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As seen in
February 28, 1999
Commercial Property / Queens
Long Island City Still Waits for the Back Offices
by
JOHN HOLUSHA
For decades, developers have peered across
the East River to Long Island City and envisioned a new central
business district for the city, with high-rise buildings housing
the back-office operations of companies, whose headquarters
are in expensive Manhattan.
After all, the location is a good one, just a few subway stops
away from most locations in midtown. And as manufacturing has
inexorably declined in the city, the old factory buildings that
occupy much of the area have become available for conversion
into offices for demolition to provide building sites.
With the exception of the 50-story Citicorp Tower that was erected
a decade ago, it has not happened, despite the success of the
Metrotech project in downtown Brooklyn, which attracted back-office
operations from lower Manhattan.
Some change has come to the area. Big-box stores, such as The
Home Depot, Toys 'R Us, Edwards Supermarket and Pergament Home
Center, have moved in, many of them taking sites once occupied
by industrial and distribution centers. Smaller stores like
Old Navy and the Gap have located in the area as well, filling
in the spaces between the anchor tenants.
Forest City Ratner Companies is building a 112,000-square foot,
14-screen Regal cinema, one block off Steinway Street and almost
in the shadow of the Kaufman Astoria Studios, where the Marx
Brothers and other early stars made their movies in the 1920's
and 1930's. Although the location is some distance from the
shopping areas on Steinway Street, Bruce Ratner, the Chief Executive
of the company, said he believes the complex's attractions will
draw customers from outside the neighborhood.
"The boroughs are so under-movied that it is hard to make
a mistake," Mr. Ratner said. "We think people will
travel to megaplexes." The movie complex will include stadium-style
seating so there are no obstructed views, digital sound and
small auditoriums, so films can continue to play there longer
than in bigger theaters.
"The big-box retailers and the movie theater project represent
a successful conversion from industrial to a retail use,"
said Sanford H. Zuckerbrot, the President of Sholom & Zuckerbrot
Realty, a brokerage firm in Long Island City. "We are recycling
these locations," he said.
Not all the industrial properties are being converted to other
uses, however. Some are serving as havens for industries being
displaced from other locations.
Mr. Zuckerbrot said one of the two Swingline factory buildings
that were made available when its manufacturing was moved to
Mexico last year, will be largely leased to printing companies
being pushed out of the Hudson Square area of southwestern Manhattan.
"This is an opportunity for a company that's paying $12
to $15 a square foot on the west side of Manhattan to come to
Queens and pay $6.50 a square foot annually," Mr. Zuckerbrot
said.
For some this is a natural economic development as property
values and rents in Manhattan make it impossible for low-margin
businesses to thrive. "The printers can't survive in Manhattan,"
said Richard Maltz, Chairman of Greiner-Maltz, a brokerage and
management firm. He said he controls a building on Varick Street,
in the heart of the old printing center, and is replacing the
printers as their leases expire.
"I can't say to a guy, 'Pay me $20 a square foot,' because
I know within a year he'll be broke," Mr. Maltz said.
He said that new, high-tech tenants, such as MCI and Sprint,
at the old Port Authority warehouse building at 111 Eighth Avenue,
at 16th Street, in Manhattan were paying $20 a square foot annually,
compared to under $10 a square foot that had been paid by the
warehousing and distribution companies they replaced. "The
low-end tenants get squeezed out," he said.
With office rents in Manhattan rising as well, some real estate
executives say that Long Island City is the ideal location for
lower-cost office space to avoid losing companies caught in
a rent squeeze to the projects going up along the New Jersey
waterfront. Nobody is putting any shovels in the ground yet,
but some argue the pressure is building.
"I'm looking for Long Island City
to come to life over the next two to five years," said
James S. Meiskin, the President of Plymouth Partners, a tenants'
broker. "If that market does not sprout, New York is going
to lose a large number of back-office jobs to New Jersey and
Connecticut."
He said he knows of companies with back-office operations occupying
4 million square feet that are looking to relocate outside Manhattan.
Since effective office rents in the space available in Long
Island City are typically under $20 a square foot, companies
can make substantial savings by moving less-critical operations
out of Manhattan, Mr. Meiskin said.
"I know a financial institution that is trying to move
500,000 square feet of back-office
operations," he said. "By doing so, they can save
$30 a square foot, which is $15 million a year, $150 million
over 10 years. "
Some are already making the move, according
to Richard Karson, a senior managing director at the Insignia/ESG
office in Long Island City. He is marketing the Queens Atrium
Corporate Center on Thomson Avenue near Queens Boulevard.
The two-building complex contains 1 million square feet, of
which 250,000 square feet have been rented. "We'll do 300,000
square feet this year," said Mr. Karson, who said he had
deals for 80,000 square feet and 200,000 square feet pending.
He said most of the tenants and prospects are back-office operations
of insurance companies, health care managers and banks. Some
communications companies, he said are considering locating their
switching centers there rather than in Manhattan.
He said that the government agencies developing Queens West,
a tract of waterfront land facing across the river from the
United Nations complex, are seeking developers for what could
amount to 2 million square feet of new office space in the area.
Currently, only Citylights, a 43-story residential building,
has been built at Queens West, although Avalon Bay Communities,
a real estate investment trust, has been designated to build
the three remaining residential buildings of the first phase
of the project.
The city is taking preliminary steps to make the area suitable
for commercial development, said Thomas Knierim, Executive Director
of the Long Island City Economic Development Corporation. "There
is a substantial re-zoning proposal that is in the final stages
of preliminary review," he said. Since much of the area
is currently zoned for industrial use, the bulk of a building
that could be built on a given parcel of land, called the floor-area
ratio, or FAR, is limited.
The re-zoning would increase that substantially in some locations,
he said. "In some places it would go from a FAR of 2 or
5 up to 12," he said.
The new zoning would cover a triangular 36-block area from Queens
Plaza on the north to 23rd Road on the west, and Jackson Avenue
to the Sunnyside rail yards to the east. "That area has
the potential to be a fourth central business district for the
city," he said, "after midtown and downtown Manhattan
and downtown Brooklyn".
The new zoning, if approved, could permit the building of 10
million to 20 million square feet of new office buildings, Mr.
Knierim said.
Some real estate executives say Long Island City will develop
slowly, if at all, as an office center because an old factory
area lacks the amenities, such as restaurants and shops, that
office tenants prefer.
"Long Island City is different from Brooklyn, because Brooklyn
has a well-defined downtown while Queens is all spread out,"
said Barry Rosner, a senior managing director of Williams Real
Estate, a services company. "And it lacks amenities. The
city would be better off encouraging residential development
along the Queens waterfront, where people would have a view
of Manhattan and be a five-minute ferry ride away."
Mr. Ratner, whose company developed Metrotech in Brooklyn, said
that any developer seeking to build in Long Island City had
better be patient and have deep pockets. He said the land in
the designated downtown area has many different owners, so site
assembly could be a problem without active help from the city.
And, he said, environmental and land-use planning studies and
approvals drag on.
"You would probably have to do two or three years of predevelopmental
work," he said.
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