For years, city and state leaders have kicked around the idea of moving Pennsylvania Station across Eighth Avenue into the large, columned James Farley Post Office.
And Governor Eliot Spitzer’s support, first announced publicly last May, has buoyed hopes that the commuter rail project could finally get on track.
If it does, and the surrounding blocks are rejuvenated as a result, Vornado Realty Trust — the developer of the project along with the Related Cos. — stands to benefit significantly. With eight buildings and 7 million square feet in the neighborhood, Vornado, the area’s largest landlord, is well-positioned for its upturn.
Dominating a submarket, as opposed to diversifying holdings across the city, is not a new approach to assembling a portfolio. But in recent years, the strategy has seen its share of higher-profile examples, especially in areas once considered by commercial tenants to be fringe and undesirable. Like Vornado in the Penn Station area, landlords such as Two Trees Management in Dumbo and Trinity Real Estate in Hudson Square are realizing they can make their product more attractive if their buildings are located in what seems to be a definitive, self-contained district, with common design elements and shared public spaces, like a modern version of Rockefeller Center.
Once a landlord has lured tenants, it’s easier to keep them, particularly because businesses now seem increasingly willing to put down roots in places other than the Financial District or Midtown, the city’s historic white-collar business centers. When law firms or service industry businesses expand, they can set up shop next door, rather than fleeing across town.
“If you own one building, you feel the market,” says Peter Turchin, an executive vice president at CB Richard Ellis who co-heads the firm’s agency group, which represents landlords.
“But when you own many buildings, you actually know the market,” he says.
Landlords can know a market well and even shape its appearance. Two Trees Management’s portfolio in Dumbo includes 12 residential and commercial buildings, and 3 million square feet. In fact, Two Trees controls 80 percent of all real estate between the Brooklyn and Manhattan bridges, according to Jed Walentas, a principal.
To give these buildings a uniform look, Two Trees installs only double-hung windows, and it shades them with Venetian blinds; most also have ground-level storefronts.
Two Trees decided that trees and landscaping in Dumbo should also be identical, so the landlord removed the slender, city-issued flora along Front Street and replaced it with thicker callery pear trees to match those lining Washington Street, said David Walentas, Two Trees’ owner and president.
In general, tinkering with a few buildings can’t achieve the same big-picture impression that near-total ownership allows, according to Jed Walentas.
“The decision-making matrix is different if you own a hunk of the neighborhood as opposed to just one building,” Walentas says. “When you do something to improve the neighborhood, you are the beneficiary.”
Filling those submarkets with similar businesses can also create cohesion, and Trinity Real Estate, the real estate arm of Trinity Church, is attempting that in Hudson Square in lower Greenwich Village, where it owns 15 buildings.
Many of the 19th-century structures once housed printing presses, though after extensive renovations, the buildings are now more likely to contain media companies. One is Nature America, a publisher of scientific and medical journals. In December 2005, it relocated from Midtown to 75 Varick Street.
“There was some concern about moving away from an area our employees were used to,” says Nick Kemp, the company’s director of operations.
“But it’s comforting for us to see that other media-related companies, similar to ourselves, are moving to this neighborhood,” he says.
For landlords, assembling a submarket around a transportation hub can increase leverage over tenants. Employees grow accustomed to, say, commuting on certain trains to the suburbs, and companies often don’t want to move far enough away that their routines would be disrupted.
Such thinking played a major part in SL Green Realty Corp.’s decision to control the blocks around Grand Central Terminal when it began piecing together a portfolio in the late 1990s, says managing director Isaac Zion.
Indeed, of the almost 23.5 million square feet SL Green owns in 32 buildings in New York City, 25 of them are close to, or a reasonable walk away from, Grand Central, Zion says.
Such a high profile can also increase a landlord’s clout in dealing with local business improvement districts — nonprofit organizations that help keep sidewalks clean above and beyond city cleaning schedules, according to Zion.
“You can plant a flag in the neighborhood and really stake your claim,” he says.
Of course, as landlords gain greater control over particular areas, tenants can be squeezed and lose negotiating power over lease terms, tenants and landlords say. Still, that control over prices doesn’t translate into cries of “monopoly” like it might in other industries, since in New York there’s still plenty of space owned by other landlords.
Indeed, Manhattan itself currently offers 400 million square feet of office space, says Dan Fasulo, a managing director at Real Capital Analytics, which researches commercial markets. While relocation might be inconvenient, it’s certainly an option.
“It would be difficult for any one player to control an overwhelming majority of the properties in a very complex market,” Fasulo says.