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March 14, 2010
Downtown Brooklyn losing its big edge
Crain's New York
By Joe Cavaluzzi
This article points out the failure of Bruce Ratner's Metrotech as large tenants seem prepared to decamp from this publicly-subsidized dead zone in downtown Brooklyn. The obvious question: Why is the ESDC, which is supposed to be about job creation, sinking taxpayer subsidies into Atlantic Yards when there is no market for additional office space in Brooklyn?
Much like New York's other traditional overflow market—the Jersey waterfront—downtown Brooklyn is suffering from not one but two setbacks. It has seen a huge dulling of its competitive edge as it competes with vastly lowered Manhattan rents, and it has seen tenants of all types and tastes reduce their space needs in response to the recession. What's more, those setbacks come at a time when several major developers are weighing plans for new office buildings—led by Forest City Ratner Cos.' plans for a vast commercial/residential project at the edge of downtown Brooklyn at Atlantic Yards, which had been mothballed for two years.
“It's hard to see who would have an appetite for large chunks of office space in downtown Brooklyn,” says Marisa Manley, president of Commercial Tenant Real Estate Representation. She notes that MetroTech and Pierrepont Plaza were both developed 20 years ago with an eye toward back-office use by big financial firms, including J.P. Morgan, Chase Manhattan and Goldman Sachs. “It's not clear that the companies that originally leased those spaces have the same appetite for space now.”
In fact, the city's Department of Information Technology and Telecommunications is eyeing 85,000 square feet of office space at 2 MetroTech Center, part of the 434,000 square feet being vacated by Securities Industry Automation Corp., a unit of NYSE Euronext. The company's lease expires in November.
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Pressure is building, however. Industry sources say that several of the area's largest tenants may not renew their leases when they come up. Meanwhile, there are some large blocks of space already on the market, including the Chase Building at 4 MetroTech Center, where Jones Lang LaSalle is currently marketing 428,000 square feet for owner Forest City Ratner. The asking rent is $30.50 per square foot.
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Don't worry, New York City is happy to follow the ESDC's lead of subsidizing Bruce Ratner by shoveling more money into Metrotech, ostensibly in the name of job creation.
A combination of aggressive landlord incentives and New York City's Relocation and Employment Assistance Program attracted just a handful of tenants to downtown Brooklyn last year. Those signing long-term leases or renewals of 10 years or more for prime space at MetroTech Center were able to negotiate free rent of six months to a year, along with tenant improvement allowances of up to $40 per square foot, according to Glenn Markman, executive vice president at Cushman & Wakefield Inc. On top of that, there were REAP benefits in the form of a $3,000-per-employee tax break for 12 years, which Mr. Markman notes works out to a subsidy of about $15 a square foot.
Posted by steve at March 14, 2010 7:35 AM