Having transformed from blighted neighborhood to artists’ enclave, Hunts Point in the South Bronx was poised to take the typical four-decade route to gentrification that culminates in wine bars, Whole Foods and an Apple store.
But these are not typical times, as one developer there has discovered.
Taconic Investment Partners bought the fortress-like American BankNote Building, a landmarked 400,000-square-foot, three-building commercial complex in Hunts Point, for $35 million at the end of 2007, “in the good old days,” said Taconic partner Douglas Winshall.
The developer is presently turning the property into the BankNote, Hunts Point’s first Class A office building and one of just eight in the Bronx.
Taconic’s initial vision for the complex — built in 1909 to house a facility that printed currency and other financial documents — was “to bring creative-type tenants out of Midtown Manhattan, such as ad agencies, architects, publishing firms,” Winshall said. Such businesses filled Taconic’s flagship property, the 3 million-square-foot 111 Eighth Avenue in Manhattan, also an industrial property that was converted to office space.
When Taconic bought 111 Eighth Avenue 12 years ago, said Winshall, “Chelsea was a pioneering location” settled by artists. Now the building is home to Google, Nike, Sprint, Armani Exchange and Deutsch Advertising.
The company envisioned the same scenario playing out in Hunts Point in the Bronx, which Winshall described as “the last-discovered borough.”
It would have been a cinch just a year or two ago, considering some of the project’s features. The largest space, the 200,000-square-foot top floor of the Garrison building, has 25-foot ceilings, a 100,000-square-foot mezzanine and 80,000 square feet of north-facing skylights.
Plus, it’s hard to imagine more affordable Class A space. Rents at the BankNote are in the mid-$20s per square foot, compared to an average of $60 per square foot in Manhattan. And a host of financial incentives offered by the city and state governments to Manhattan-based businesses that relocate to Empowerment Zones like Hunts Point can cut that rent in half for several years.
Still, in a recession deals are hard to seal at any price.
Paul Wolf, co-principal of Denham Wolf Real Estate Services, a partner in the building and its leasing agent, said: “Last year, before the market tanked, we were in discussion with large, internationally renowned organizations — a big architectural firm and a major designer, each looking at 100,000-square-foot spaces.”
Since then, said Wolf, “the architect lost a third of his assignments across the globe, laid off a third of his staff and tabled his expansion. And the design firm is not prepared to make any decisions until the third quarter of 2009.”
Due for completion before the end of the year, the BankNote renovation, designed by Beyer Blinder Belle, will combine the three buildings, plus a fourth on the same lot acquired separately; repoint the facade; replace 350 windows, some of them almost 400 square feet; and upgrade lobbies, common areas and bathrooms.
The Spector Group architectural firm is designing a pre-build of some of the 20,000-square-foot floors of offices in one of the buildings. “They’re built on a module,” said architect Scott Spector, so any size operation, from a 2,000-square-foot office to the entire floor, can be accommodated without major rebuilding.
The developers dreamed of having the Garrison building house a museum like the similarly imposing DIA:Beacon. But, said Wolf, “the tenancy we expect has changed a bit.” It’s more likely to go to a union training facility or school at this point. And most of the leasing activity is at the Lafayette building, one of the four buildings in the complex, which contains more conventional office spaces.
When Taconic acquired the building, it was 45 percent occupied. Some tenants left due to rent increases and more may follow. Winshall expects tenancy to drop to 25 percent for a period.
The BankNote’s most famous occupant, LightBox, is staying, attracting celebrities to its light-filled, 10,000-square-foot photography and film studio; as is the Wine Cellarage, which stores high-end wines for wealthy clients and auction houses; the Bronx Academy for Arts and Dance, and at least one charter school. Despite the dearth of available office space in the Bronx, particularly Class A, “we’re all struggling now because people are loathe to make big decisions,” Wolff said.
But he expects the tide to turn by the end of 2009. “We will see a lot of deals happening in the next three to six months,” he said. “I believe we know where the bottom is. It’s just that some people are holding out before getting there.”