Tech Firms Overflow from DUMBO, Find Subway Hub Downtown Better
By Lore Croghan
Brooklyn Daily Eagle
Their predictions were dire – but Downtown Brooklyn commercial landlords' fears about the harm that would be done by landmarking their buildings have been only partly realized, neighborhood real estate executives tell The Brooklyn Daily Eagle.
The hotly contested city designation of the Borough Hall Skyscraper Historic District 16 months ago has jacked up the cost of renovating and maintaining the properties, as they expected. But it has not deterred new tenants from being drawn to the area, as was anticipated.
The office and retail buildings are seeing growing demand for space in the newly landmarked district along Court Street and adjacent sections of Montague, Remsen, Joralemon and Livingston Streets. The preservation area includes the Brooklyn Municipal Building, where a high-profile retail build-out has landed two tenants, Sephora and YogaWorks.
“We're seeing endless activity in a hurry to get deals done,” said Craig Berman, senior vice president of Joseph P. Day Realty Corp., the landlord of four buildings in the 21-building district.
In 2011 the Brooklyn Chamber of Commerce and several real estate firms and business organizations wrote the Landmarks Preservation Commission a letter warning that the creation of a historic district would “impede Downtown Brooklyn's ability to attract high-quality, 'destination' commercial and retail tenants, and create a successful, vibrant commercial district along Court Street.”
This has proved not to be the case as far as office tenants are concerned, real estate execs said.
Instead of law firms and non-profits, the traditional mainstays of office buildings in the Court Street area, Berman is seeing interest from “media and 'young' technology – every facet of technology,” he explained.
“They say they don't want to miss out out. They want a Brooklyn address,” he said.
Buzz generated by the Tech Triangle Coalition is one factor driving new types of tenants' interest in the staid Skyscraper District.
There's no room for them in Brooklyn's go-to tech neighborhood, Berman said: “I think DUMBO is done.”
Published sources peg DUMBO's office vacancy rate at 1.25%.
Techies initially resisted the Skyscraper District because rents in DUMBO are $5 per square foot cheaper and landlords there are more willing to be “creative” about lease terms and security deposits, said Robert F. Hebron IV, a partner at brokerage Ingram & Hebron Realty.
But that's changing, said Hebron, who noted there's a “highly-recognized tech tenant” that's considering a move to one of the Skyscraper buildings.
Another factor that has improved the attractiveness of the historic office district is the thousands of apartments that have been recently built in Downtown Brooklyn.
“This creates a situation where people can live and work in a very small footprint and have all the infrastructure they need,” Hebron said. “They will consider locating their companies in the Skyscraper District.”
For 10 years the taking rents for neighborhood office space were stable, in the high $20s to low $30s per square foot, Hebron said. In the past six months with a tightening of inventory, taking rents are moving into the mid-to-high $30s per square foot.
“There is a pressure on the market,” Hebron said. “I have tenants I am not able to find quite the right space for.”
Offices of 2,000 square feet or less are “rare,” he said, and larger spaces of more than 5,000 square feet are hard to find.
A number of office buildings in the historic district are more than 90% occupied – which wasn't the case two years ago, Hebron said.
At 200 Montague St. – which is fully leased – the landlord said he hasn't seen any negative impact from the landmark designation.
“We remain committed to this vibrant Brooklyn neighborhood,” said Michael Cayre of Midtown Equities, whose firm bought the four-story building in 2007 for $25 million.
It was included in the landmark district despite its extreme modernity. It was built as a two-story structure in 1959 and 1960. Two floors were added in 1968 – and the upper floors were covered with a glass curtain wall in 2006.
Neo-Romanesque 1920s-vintage 26 Court St. – which an investor group led by Jonah Zupnick took over in 1996 when the prior landlord defaulted on a mortgage – has just a 1.2% vacancy, according to real estate website Showcase.com.
At World War I-era 32 Court St., a Colonial Revival-style building that has belonged to developer Mona Gora's family for decades, the vacancy rate is 6.2%, Showcase.com indicates.
The Joseph P. Day buildings are getting attention from tenants in midtown and downtown Manhattan and beyond, thanks to the spotlight Tech Triangle promoters are shining on Downtown Brooklyn.
“I'm getting calls from brokers all over the country,” Berman said.
On June 18, the Brooklyn Tech Triangle Coalition, composed of the Brooklyn Navy Yard, the Downtown Brooklyn Partnership and the DUMBO Improvement District, unveiled a new set of initiatives aimed at making Downtown Brooklyn a more appealing venue for techies.
Prospective tenants are being shown three of Joseph P. Day's Skyscraper District buildings: 44 Court St., 50 Court St. and 186 Joralemon St., where the asking rents are $40 per square foot, he said.
The fate of the firm's fourth building – beautiful but forlorn-looking 186 Remsen St., which has sat vacant for several years – is being weighed.
“The Wohl family is making some decisions,” he said, meaning the family of real estate mogul Larry Wohl, who heads J.P. Day.
“Everybody wants to know about 186 Remsen,” Berman said of the 1880s-vintage Romanesque Revival commercial property. “It's something I can't discuss.”
Though the firm's website lists the entire six-story, 30,000-square-foot building as available for lease to one user, “we're not entertaining queries from prospective tenants about the building,” he said.
At 1899-1901-built, Beaux Arts-style 44 Court, the office vacancy rate was about 30% a year ago, Berman said. Now it's 18.6%, according to real estate market-data website CoStar.
At 1913-vintage Renaissance Revival-style 50 Court, the vacancy rate had been 16% in second-quarter 2010 but was just 2% in the first quarter of this year, he said. It has since gone up to 11.1%, CoStar indicates.
