Tech startups want a piece of NYC — but can we handle it?

Despite tech's influence on commercial real estate, big challenges remain

Oct.October 30, 2014 01:20 PM

New York City is quickly becoming the latest frontier for tech startups and new media companies, as firms continue their march into Midtown South, Lower Manhattan and pockets of Brooklyn – that much is now a given.

Whether buildings and landlords can accommodate such growth is another story.

That was the key question at Capital New York’s inaugural TAMI Talks event, where panelists discussed the tech sector’s growing influence on the city’s business climate and real estate market. (TAMI, for the layman, is an acronym for “Technology, Advertising, Media and Information,” high-growth industries that are transforming the city’s office landscape.)

“New York is tricky — New York is not easy to grow in,” said Buzzfeed CFO Mark Frackt. The internet news company is looking to expand its New York City headquarters for the fifth time since it launched in 2006.

“When you’re American Express or SONY, and you’re growing at a rate that’s fairly predictable, you can plan your real estate a little more practically,” Frackt said. “When you’re a high-growth company, it’s frankly just very hard to do.”

For landlords who dislike short-term leases or feel wary about the possibility of tech companies failing, this unpredictable growth can be risky. That tech companies are built on venture capital and don’t immediately turn a profit also makes owners more cautious to lease their buildings to fledgling firms.

Established tech firms and traditional industry players that are expanding their digital operations, however, have seen luck in Midtown South, where some of the year’s priciest leases have been inked by this brand of tenants. And those that can’t afford that neighborhood have had better luck Downtown.

Before dealing with landlords, however, firms must find buildings with the proper infrastructure to effectively run their businesses. For these companies, access to high-speed internet is vital and still somewhat hard to come by in New York City.

“Today, broadband is as important in many ways as electricity and water, for both businesses and individuals,” said Eric Gertler, executive vice president of the New York City Economic Development Corporation.

Beyond steep costs for this access, which according to Gertler costs about $8,000 a month, older buildings are not yet equipped to house such infrastructure.

“There are multiple components to this — it’s the [Internet] providers, it’s the city, but it’s also incentivizing landlords to get to the point where they believe it’s an important service to their tenants,” said Jessica Lawrence, executive director of NY Tech Meetup.

Techies making the pilgrimage to the Big Apple also face a daunting task most area renters know all too well — finding a place to live for an affordable price. Kathryn Wylde, president and CEO of the pro-business group Partnership for New York City, said the city’s affordable housing crisis has implications on the tech sector’s growing talent pool.

“It’s not just real estate as it relates to the commercial side, the office space — it’s really how and where people are going to live,” said Wylde.

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