For eight decades, the massive, triangle-shaped building in Court Square was a place where people went to work. It was a physical and metaphorical cornerstone for Long Island City, an area that was the industrial anchor of western Queens.
The 1920s-vintage, 484,000-square-foot brick edifice first housed a printing plant for Metropolitan Life Insurance and served more recently as the headquarters of Eagle Electric, but its next tenants will call it home when the workday ends.
Eagle Electric is gone and the building is being renovated, reclad and rebranded as the Arris Lofts. The Costas Kondylis-designed luxury residence will feature units with open-floor plans and impossibly high ceilings — the features that have long made living in converted industrial space so appealing.
While news of conversions such as this are music to the ears of residential real estate brokers and would-be loft dwellers, they’re bad news for a city where businesses still need industrial space.
“There have been so many industrial buildings converted into residential — we’ve lost a huge portion of our stock,” said John Ritter, executive vice president for Sholom & Zuckerbrot Realty, a Queens-based real estate brokerage. “Even though there’s been a contraction in the local industrial markets due to global factors, the loss of space far outstrips the reduction in the demand for space. There’s been a huge increase in price for what remains.”
While no comprehensive market report exists for New York City’s industrial real estate sector, Ritter said his own data indicate that vacancy rates are low and rents and asking prices for commercial spaces of all stripes are up. Others report a similar situation.
“I’m not sure exactly what the vacancy number is, and I’m not sure anyone does,” said Neil Dolgin, executive vice president of Kalmon Dolgin Affiliates, a commercial and industrial brokerage. “Let’s just say our supply of interested clientele is high and our supply of buildings is low.”
This interest in the city’s remaining industrial property persists despite high rents and building prices. Ritter and Dolgin said it was difficult to pin general numbers on industrial space because it’s classified by a range of factors such as ceiling height, number of floors and access to transportation. All these significantly affect a property’s worth, but both men gave similar ballpark rental estimates.
Dolgin said renters can expect to pay $10 per square foot in “marginal areas” and $14 to $15 per square foot in desirable locations. Ritter estimated rents as low as $8 to $9 per square foot could be found in buildings with low ceilings and many floors in remote neighborhoods, and $14 to $15 per square foot for space would be typical of more desirable neighborhoods such as Long Island City.
Ritter estimated the vacancy rent to be around 2 to 3 percent, and offered sale price estimates of $200 to $300 per square foot for high-ceilinged, one-story industrial spaces under 20,000 square feet. He said $175 to $200 per square foot would be more typical for larger buildings with similar features. The current market favors one-story buildings with high ceilings, which are better suited to the predominantly wholesale market, rather than the smaller and less prominent manufacturers’ market.
“Most distributors have to be in a one-story building with good vehicle access and high ceilings so they can stack their product,” Ritter said. “Elevator buildings are outmoded.”
Regardless of their specific needs for industrial space, renters and would-be owners face significant rate increases — rates far above those on offer in industrial parks as close as Newark and as far away as southern Pennsylvania.
“Only a year ago you could still find rents of $8 to $9 per square foot in neighborhoods like Williamsburg and Long Island City. Now they want $13 to $15,” said Tanu Kumar, client manager for the New York Industrial Retention Network, a nonprofit organization that seeks to strengthen the city’s manufacturing sector and to promote economic and environmental sustainability. “It’s a terrible environment if you’re just starting out. People are leaving and going over to Newark where they can pay $5 per square foot.”
NYRIM director Adam Friedman said his organization assists between 400 to 500 manufacturing businesses a year. About half ask for assistance navigating the real estate market, and the rest look to take advantage of various tax abatement and incentive programs. Friedman pins the industrial real estate crunch on residential rezoning.
“If you were to aggregate the amount rezoned in the last five years, we estimate 19 million square feet have been converted from industrial use to other uses,” he said. “If you look at what’s ahead in the boroughs and on [Manhattan’s] West Side, we’re set to lose another 14 million.”
While it’s tempting to assume that all 14 million of these disappearing industrial square feet are to be converted into luxury lofts, Ritter said a larger range of conversion options exists than most think. He said that while it’s true that developers in neighborhoods such as Long Island City, Greenpoint and Williamsburg can buy industrial properties for $150 to $175 per buildable square foot, convert them to luxury lofts, and sell them for $600 to $800 per square foot, there is also a lower-end to conversion markets in neighborhoods less attractive to transplanted Manhattanites. These include Ridgewood, Corona, Glendale and Brooklyn’s Sunset Park.
“There, you have developers buying for $100 per buildable square foot and selling for $400 to $500 per square foot,” Ritter said. “I guess you call that multi-family housing for those areas, middle-income housing. If anything, that’s the conversion market that looks stable. You can only have so many luxury [conversions].”
With the stock of industrial properties in the city set to decline further as the effects of past rezoning along the East River waterfront are felt, and the proposed rezoning of the 75-acre Willets Point industrial area in Flushing enters public debate, Dolgin said he expects some businesses to leave the city.
“If you have people commuting to you from the middle of New Jersey, two hours away, maybe you’ll go the other way down to Pennsylvania and get the space for substantially less,” he said. “They’d be farther away and it would cost more to get goods into New York, but it would be worth it for some.”
Dolgin said he doesn’t foresee an exodus massive enough to cause a significant downturn in rents or sale prices.
“There are a lot of businesses, especially the wholesalers,” he said, “that have to stay close by. They need the response time. If you’re supplying a lot of retail stores you need to be right here.”
Firms seize incentives as city’s industrial space dwindles
The city knows that rezoning amplifies the need for industrial space in the five boroughs and is offering incentives for businesses competing to occupy what’s left.
At the mayor’s Office for Industrial and Manufacturing Businesses Web site (nyc.gov/imb), companies can apply for Industrial and Commercial Incentive Program grants, which offer real estate property tax exemptions for renovated and newly constructed commercial and industrial buildings. The benefits can last up to 25 years.
The city also offers rent abatement for industrial and commercial tenants moving to certain preferred areas, including parts of Manhattan’s Garment District; and relocation and employment assistance in other areas, such as Williamsburg and Greenpoint, which have been hurt by rising rents; it’s also created credits for industrial printers and film production enterprises.
Industrial businesses can also benefit from city programs and New York State Energy Research and Development Authority programs that offer incentives and rewards for relocation, efficient energy performance, peak load reduction, efficient equipment purchases, and other actions that help reduce energy consumption and limit on-site emissions.
Industrial Business Zones, city-designated areas which exist in already industrial pockets in the city, will be spared rezoning efforts. Businesses moving to these zones receive a one-time tax credit of up to $1,000 per employee and have access to other assistance.
“There are so many incentives programs out there,” said Neil Dolgin, executive vice president of Kalmon Dolgin Affiliates, “and a lot more people are eligible than were in the past.”