Drab older office buildings and retail spaces a cut below nearby Class A space make New York’s Diamond District a rough gem in gleaming Midtown.
That may change if a proposed 30-story tower gets built there, a building that would rival the world’s preeminent diamond exchanges.
In November, the New York Industrial Development Agency approved a package of tax breaks for builder Extell Development’s proposed New York Diamond Tower. The $434 million tower will receive $49.6 million in city and state tax benefits — $37.5 million coming from the city — if Extell leases 85 percent of the building’s space to diamond or jewelry businesses. The regulations stipulate that 50 percent of those businesses must be new to the city or expanding their space here. Extell will receive no benefits if it doesn’t fill 65 percent of the building with diamond- or jewelry-industry tenants.
Commercial brokers applaud the proposed tower, which they say will revitalize the district’s corridor on 47th Street between Fifth and Sixth avenues and bring healthy competition to its stagnant office market.
“Extell is offering brand-new product, which is great for that area,” said Jonathan Schindler, a managing director at Colliers ABR. “You’re talking about a building that’s state-of-the-art.”
Schindler is the leasing agent for 550 Fifth Avenue and was responsible for repositioning the property as a boutique building a few years ago. The building is filled with many high-profile diamond- and jewelry-industry tenants. Schindler said there’s plenty more demand for better commercial space in the district.
“Most of the buildings in the Diamond District from a qualitative standpoint are inferior to the rest of the Class A buildings in Midtown,” he said. “There are a handful of well-run buildings.”
Alan Wildes, a senior vice president at CB Richard Ellis, concurs that the tower would bring some much-needed new product to 47th Street. Wildes was the leasing agent for 579 Fifth Avenue for a few years starting in 1988, when Ogilvy & Mather left the building to relocate their headquarters. The owners of 579 Fifth then marketed the property to diamond and jewelry businesses.
“I’m very hopeful that [Extell developer] Gary Barnett will be successful,” said Wildes. “Getting 65 percent of tenants from the diamond and jewelry industry may be difficult, but I know there are users that will welcome the new space.”
Wildes said this is not the first time a new development has been proposed in the Diamond District, but that it is the first time one is slated for 47th Street between Fifth and Sixth.
“In the early-to-mid ’80s, the initial thoughts were to make 575 Fifth a diamond exchange,” said Wildes. “They made overtures to the Diamond Dealers Club at 580 Fifth to move, but the club didn’t want to cross Fifth Avenue.”
Wildes said many diamond-industry tenants have traditionally been reluctant to leave old spaces or the district itself because of security concerns.
That’s changing, he said, because “the security that you get in general office buildings now is pretty close to what you’d get in a diamond building. So there’s not as much incentive for tenants to stay in the Diamond District buildings anymore.”
Schindler noted that new, competitive product is sorely needed in the district.
“Traditionally, the buildings in the Diamond District had a captive tenant, because they offered unparalleled security and location, and asking rents in general were always higher than in the surrounding areas,” he said.
Noel Morrison, a manager with Premier Realty Management Inc., said that office spaces in the Diamond District are going for around $40 a square foot, but added rents vary widely. Premier manages 36 West 47th Street.
“In terms of retail leases, the rent on the booths depends on how close they are to the window, and it depends on the particular store they’re in and how close they are to Fifth Avenue,” said Morrison. “Closer to Fifth, retail rents for booths near the window go from $10,000 to $15,000 a month. The window space at 36 West 47th Street rents for $7,500.”
Gene Spiegelman, an executive director of retail services at Cushman & Wakefield, said the tower would be “a shot in the arm for the Diamond District.” He said it would lend a new dynamic to retail in the district and might bring new business to the area.
“It’s been a very long time since modern and forward-thinking development has come to 47th Street between Fifth and Sixth avenues,” he said.
Many diamond businesses fear the development will ruin the district’s character and hurt existing commercial properties rather than revitalizing the area.
“Under the Koch administration, the street was named Diamond and Jewelry Way because it’s a district. We’re concerned about what’s going to happen to this district if the tower gets built,” said Kenneth Kahn, one of the owners of 580 Fifth Avenue and a vocal member of the Coalition to Save the Diamond District. “There’s no reason for a new office building in Manhattan to get tax breaks right now. [Extell] will be successful in taking tenants, not bringing them here. We’re concerned that if they poach tenants we’re not going to be able to replace them.”
CB Richard Ellis’ Wildes countered that competition for rents will benefit existing buildings because they will have to be upgraded.
“Most of the sour grapes in the neighborhood are coming from landlords who know they’re going to have to sink more money into their buildings and probably lower their rents. But competition is a good thing,” he said.
Kahn also contends that Extell will have trouble filling the building with diamond businesses.
“A guy who has an office in Israel doesn’t need a large office in New York; Diamond and Jewelry Way is not Extell Way,” said Kahn. “We don’t understand the city’s motivation. Yes, the street needs work, and we’ve been trying for years to clean it up. My opinion is that benefits should flow directly to tenants.”