Is Syosset Park’s industrial focus the start of a new era for LI developers?

A mixed-use project’s pivot to warehouse space might make sense for its developers, but experts say it’s a blow to bolder building plans

May.May 20, 2019 10:30 AM

A billboard touting Syosset Park

One of the most ambitious real estate projects in Nassau County’s history is going back to the drawing board after developers faced a prolonged battle with both residents and a school district.

First pitched to the Town of Oyster Bay in 2015, Syosset Park was proposed as a mixed-use project covering nearly 93 acres in the heart of the county, with Manhasset-based developer Castagna Realty and Simon Property Group, the country’s largest mall operator, behind the plan.

The concept crafted by the co-developers,  which included two hotels totaling 350 rooms, 625 housing units, 200,000 square feet of office space and 464,000 square feet of entertainment and retail space, would have been adjacent to a capped landfill. Located near a former federally designated Superfund site, the landfill would be turned into a public park, according to the plan.

Though touted by its backers as a transformative vision for Nassau’s last large swath of vacant space, the plan triggered a groundswell of community opposition over its impact on local schools and the site’s environmental conditions. Today, the project is poised to become industrial space, which may be a sign of things to come for Long Island developers.

Syosset Park Development, a joint venture formed by Castagna and Simon, indicated earlier this year that while it had not completely abandoned its plans, it would pursue an as-of-right industrial option in line with the site’s current zoning.

The need for warehouse space has grown exponentially in the era of on-demand shipping and e-commerce. Long Island’s suburban communities, and others elsewhere in the Tri-State area, have now become prime industrial markets. But experts in the region told The Real Deal that even though a new vision for Syosset Park makes business sense, it also amounts to a lost opportunity for Nassau.

At least one notable supporter of the former Syosset Park plan believes Oyster Bay officials are partially to blame for its demise.

“It’s zoned as industrial warehouse space, and unless the town is planning to provide [more] leadership, which would be refreshing, those are their options,” said former Suffolk County Executive Patrick Halpin, who served as a consultant to Syosset Park’s developers from 2015 until last year.

Halpin, now a managing director at Mercury Public Affairs and chairman of the Suffolk County Water Authority, noted that he was expressing his own personal views, not those of someone affiliated with the project. Still, Halpin pulled no punches in his assessment of Syosset Park’s change of course.

“In order to do something that is dramatic, but also consistent with the character of Long Island, you need to have a town that is willing to spearhead that type of development,” he said.

Halpin cited the village of Patchogue, often held as the regional standard for major redevelopment plans. A study released in December by the Long Island Regional Planning Council found that Patchogue’s revitalization had generated $693 million in economic growth between 2000 and 2017 through increased construction, downtown business operations and non-local spending.

“So far, the town of Oyster Bay hasn’t demonstrated that commitment,” he said.

The relationship between Oyster Bay officials and Syosset Park’s developers seems to have soured. At press time, Castagna and Simon had reportedly moved to end a sale agreement with the town for land adjacent to the Long Island Expressway in a dispute over fees. Such squabbling has made the already complex effort to build Syosset Park more difficult. Oyster Bay, which has not met with the developers since December, said it’s up to Simon and Castagna on how to proceed.

“The developer… has not yet resubmitted plans for the property,” Oyster Bay spokesperson Brian Nevin told TRD. “The town awaits their new vision for the property.”

An adaptive space

Indianapolis-based Simon, a real estate investment trust, posted $1.1 billion in higher-than-expected first-quarter earnings. Market forces have driven the company, which has a significant amount of retail holdings, to seek new solutions in their efforts to turn a profit for shareholders.

Simon CEO David Simon expressed concern during a February earnings call about retail’s woes, but he highlighted the REIT’s profitability as a sign of strong demand for new types of retail space.

“I think we’ve never been busier on the alternative areas,” said Simon, adding that the future of malls can be found within the company’s “live, work, play” concept tied to mixed-use space.

But even if that plan is working in some suburban areas around the country — Simon and Castagna declined to comment for this story — Long Island’s robust industrial market has a financial allure.

“Industrial is the hottest product type on the island,” said David Pennetta, executive director of Cushman & Wakefield’s Long Island office. “There’s been pressure from companies located in Brooklyn and Queens being bought out for residential developments that are now taking up part of the supply.”

Pennetta added that he couldn’t recall any new industrial space being built on Long Island within the past 15 years. Well-located industrial properties are also being absorbed by medical, office and retail tenants, he said. These combined factors are changing the metrics by which Long Island’s industrial space has long been measured.

“Rents were $8.50 gross per square foot. Now they’re easily $10, $12 or $15 per square foot, not including taxes,” Pennetta said. “We’ve pretty much doubled rent, which is fostering new construction.”

Syosset Park’s new direction can be seen as an effort to capitalize on those changing market dynamics.

“The industrial sector on Long Island has been very strong,” said Mitchell Pally, CEO of the Long Island Builders Institute. He said it was unfortunate that Syosset Park couldn’t become a “transformational” project for Long Island, but he noted that builders often pursue the path of least resistance in an unwelcome political environment.

