The Real Deal New York

Small biz fuels Downtown Leasing

October 15, 2007
By Jennifer Benepe

While the city’s giant financial services firms are looking for Downtown space but not committing to it, small businesses now make up the backbone of the district’s office leasing market.

A joint city and state government incentive program – the Small Firm Attraction and Retention Grant Program (SFARG) – has helped to move and keep those businesses in Lower Manhattan. The looming Dec. 31 application deadline is creating an uptick in interest as companies enter the third quarter.

SFARG allows any firm with up to 200 employees to apply for funding, whether they are already in the area or relocating Downtown. A company with 50 employees can receive a grant worth $3,500 to $5,000 per employee, or $175,000 to $250,000, a sizeable amount for companies struggling to make payroll as the city grinds out of its economic malaise.

Sigrid Peterson, director of business assistance programs at the Downtown Alliance, said the number of calls she receives per day has doubled from 20 to 40, since an advertising campaign started publicizing the Dec. 31 deadline. The program started in 2002.

“The campaign reminds people that time and money are running out,” said Ann Kayman, President and CEO of New York Grant Company, a consulting firm specializing in helping companies move Downtown.

Out of $155 million earmarked for the program, $96.6 million has been committed and $54.7 million disbursed. That means there is still another $58.4 million to be awarded in the last five months of the year.

There is no known public database to identify who has taken advantage of the SFARG incentives, but according to Andy Peretz, Downtown executive director for Cushman & Wakefield, there has been a lot of movement in the area. Much of that comes from companies shifting to larger spaces from smaller ones.

“A lot of the leasing velocity Downtown is below 10,000 square feet,” Peretz said. “We’re not seeing an exodus from small businesses there.”

Adam Foster, senior vice president at CB Richard Ellis, said the firms coming in are much more diverse than in the past. More nonprofits, such as the League for the Hard of Hearing, and the United Federation of Teachers, are relocating to the area. Schools are also expanding or moving to the area, including the Borough of Manhattan Community College and a Pace University expansion. Media companies have taken space Downtown, and architecture firms are gravitating to the area. Peterson estimated the average size of space being leased is anywhere from 1,500 to 2,500 square feet.

“For a certain sized company, a mid-sized company, the SFARG programs have been extremely helpful,” said Kayman of the New York Grant Company, noting that firms with 100 employees can gain up to $500,000 if they renew their lease or sign a new one in the restricted zone bounded by Chambers Street to the north, Broadway to the east, Rector to the south, and the Hudson River to the west. Firms qualifying for the higher per employee grant need to show that they were operating their company in the restricted zone on Sept. 11.

Other firms who are currently located in the Downtown catchments, and whose leases are not up by Dec. 31 of this year can take a new or expanded space if they show that their current lease was surrendered or subleased with their landlord.

Critics of the program claim SFARG does not help a large number of companies that are already located Downtown, because the guidelines do not allow them to terminate their leases without permission. Without this rule landlords would be hurt by the measure, state and city representatives of the program said.

But companies from other parts of Manhattan, with the exception of the other boroughs, can break their leases and move Downtown. “We are getting a continued influx of tenants from outside Downtown,” said Foster.

A senior member of the Empire State Development Corp., which is also taking part in the advertising campaign to remind businesses of the application deadline, said on background that out of the 2,073 businesses that applied for the program, only 337 were “deemed ineligible.” And out of the 1,656 grants approved, those businesses were responsible for “retaining or augmenting” a total of 28,000 jobs Downtown.

Out-of-town companies may also be eligible for the city’s REAP, or Relocation and Employee Assistance Program, an incentive reinstated by the state just weeks ago. Combined with a hefty per-employee tax credit of $3,000, a possible tax savings period of 12 years, and a larger catchments area below Houston Street, companies that become eligible can realize significant benefits. Kayman estimates that one-third of all the new tenants Downtown are new start-ups and out-of-state firms.

For SFARG, the application process does not automatically award grants and some of the smaller companies may be biting their nails after they sign a new lease: Firms can only apply for SFARG relief four weeks after taking possession of their new space, and then the wait can be up to 30 days or longer to hear about their grant. In other words, there are no guarantees before you pack up and move.

After the application is completed, half of the award arrives in six months – and the other half a full 18 months later, a delay that can hurt smaller firms, according to Foster.

Some applicants, including retail tenants, said the program is too restrictive because of the leasehold requirements, because they normally do not sign leases greater than one year when locating to a new market. Critics say another weakness is that the program only recognizes employees who file W-2s, another big blow to companies that can’t count employees who work as consultants.

But overall, the government support should help individual businesses and the Downtown market as a whole, even if there is a long way to go.

Foster of CB Richard Ellis acknowledges that the Downtown economy is still “moving slowly, but at least the arrows are pointing in the right direction.”

“The buzz is that things are getting better,” said Foster, who noted that several new parks have opened, streets are cleaner, and lifestyle amenities are better. “They’re even laying down a cobblestone street in front of the Stock Exchange, and it looks beautiful.”

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