UN’s rumored Bkly’n move boosts real estate rep

Last month, commercial leasing brokers were abuzz after reports that United Nations Secretary General Kofi Annan was considering moving the bureaucratic behemoth to temporary housing in Brooklyn while its headquarters on the East River in Manhattan was being renovated.

While later reports said the UN was still undecided and looking at some 40 to 50 possible locations for 700,000 square feet of temporary space, the rumors had a positive impact on the borough’s office market.

While Manhattan, particularly Midtown, is correctly viewed as the premier office destination in the nation, if not the world, Brooklyn is no slouch.

Because of its low vacancy rate, the city’s fourth largest office submarket is “one of the healthiest real estate central business districts in the country,” said Glenn Markman, an executive director at Cushman & Wakefield, an active leasing broker in the borough.

The Class A vacancy rate of 6.7 percent makes it considerably lower than Midtown (8.7 percent) and Downtown (12.4 percent), according to April data from Colliers ABR. “Maybe Washington, D.C., and a couple other marketplaces are lower,” said Markman.

All class A space in the borough is located in Downtown Brooklyn a total of 13 buildings with around 8 million square feet of space. That’s a drop in the bucket compared to the 220 million square feet of class A space in Manhattan.
There is much more class A space on the way, and it’s sorely needed, said Jim Clarke, manager of Fillmore Real Estate’s commercial brokerage division.

Last year, the City Council rezoned Downtown Brooklyn to allow for the creation of 4.5 million square feet of new commercial office space and 800,000 square feet of retail by 2013.

“Brooklyn has a lot of older buildings that are class B office space,” Clarke said. “We need more A office space. That’s the problem.”

The first office tower being proposed under the Downtown Brooklyn rezoning plan, a 48-story tower by developer Thor Equities, was also the focus of speculation concerning the UN’s relocation.

Joseph Sitt, head of the company, said he had discussions with the UN about moving to his 1.26 million-square-foot office project slated to rise at 120 Willoughby Street at Flatbush Avenue, according to published reports. Construction is slated to begin this year and the building could house a Wal-Mart in its retail base.

If the UN does decide to head across the Brooklyn Bridge, it would complement a tenant roster that reads like a who’s who list of corporate titans even it it’s sometimes only their back-office operations.

Developer Bruce Ratner’s Metrotech boasts blue chip tenants such as Keyspan Energy, Bear Stearns, Blue Cross Blue Shield and JP Morgan Chase.

In March, Keyspan signed one of the largest recent leasing deals in the area, renewing its 335,000-square-foot lease at One Metrotech Center for 20 years, represented by Newmark.

But Markman predicts a new type of tenant – with a decidedly more artistic bent – moving to the area with the addition of more class A space.

“If I had a crystal ball, I think the next wave will be publishing companies, media companies, and entertainment companies,” he said. “The reason for that is all the creative people who work in those companies live in Brooklyn. The decision makers live here.”

Indeed, if the cost of commercial office space is any indication, the time is now to jump on the Brooklyn bandwagon. Office rents are 40 to 50 percent higher today than they were five years ago, said Clarke. Office space in Downtown Brooklyn goes for $25 to $28 per square foot, he said.

Markman, looking at only class A space, said he thinks rents over the last five years have jumped a more moderate 15 percent. He said average class A space is currently at $34.37 a square foot.

Transportation is a key selling point.

“There are 11 subway lines and the LIRR that come through Downtown Brooklyn. It’s a good alternative to Manhattan,” said Markman.

Another attraction to Brooklyn is that the borough is on a separate power and transportation grid than Manhattan. That piqued interest following Sept. 11, when companies were looking to get out of Manhattan.

“Some of the firms relocated temporarily but many others have stayed,” said Clarke.

The foundation for class A space in the borough was laid much earlier than 2001, however.

“The real heavy lifting came in the 1980s,” said Markman. That was when Ratner had the initial vision for Metrotech, the office complex that saw leases signed during that decade and its first building open in 1992. It now consists of 7.5 million square feet of class A space and is about to open its final building, 12 Metrotech. The entire complex includes eight new and three renovated buildings around a central three-acre landscaped commons.

Ratner is more well-known recently for his plan to build a new home for the Nets basketball team at the corner of Flatbush and Atlantic Avenues, in what will be the largest development outside of Manhattan in 25 years. In March, the city and the state signed an agreement with the developer for the project, which originally called for four office towers in addition to 4,500 apartments. The New York Times reported at the time of the agreement that Ratner may scale back the office space to add as many as 1,000 apartments, likely fueled by the hot residential market.

The Frank Gehry-designed project still must go through what will likely be years of review, condemnation proceedings and approval processes, but already has some salivating. “When you have that kind of architecture, you know it’s going to be special,” Markman said.

“Bruce is a true visionary. He saw Brooklyn’s potential 20 years ago and carved out Metrotech,” he said. “What he will do with the Nets arena in 10 years would have taken the city 100 years to do.”

The other pioneer in the borough, said Markman, is developer Joshua Muss, who completed the 32-story Brooklyn Renaissance Plaza at the end of the 1990s. The 1.3-million-square-foot mixed-use building houses the Brooklyn Marriott, the borough’s only major luxury hotel.

Earlier this year, Muss Development broke ground on a new, 24-story building to be erected adjacent to the current hotel, which will create 280 more hotel rooms and additional retail space along Adams Street, and is expected to be completed in fall 2006.

In addition to Downtown Brooklyn’s 8 million square feet of Class A space, there are around 6 million square feet of class B space and 3.2 million square feet of class C space there.

There are also other pockets of non-class A space in the rest of the Brooklyn perhaps 9 million square feet, including at the Brooklyn Armory and in Dumbo.

Two Trees Management, the developer that created nearly all of modern-day Dumbo, is currently converting existing warehouse buildings into offices.

“We’ve finished three buildings, which are fully leased and we are finishing up two more buildings,” said Chris Havens, director of leasing for Two Trees. “It will take a few years because we can only renovate as there are vacancies by former commercial tenants.”

About 80 percent of Dumbo office space is leased to small creative companies, such as record labels, advertising agencies, and publishing companies.

“Dumbo is on a different scale than Downtown Brooklyn,” opines Markman, “It’s more Incubator type companies.”

There will likely be enough tenant demand that office leasing throughout Brooklyn will be robust going forward, brokers said. Residential conversions are also displacing office tenants. The conversion of the Williamsburg Bank Building has left many dentists who occupied the building in sizeable numbers looking for new offices.

“There is no way of knowing where the next tenant is coming from,” said Markman