broke down to $1000 per person per month.
Or, as I walked the neighborhood between L trains, and tried to envision how the development would unfold in different pockets and neighborhoods, or rode the L Train home from my reconnaissance, I wondered what the commute might look like if this rumored L Train shutdown came to pass.

as old as the original 2nd avenue subway tunnels

I decided that I needed to think long and hard about this as an investment, and put my Brooklyn investment hat on the shelf for a little while.
I don’t claim to be able to see over the horizon.

Frankly, I have been writing here about Downtown Manhattan and the Financial District, and Upper Manhattan, and have missed what I think are some amazing opportunities.
But, I do find it worth sharing my concerns about what is going to be a minimum 18-month shutdown of the L train starting in 2019.

The link is here.
Is this going to be the end of new development in L Train Brooklyn for a while?

Is this going to sink the rental market there?

I had asked the “What If” question a few months ago, and a few developers completely shrugged me off.
Yes, the shutdown is still two years off.

But 18 months will quickly turn into 2 years or more.

Gosh, we’re about to commemorate 15 years since 9/11, a building that took over a decade to rebuild.

The Second Avenue Subway may be announcing more delays (UGH!).
Psychology is a powerful force.

I had already been concerned that hipster Brooklyn renters would decide that Bed Stuy wasn’t cool anymore, just as I would be investing in a house there.

Now, I can’t imagine why those fickle renters wouldn’t be looking for another area that they could sink their teeth into, create new institutions, try new ideas, in another place with a slightly higher guarantee of commuting consistency.
The refrain has always been a frustration living and dying by the L train.
So what ARE the predictions, then?
Upper Manhattan will see a surge. It’s already beautiful, commuter access is amazing, retail upside is there, it’s a thriving neighborhood.

Every area, all the way to the tippy top of Manhattan has amazing neighborhoods that will be “discovered” by younger and younger renters.

“Just you wait,” as Alexander Hamilton sings (yes, my favorite thing in the world right now).
Downtown Brooklyn will explode.

With the flood of rental inventory happening in and around Downtown Brooklyn, prices will sag.

Some subgroup of more affluent renters who were flocking to L train Brooklyn to be ironic will be able to afford these newer buildings along Myrtle, Flatbush Extension, etc- These highly amenitized buildings will be full of L Train Castaways.

Or some, anyway.
Lower Harlem– South Harlem, West Harlem, Central Harlem, whatever you want to call it- will further gentrify.

Take a walk North from Central Park.

Walk along any avenue, be it Frederick Douglass, Adam Clayton Powell, Malcolm X Boulevard.

Walk the side streets.

What’s already massive construction will pick up more steam.
Lastly, I believe we will finally see East Harlem gentrify in earnest.

It is far less expensive than its West Harlem counterpart.

The housing is still very interesting.

The subway access is less awesome, but people are willing to deal with an unreliable L train- I think the 6 train will be enough for renters between 96th and 125th streets.
And as we see a surge of rentals across the city– don’t be surprised if L Train Brooklyn withers on the vine for a while.

There will probably be some unhappy investors.

Perhaps not the worst time to take another look out there for investment….