Tuesday, November 10, 2015

City leverage brings office space and lower land price for Downtown Brooklyn tower; will government steer AY towers to office?

Not much of a contextual perspective,
420 Albee Square via architects KPF
Some eleven years after Downtown Brooklyn was rezoned to spur office development--but instead spawned luxury housing and hotels--the first new ground-up commercial office building is coming, thanks to city leverage.

A 400,000 square foot office (plus retail) building will be at 420 Albee Square, on a parking lot just west of the City Point project and between Fulton and Willoughby streets (The tower, which has been cut from previous iterations, is described as 38 to 40 stories, which sounds like 400 feet, and by some as 600 feet, which doesn't make sense.)

Because the city could sell nearly one-third of the development rights, it could mandate that the building have office space. So the $15.5 million sale of 120,000 square feet of development rights and 3,000 feet of land comes out to $125 per buildable square foot, according to YIMBY and Politico.

That was, according to the city, "market-rate," apparently because the developer, JEMB Realty, responded to an RFP.

Then again, JEMB already bought the rest of the site, paying $205 per square feet in April 2014, the Real Deal reported, with the initial plans for residential.

And the RFP seemed to give JEMB a leg up, given that it stated, "A Respondent that is not in possession of a site on which to transfer the Floor Area Development Rights at the time of RFP submission may still submit a Proposal for the Transaction."

The market, and AY

Given that the market for residential property nearby is now more than $250 per square foot, as shown in a Forest City Ratner transaction announced last week regarding 625 Fulton Street, the decision to assign 420 Albee Square to office space surely capped the sales price.

This understandable effort by the city to try to develop needed office space--it could try other tactics to limit residential, couldn't it?--suggests implications for Atlantic Yards/Pacific Park.

If office space is so much less valuable than residential space, should we really expect the two sites that could accommodate office (and retail)--the B1 site over the arena plaza, and Site 5 across the street--to not go residential?

Perhaps Greenland Forest City Partners will say only city and state support or subsidies can guarantee that needed office building.

Indeed, note that the B1 site and Site 5 (at the bottom right of the graphic below) are clearly marked as within the Brooklyn Tech Triangle, said to encompass Downtown Brooklyn, the Brooklyn Navy Yard, and DUMBO.

From Brooklyn Tech Triangle report

The Brooklyn Tech Triangle Coalition, which is advocating for the creation of more office space, is comprised of the Downtown Brooklyn Partnership (which is co-led by Forest City Ratner's CEO MaryAnne Gilmartin), Brooklyn Navy Yard Development Corporation, and DUMBO Improvement District.

There's a new office building being built in the Navy Yard, and major buildings in the Navy Yard, DUMBO, and Downtown Brooklyn are being converted to office space, according to the coalition.

The supertall proposal
And then there's new residential space, such as the proposed--as YIMBY reported--supertall tower, Brooklyn's biggest building, at 1000 feet, behind the Dime Savings Bank and Junior's at 340 Flatbush Avenue.

Indeed, the new supertall and other Downtown Brooklyn development could be used to argue for new, greater height limits on the two Atlantic Yards/Pacific Park towers closest to downtown: the 250-foot tower at Site 5, and the 511-foot B1.

From the press release

The press release on the office building yesterday from the New York City Economic Development Corporation was headlined Deputy Mayor Glen, NYCEDC, JEMB Realty, Downtown Brooklyn Partnership and Local Leaders Announce Brand New 400,000 Square Foot Commercial Building in Brooklyn's Tech Triangle, followed by:
First Ground-Up Commercial Development in Downtown Brooklyn Since 2004 Re-Zoning
Announcement Follows NYCEDC President Maria Torres-Springer’s Speech Identifying Need for 60 Million Square Feet of Commercial Office Space by 2025; Brooklyn Tech Triangle Coalition Report Calling for Additional Commercial Space in Brooklyn’s Tech Triangle
Deputy Mayor for Housing and Economic Development Alicia Glen, New York City Economic Development Corporation (NYCEDC) and JEMB Realty today announced a brand new commercial development that will bring 400,000 square feet of new office and retail space to 420 Albee Square in Brooklyn’s Tech Triangle. This project, the first ground-up construction of commercial space since the re-zoning of the area in 2004, builds off the de Blasio administration’s commitment to supporting growth and creating jobs in emerging innovation and commercial centers across New York City. The project is also the latest part of the Downtown Brooklyn Redevelopment Plan, a City strategy to revitalize this area, under which the City has made $300 million in public investments in open space and infrastructure commitments. 420 Albee Square will provide much needed space for innovative and technology focused businesses in rapidly expanding sectors of the economy while helping to further advance the growth of Brooklyn’s Tech Triangle. The project is expected to create approximately 722 permanent jobs and 566 new construction jobs, and by adding at least 400,000 square feet of space, this development will help address the need for additional office space in New York City. NYCEDC projects that 60 million square feet of new commercial office space will be needed across the city by 2025, much of it in outer borough commercial hubs like Downtown Brooklyn.