Halpin, who remains a supporter of Syosset Park’s initial mixed-use plan, estimated that the parcel’s current zoning allows for a warehouse of up to 800,000 square feet. To commercial real estate experts, a pivot to industrial is good for the bottom line.

“Experienced developers like Simon and Castagna know the risks of proposing a project like Syosset Park on Long Island,” said a statement from Kyle Strober of the Association for a Better Long Island. Strober, head of the real estate lobbying group, added that while Syosset Park could have helped its town’s economy and image, the switch to industrial “can be as financially viable as [the developer’s] initial plan.”

David Hercman, director of asset management for Syosset-based industrial landlord Milvado Property Group, said that Syosset Park’s proximity to the Long Island Expressway makes it a particularly valuable industrial property. He called the as-of-right industrial proposal a win for Syosset residents, noting that Long Island’s industrial landscape has changed since 2015.

“It would be a strategic industrial location that is advantageous for anybody,” he said.

Industrial roots

Fortuitously enough, although Syosset Park may seem like a graveyard for developers mired in controversy, it also happens to be a former industrial site that’s been vacant for roughly 30 years.

Nearly 40 acres of the property was once home to a Cerro Wire and Cable Corporation plant that for decades manufactured and improperly disposed of copper rods and cables. The plant closed in 1986 and three years later, the Tribune Company bought the site with the intention of using it to print the New York Daily News. But that project never got off the ground and Tribune turned over control of the parcel to Taubman Centers, another shopping mall REIT.

Taubman, new to the Long Island mall market at the time, proposed building a luxury retail complex with 1 million square feet, only to face the same entrenched community opposition all too familiar to Simon. Ironically, Simon supported the initial backlash in order to stifle competition with its own local marquee malls, such as Roosevelt Field in Garden City and the Walt Whitman Shops in Huntington. Taubman finally gave up the fight and sold its stake in the former Cerro Wire site and another Arizona mall to Simon as part of a $230 million deal in January 2014.

By that time, Simon had already paid $32.5 million to Oyster Bay to acquire an adjacent property — home to the town’s public works department — thereby assembling the 93 acres that make up the present-day Syosset Park site.

Lee Koppelman, a former regional planner for Nassau and Suffolk counties who now serves as head of the Center for Regional Policy Studies at Stony Brook University, has long studied the various proposals for Syosset Park. He said that while the site is big enough for a shopping mall like the one proposed by Taubman, Long Island already has an ample amount of retail space.

Industrial space that is clean and creates jobs could be a economic boon to Nassau, said Koppelman, but its builders must strike a careful balance.

“If you’re talking about mixed-use with industrial, the problem comes about where trucks are in relation to residential,” Koppelman said. “That’s one of the problems with mixed-use. It can be done, but it has to be done astutely. There is usually a big swallow between what is good planning and what the developers propose.”

For Syosset Park’s developers, the fiscal clock continues to tick as a new project takes shape.

“You can only hold on to a property for so long,” said Cushman’s Pennetta. “Taubman held it for 20 years, and Simon-Castagna have had it for five years. All that time you have to carry it, pay taxes and the cost of capital.”

Accepting opposition?

Those living within Oyster Bay, of which Syosset is a hamlet, have historically not embraced the mixed-use proposals that have risen elsewhere on Long Island. As such, local elected officials have strived to maintain the status quo valued by their constituents.

Some wonder whether other developers with stalled projects on Long Island will follow Castagna and Simon’s lead and scale back their original plans. At least one prominent local builder is refusing to change his course.

“Not as long as I’m alive,” said veteran developer Jerry Wolkoff, whose $4 billion mixed-use Heartland Town Square project on 452 acres in Brentwood has run into a variety of development delays over the past 15 years.

Wolkoff, who has completed his own industrial projects, said that such properties are increasingly becoming important for Long Island due to zoning changes in the once predominantly industrial Queens neighborhoods of Long Island City and Maspeth.

“It would be a big plus to get as much industrial as we can [to Long Island],” said Wolkoff, noting that Nassau needs to compete for such facilities with places like Jersey City.

But when asked about Heartland, his ambitious mixed-use endeavor, Wolkoff said that he’s thinking beyond the tides of the industrial market.

“For us in Suffolk, our young people and empty nesters need apartments,” Wolkoff said. “We don’t have anything like Heartland Town Square.”

Even some Long Island industrial stalwarts are preparing for potential makeovers that could include residential space. A report released in late April and commissioned by the Suffolk County Industrial Development Agency recommended that the Hauppauge Industrial Park add residential units and co-working spaces to better position itself as a regional economic hub.

“I’m a big believer in smart-growth redevelopment,” Halpin said. “[Syosset Park] would have been a major revitalization of an old industrial area.”

By forgoing townhouses and condominiums in favor of warehouses and loading bays, Halpin believes that Syosset Park’s backers have sacrificed what could have been a grander vision for development in the region.

“As a Long Islander, this is a tragedy,” he said. “In the end, it’s the Town of Oyster Bay that will decide what to do. If they chose to not make a decision on this latest proposal of the site, that’s still technically a decision.”

Editor’s Note, 5/20/19: After this story went to press, Syosset Park’s developers reportedly canceled their deal with Oyster Bay and sought the return of their initial $30 million investment.

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