Looking Back: Down a blind Silicon Alley

The Internet took New York by storm a decade ago when Silicon Alley altered part of the real estate landscape and spawned a neighborhood name that’s outlived most of the businesses that filled its offices.

In those heady, overheated days of the late 1990s, capital was drawn to e-business like a moth to a fickle flame, but that money and most of the jobs that went with it were a memory by the start of the 21st century.

That near-extinction changed the real estate scene in the area through the lower 20s from Sixth to Park avenues, from the Flatiron Building to Union Square. Silicon Alley, a semantic spinoff of Silicon Valley in Northern California, created a distinct culture by the mid-1990s, one of loose collars and odd hours on concepts most New Yorkers couldn’t truly comprehend.

The culture’s ebb and flow affected the vacancy rates and prices per square foot of the Alley’s real estate. Sometimes competition for space got vicious or funny.

“There was obviously a shortage of space, and a lot of dumb folks who signed insane deals they could never live up to,” said Jason McCabe Calacanis, the former publisher of the defunct Silicon Alley Reporter, which he launched in the autumn of 1996, just as the neighborhood nickname started sticking. “You would look at a space, and it would be gone later that day if you didn’t sign a deal with a $250,000 deposit.”

Office rents in Silicon Alley spiked from a $20-per-square-foot baseline, and topped out at around $44 a square foot by October 2000. After the bubble burst, rents dropped by at least a couple of dollars by the following spring, said Robert Sammons, research director at Colliers ABR.

It got worse.

“After 9/11,” Sammons said, “the prices really fell hard” to $29.52 a square foot in August 2003. That was due more to the economic malaise of the city and the nation than to the exodus of the alphabet soup of Internet companies. As of the end of May, the price per square foot in the area was $28.26.

Silicon Alley employed tens of thousands people the boom-begotten New York New Media Association, which itself evaporated by 2004, once estimated there were 100,000 high-tech jobs in New York. The city did its part, creating the Department of Information Technology & Telecommunications and Digital NYC, a program creating affordable digital office space for nonprofits. (Digital NYC became another casualty of the dot-com bust in June 2004 ironically, during the administration of Mayor Michael Bloomberg, who earned his billions through IT.)

The Alley seemed, by the turn of the century, a permanent fixture of the city. New York magazine reported as late as January 2001: “Despite its sharp downturn, Silicon Alley has joined Wall Street and both Seventh and Madison avenues as a convenient, if inaccurate, geographic shorthand for one of the Big Apple’s core businesses.”

The “sharp downturn” became a cliff dive. “I can’t remember the last time I heard the term used,” Mark Mandell, a commercial broker with Cushman & Wakefield, told the New York Times in March 2002. “It’s lost its cachet completely.”

Now, the one-time Alley is less Silicon and more Fine Knit: Smartly be-suited advertising houses and financial firms filled many of the open spaces left by the pop.

“Interestingly,” Sammons said, “the vacancy rate never climbed above 12.5 percent,” a peak it reached in November 2002. A lot of Silicon Alley companies subleased to financial firms displaced from the World Trade Center, he added, and the surrounding neighborhood by any name remains popular due to its mix of residential, retail and office space. The vacancy rate, in fact, was just under 9 percent at the end of May.

Silicon Alley veteran Calacanis runs his new company, Weblogs Inc., with no office space.

“That,” he said, “is the future of the tech business: small office or no offices at all, with people coming together in person at hotels, office suites or Starbucks.”