Today’s announcement accompanies the release of a Tech Triangle Economic Impact report by the Brooklyn Tech Triangle Coalition, a group comprised of the Downtown Brooklyn Partnership, Brooklyn Navy Yard and DUMBO Improvement District. The report calls for the creation of 3.1 million square feet of office space to meet the needs of the rapidly expanding workforce and business community located in the Tech Triangle. The Coalition projects that the Tech Triangle could generate $15.5 billion in economic impact by 2025, and the report highlights the need to support the future growth of the area by making four recommendations to ensure that the it remains a world-class center for innovation. These recommendations – creating commercial and industrial working space, leveraging City assets to support commercial growth, investing in public spaces, and enhancing transit infrastructure – will help support the growing creative and tech ecosystem, which the Coalition expects to grow by 18,000 jobs in the next 10 years. The Brooklyn Tech Triangle Coalition consists of the Downtown Brooklyn Partnership, DUMBO Improvement District, and the Brooklyn Navy Yard Development Corporation.
“We want to make sure that companies keep starting-up, innovating and growing in the Tech Triangle. And the City can spur that growth by making sure innovators have the office space they need,” said Deputy Mayor for Housing and Economic Development Alicia Glen. “This is a fantastic project that will stoke Brooklyn’s economic engine and deliver the kind of high quality jobs and careers we want to secure our place in the 21st Century economy.”

"Brooklyn's Tech Triangle has seen incredible growth over the last decade, and with this new development, the City continues to invest in the neighborhood's future and position the area as a center for innovation and job creation," said NYCEDC President Maria Torres-Springer. "In our efforts to support entrepreneurs and encourage economic opportunity and job creation, we are finding ways to utilize City-owned assets by leveraging the power of public-private partnerships, capitalizing upon every opportunity to create the space innovative businesses need to thrive, expand and create the jobs of today and tomorrow."
“Today’s announcement delivers exactly what Downtown Brooklyn needs: critically needed space for jobs to support Brooklyn's economy and a commitment to infrastructure like open space to support that growth,” said Downtown Brooklyn Partnership President Tucker Reed. “In 2004, Downtown Brooklyn was rezoned with a primary aim of creating new office space, but since then we’ve experienced a residential boom instead. It’s time for our commercial inventory to catch up, and today we can see how leveraging government owned assets to help the marketplace achieve public goals helps get us there. That’s smart economic development policy.”
(Emphasis added)

Note that "leveraging government owned assets" means having the government decide to sell property at a lower price.

Or the city could just create value by expanding the rezoning. The Tech Triangle advocates:
Specifically, the City should consider revisiting land use policy within the Brooklyn Tech Triangle to incentivize the creation of new commercial office space. The Special Downtown Brooklyn District could be expanded to include areas closer to DUMBO and the Brooklyn Navy Yard and in the process increase density for those projects that include commercial office space.
Basically, the message is to expand the previous rezoning and do it "right," this time allowing greater density for only projects including office space, rather than standalone residential buildings. That proposal is a windfall for property owners, of course.

But couldn't the 2004 Downtown Brooklyn rezoning be revised?

Some coverage

Some history from YIMBY, in Downtown Brooklyn Is Finally Getting A New Office Building At 420 Albee Square:
Plans for 420 Albee Square were first filed over a year ago. They initially called for a 65-story tower with 650 apartments and over 270,000 square feet of commercial space on the lower floors. Anotherround of applications scaled the building down to 35 stories in March, and those plans detailed a 232,000-square-foot project with 248 apartments and 36,500 square feet of commercial space on the first four stories.
...The development rights and the property came from Willoughby Square, a public plaza planned on top of an underground parking garage on Willoughby Street between Gold and Duffield Streets. The city sold the air rights for the one-acre green space, but it still plans to build the plaza.
Politico's coverage included a Forest City Ratner salute from the Borough President:

During a press conference that echoed with trendy terms like “innovation economy,” “makers,” and “Brooklyn tech triangle,” politicians paid tribute to Brooklyn’s cache as New York City’s most fashionable borough and the people they believe made it so.
"We are who we are because we had visionaries like [Atlantic Yards developer] Bruce Ratner,” said Borough President Eric Adams, who called Brooklyn a “center of the universe.”
The building-to-be has no office tenants lined up, but it’s close to several subway lines, across the street from City Point, down the street from Fulton Mall, adjacent to what will be a new park and in the midst of what Brooklyn boosters routinely describe as a booming office market in dire need of more space.
“Office vacancy rates in this area are now at around three percent, essentially, functional zero,” said Alicia Glen, the deputy mayor for housing and economic development. "And that shortage will definitely impede the incredible momentum that we’ve seen going on around here."
Other incentives

Politico noted that city officials declined to identify “as of right” city incentives.

The Downtown Brooklyn Partnership has saluted the city's Industrial and Commercial Abatement Program (ICAP), the Commercial Expansion Program (CEP), the Relocation and Employment Assistance Program (REAP) and a variety of energy programs, including the Energy Cost Savings Program (ECSP), but says they must be made permanent, rather than continue on short-term extensions.

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