Apartment investors focus on burgeoning Brooklyn.

A vigorous local economy will continue to stoke demand for housing in Brooklyn, the most populous borough in New York City at approximately 2.5 million residents.

The borough has 613,000 renter-occupied housing units, an amount only exceeded by Los Angeles County and Cook County, Illinois.

Vacancy in the borough's multifamily rental properties remains minimal, with the vacancy rate in the market-rate segment, which accounts for less than 5% of renter-occupied units, in the 3% range.

On the supply side, the borough is rapidly renovating its housing stock. Many new multi-family projects involve the conversion of vacant industrial buildings or old landmarks, such as the Eberhard Faber pencil factory.

A projected addition of more than 250,000 residents by 2030 will heighten demand for housing in the borough. Municipal authorities envision up to 14,000 new apartments in Downtown Brooklyn within the next 10 years, including 2,500 units in the next three years.

In addition, a revised 421 a tax abatement program is currently under consideration. If passed, the program would affect future development by expanding the geographic area eligible to receive tax credits for building new housing.

By the numbers, developers are expected to deliver 230 market-rate units this year, compared with 50 units in 2006.

With the inclusion of multi-tenant properties, approximately 5,400 units are scheduled for completion this year, with the Brooklyn Heights, Williamsburg, Bushwick and Park Slope neighborhoods slated to receive most of the new construction.

There are also 14,000 units of multi-family housing planned.

AvalonBay Communities will build a 600-unit market-rate tower in downtown Brooklyn with a projected completion date in 2009.

Also, plans for the housing component in the proposed Albee Square have been reduced from 1,000 units, including 200 income-restricted units, to 650 units. Several rezoning initiatives are under way in the borough, including one involving 206 city blocks in south Bedford-Stuyvesant.

Residential development along the Fulton Street corridor and on both the north and south running avenues is among the proposals outlined in the initiative. Vacancy in all of the borough's rental apartments remains tight.

The vacancy rate in market-rate properties of 40 units and more is expected to rise 10 basis points year over year to 2.6% by year end.

The Rent Guidelines Board recently implemented an allowable annual rent increase of 3% on oneyear leases, or a 5.75% growth on two-year leases on rent-stabilized apartments.

Rent increases for market-rate apartments will vary widely from quarter to quarter and among neighborhoods.

As for investment in the borough, investors' interest in local properties is unrelenting.

Deal flow remains elevated, and investors consistently display a willingness to include most neighborhoods in their search for existing properties and development sites.

While recently issued guidelines on allowable rent increases in rent-stabilized properties will not likely have an effect on velocity, such properties remain the primary focus of investors due to their eventual conversion to market-rate rentals.

Cap rates will vary widely in the borough but will typically fall between 5-6.5%, while gross rent multipliers will range from 8.5% into the low teens.

Given the healthy economic conditions and forecast population growth permeating the Brooklyn region, it's an excellent time for investors to acquire apartment properties.

J.D. PARKER, REGIONAL MANAGER, MARCUS & MILLICHAP