At 1920s-vintage Neo-Gothic 186 Joralemon, CoStar indicates the current vacancy rate is 15.1% – which is even with what it was a year ago, he said.
J.P. Day sold another landmark district building, 1920s-vintage 16 Court St., to SL Green Realty Corp. in 2007 for $107.5 million. The new owner is doing a $20 million renovation at the Neo-Romanesque building, which is the tallest office tower in Brooklyn.
SL Green has whittled the vacancy rate at the 35-story tower, which reportedly was 25% at the time of the purchase, to 15.8%, according to calculations based on a list of available space on the company's website.
Drawing office tenants is not a problem for landlords in the newly landmarked area – but the higher cost of renovating the buildings to make them appealing to newcomers is.
“These tenants like the 'Brooklyn look' but they don't want the buildings to be run down,” Berman said.
“Because of landmarking it takes drastically longer to do renovations,” he said. “It increases costs exponentially.”
Architects who are adept at handling landmarking issues must be hired, and there are filing fees. Seeking Landmarks Preservation Commission approval adds time to the renovation process.
Beyond repairing wear and tear at the aging properties, landlords must install high-speed elevators, which techies expect. And the buildings must be “lit” for multiple Internet providers.
Landmarking also complicates retail redevelopment. Just ask Albert Laboz of United American Land, who's remaking a 53,000-square-foot site (including the sub-basement) in the Brooklyn Municipal Building.
“It's a necessary evil,” he said of landmarking, which he has dealt with extensively in projects in SoHo, Tribeca and Union Square.
“Once you add an extra layer of bureaucracy, there's more delay. It takes more time. There is another public review,” said Laboz, who chairs the Fulton Mall Improvement Association.
“But that's the arena we're playing in. These are the rules. We make the best of it.”
The space at 210 Joralemon St., which he bought as a commercial condominium for $10 million from the city in competitive bidding, has 210 feet of frontage on Court Street.
Though retail tenants are often leery of landmarked properties, there are two prime takers for the three-floor retail venue Laboz is building in former city Finance Department offices.
Upscale makeup chain Sephora is renting the 7,000-square-foot ground-floor corner of the building, a deal that was first reported in March 2012.
YogaWorks, a yoga studio with 24 locations in Manhattan and California, is taking 5,000 square feet in the basement, a deal the New York Post first reported on June 26. Other women's fashion tenants are in talks for other space in the project.
“On the women's apparel and fashion side, the market is underserved,” Laboz told the Eagle. “That's what the market is telling us. That's what needs to go there.”
Nevertheless, he also remains committed to finding “a great restaurant with a bar scene” to rent part of the space, he said. (He told the Landmarks Preservation Commission at a hearing last year that he was looking to include a restaurant in the 1920s Neo-Classical building.)
“Whenever I am in Downtown Brooklyn, I have nowhere to take people out,” he told the Eagle. “I want a hip, cool place to take clients.”
He has enough serious prospective tenants that if all of them panned out, the retail space would be entirely filled, he said.
After the Sephora and YogaWorks deals, there's about 30,000 square feet left to go.
The asking rent for ground-floor space is $150 per square foot, according to published reports.
Landmarking is “a very big hurdle to overcome” for retailers, particularly because of restrictions on the signage they are allowed to install, he said.
As United American Land's most recent rendering of the Municipal Building shows, Sephora will be allowed to put its name on small awnings and on the building above multiple store windows.
“The LPC, believe it or not, understands commerce,” said Laboz, referring to the Landmarks Preservation Commission. “A retailer needs signage to be viable.”
It's his job to find a middle ground between this tenants and the preservation agency.
“The retailer wants big, bold signs,” he said. “LPC wants smaller, subtle signs. I'm the broker in between them.”
The Municipal Building space is currently scaffolded and hidden by wood barriers during its renovation. Peter Ripka of Ripco Real Estate, the brokerage that's marketing the space, shows prospective tenants the rendering so they get an idea of how beautiful the building is.
“It has great bones, and a great presence on Court Street,” he said.
“Some buildings are graceful enough on their own so it doesn't matter if they're landmarked. That can make up for there being controls on their signage.
“It's a fine line,” Ripka said. “A retailer does care about its brand. There's the dignity of the landmark building to maintain – but somebody's got to pay the rent.”
United American Land has a second project underway in the Skyscraper District. Laboz's brother Jody is converting 184 Joralemon St., a former Brooklyn Law School dorm, into rental apartments.
Getting Landmarks Preservation Commission approval to fix up the pre-World War I Beaux Arts building “took a while,” Jody said. “But this is what we do. We're restoration guys. Keeping the old architecture is important to us.”
And that ain't all the firm's got cooking around the Skyscraper District, the Eagle has learned. It beefed up its presence on the Downtown Brooklyn end of Court Street with a property purchase last fall.
An entity of United American Land bought 76 Court St., plus the tiny building next door, for a combined $15.25 million, city records show. When the deal was announced in November, the buyer's name and planned usage for the property were not revealed.
Five-story, 19th Century-vintage 76 Court is on the corner of the first block outside the Skyscraper District. The upstairs floors were used as offices.
Prior to the sale closing, the previous owner of 76 Court received city Buildings Department approval to convert floors 2 through 5 of the handsome red-brick property to residential use. That's the direction Albert Laboz plans to take.
“It will be a rental-apartment building,” Laboz told the Eagle. He doesn't know how many residential units there will be.
“We're deciding as we speak,” he said.