From Office Towers to Converted Factories, LIC’s Commercial Real Estate Market Gets “Creative”
Tech and media firms driving unprecedented boom in neighborhood’s office market
By Rey Mashayekhi
October 9, 2016
Long Island City may be experiencing an unprecedented boom in residential real estate development, but that’s only part of the picture when it comes to the neighborhood’s remarkable transformation. There’s also an extensive amount of commercial development to account for – from massive, ground-up office complexes currently under construction, to a crop of renovated and rehabilitated former warehouse and factory buildings that have looked to appeal to the city’s booming TAMI (technology, advertising, media and information) sector office tenants.
According to the Long Island City Partnership, there is 3.5 million square feet of commercial office space currently in the pipeline in the area and slated for delivery by 2020. That would increase the current 6.8 million square feet of office stock by more than half, and in the process transform Long Island City into a newly viable destination for New York’s sizable and varied office tenant base. Add to that the 395,000 square feet of retail space currently in the works – much of it coming via mixed-use residential development – and we’re talking a whole new world when it comes to opportunities for businesses to set up shop in Long Island City.
The neighborhood is already home to more than 6,300 businesses employing more than 93,000 people, according to the LIC Partnership, and that number will only increase in the coming years via projects like Tishman Speyer’s two-towered, 1.1 million-square-foot office complex at 28-07 Jackson Avenue. The developer announced earlier this year that it had pre-leased more than 800,000 square feet at the 27-story towers – a testament to both the product Tishman Speyer is developing and to Long Island City’s draw for prospective office tenants, given that the company was prepared to build the project on spec and without any pre-existing commitments from tenants.
But those kinds of commitments are exactly what Tishman Speyer got, with department store giant Macy’s agreeing to anchor 28-07 Jackson Avenue with roughly 550,000 square feet at the complex and shared office space startup WeWork signing on for about 250,000 square feet of space. The development, which is slated for completion in 2019, will also hold 43,000 square feet of retail space and will rise next to Tishman Speyer’s new three-building, 1,900-unit residential development right across Jackson Avenue.
Indeed, developers are banking on the massive influx of new residential development in Long Island City – 11,000 new units built in the past decade and another 22,000 units currently in the pipeline – to drive the demand for new commercial, office and retail projects in the area. “You have to have the people first to have the commercial and retail survive,” Modern Spaces executive vice president Evan Daniel told the Wall Street Journal last month, while Tishman Speyer CEO Rob Speyer said he would not be surprised “if the people who work in our office development live in our residential development.”
Of course, spec office development remains a risky proposition for most developers, and conventional Class A office stock isn’t what all office tenants are looking for these days. Businesses – particularly creative, tech- and media-focused companies – are more specific than ever when it comes to selecting their workspaces, whether that’s due to logistical reasons (say, production or light manufacturing capabilities) or simply wanting to foster a work environment that will help draw in talent and create a unique corporate culture.
Luckily, Long Island City is at the forefront when it comes to developing these sorts of commercial spaces (think exposed brick walls, high ceilings, open floor plans and oversized windows). Developers have caught on to the trend in recent years, and committed to redeveloping and renovating millions of square feet at former warehouses and factory buildings in the neighborhood.
Development firm Jamestown Properties, for instance, spent roughly $80 million in 2012 to acquire the five-story Falchi Building at 31-00 47th Avenue, subsequently renovating the property and making it attractive to tenants like popular ride-sharing firms Uber and Lyft. It’s a move that some of the city’s biggest developers have sought to emulate recently; in 2014, RXR Realty invested $110 million to purchase the Standard Motors Building at 37-18 Northern Boulevard, while Vornado Realty Trust poured $142 million to buy the nearby Center Building at 33-00 Northern Boulevard.
Real estate investment firm Brickman is particularly active in this niche, having made more than one such move on a converted factory or warehouse in Long Island City. The company acquired the former DeNobill Cigar Factory, at 35-11 9th Street, for more than $31 million last year, and is partnering with hedge funder Dan Loeb to redevelop a warehouse at 30-02 48th Avenue, known as The Bindery, into offices (Loeb paid Brickman $24 million for a 90 percent stake in the property earlier this year).
The Factory Building, at 30-30 47th Avenue, is one of the bigger and more notable of these conversion projects thus far. Atlas Capital Group, Square Mile Capital Management and Invesco Real Estate partnered to acquire the 90-year-old, 1 million-square-foot building in 2014 and set about an extensive renovation of the property that has already reaped dividends – with the building proving a hit among fashion tenants, in particular. Macy’s took 150,000 square feet at the Factory Building last year to house its photography studio, while this year has seen Polo Ralph Lauren and J. Crew’s Madewell division take roughly 19,000 square feet and 60,000 square feet at the property, respectively.
At the LIC Partnership’s annual real estate breakfast and panel discussion in April, Brickman chief investment officer Steve Klein noted that creative and TAMI companies comprise roughly one quarter of Long Island City’s office tenants, and said the company’s strategy in the neighborhood revolves around creating open office spaces featuring infrastructure and amenities catering to today’s millennial workforce – such as common areas, food stations and bicycle storage rooms. The idea, Klein said, is to offer “stuff Manhattan doesn’t have.”
Paul Neuman, founder and president of catering service Neuman’s Kitchen, also spoke on the panel and discussed his company’s move to its new facilities at 35-02 48th Avenue. Neuman said the catering firm is “paying about the same amount for two-to-three times the space” that it previously had at its former location on the Lower East Side, adding that benefits of the new space include Long Island City’s robust public transportation offerings for employees and extensive bridge and tunnel routes for distribution operations.
With office and light manufacturing tenants increasingly flocking to Long Island City, landlords are seeing their investments pay off. Average asking rents for office space in the neighborhood are on the rise and hit $37.66 per square foot through the second quarter of this year, according to Newmark Grubb Knight Frank – up more than 15 percent from the previous year.
And with another 1.1 million square feet of former industrial space currently in the pipeline to be redeveloped into office space, according to NGKF, Long Island City’s booming commercial real estate sector is showing no signs of slowing down.