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Preparing for the Future:

A Commercial Development Strategy for New York City

U . S . S E N AT O R C H A R L E S E . S C H U M E R H O N. RO BERT E. RU BIN
Honorary Co-Chairs

June 11, 2001 At the urging of U.S. Senator Charles E. Schumer, the Group of 35 Task Force (the “Group”) was formed in early 2000 to address the growing shortage of commercial office space in New York City. The Group includes City and State leaders in the fields of business, real estate, planning, academia, government, and labor. The Group’s efforts were lead by Honorary Co-Chairs Schumer and former Treasury Secretary Robert Rubin, as well as Co-Chairs Robert M. Harding, New York City Deputy Mayor for Economic Development and Finance; William J. McDonough, President and CEO of the Federal Reserve Bank of New York; Mitchell Moss, Director of the Taub Urban Research Center at the New York University; and Kathryn Wylde, President and CEO of the New York City Partnership and Chamber of Commerce. These members and the other leaders of the Group met several times to discuss the key issues and tasks the staff and I were to accomplish while undertaking this project. To help in our efforts we called on the expertise of numerous other people who participated through five Technical Advisory Committees: Incentives & Zoning, Infrastructure, Real Estate, Biotech and Technology. In addition, Sharon Greenberger, Vice President for Economic Development at the Alliance for Downtown New York, has been an advisor and invaluable resource to the Group from the outset. Under the direction of the Group and the advisory committees, and with the assistance of several sub-committees, focus groups and numerous interested parties, the staff of the Group of 35 presents the following report: Preparing for the Future: A Commercial Development Strategy for New York City. The report is intended to inform key public and private decision makers on the issues facing the growing office-based sector of the economy. It provides a comprehensive blueprint of the actions that will be needed to ensure that New York City has enough space to accommodate anticipated future growth. It has been my pleasure to work on this exciting and important project. Sincerely,

Eric J. Deutsch Executive Director The Group of 35

GROUP

OF

35

GROUP

OF

B l u e - R i b b o n Ta s k F o r c e o n N Y C C o m m e r c i a l S p a c e

35

MICHAEL G. CAREY
PRESIDENT NYC ECONOMIC DEVELOPMENT CORP.

THOMAS P. MAGUIRE
PRESIDENT AND BUSINESS MANAGER GENERAL VICE PRESIDENT INTERNATIONAL UNION OF OPERATING ENGINEERS, LOCAL 15

WILLIAM C. STEERE
CHAIRMAN EMERITUS PFIZER INC.

ROBERT B. CATELL
CHAIRMAN AND CEO KEYSPAN

CHAN SUH
CHAIRMAN, CEO AND PRESIDENT AGENCY.COM LTD

PROF. MITCHELL L. MOSS **
DIRECTOR TAUB URBAN RESEARCH CENTER ROBERT WAGNER GRADUATE SCHOOL OF PUBLIC SERVICE - NYU

KENNETH I. CHENAULT
CHAIRMAN, PRESIDENT AND CEO AMERICAN EXPRESS CO.

JANE THOMPSON
PRESIDENT THOMPSON DESIGN GROUP

KEVIN S. CORBETT
EXECUTIVE V.P. AND COO EMPIRE STATE DEVELOPMENT CORP.

KEVIN J. O’CONNOR
CHAIRMAN DOUBLECLICK, INC.

JAMES S. TISCH
PRESIDENT AND CEO LOEWS CORP.

FERNANDO ESPUELAS
CHAIRMAN AND CEO STARMEDIA NETWORK, INC.

HENRY M. PAULSON, JR.
CHAIRMAN AND CEO GOLDMAN SACHS & CO.

JAMES T. B. TRIPP
GENERAL COUNSEL ENVIRONMENTAL DEFENSE

DR. MATTHEW GOLDSTEIN
CHANCELLOR CITY UNIVERSITY OF NY

DENNIS RIVERA
PRESIDENT 1199 SEIU NY HEALTH & HUMAN SERVICE UNION, AFL-CIO

DR. HAROLD VARMUS
PRESIDENT AND CEO MEMORIAL SLOAN-KETTERING CANCER CENTER

BARRY M. GOSIN
VICE CHAIRMAN AND CEO NEWMARK & CO. REAL ESTATE INC.

STEPHEN M. ROSS
CHAIRMAN AND CEO THE RELATED COMPANIES, LP

JAY WALKER
CEO AND CHAIRMAN WALKER DIGITAL

ROBERT M. HARDING**
DEPUTY MAYOR FOR ECONOMIC DEVELOPMENT AND FINANCE CITY OF NEW YORK

ROBERT E. RUBIN *
DIRECTOR, CHAIRMAN OF THE EXECUTIVE COMMITTEE CITIGROUP INC.

DEBORAH C. WRIGHT
PRESIDENT AND CEO CARVER FEDERAL SAVINGS BANK

WILLIAM B. HARRISON, JR.
PRESIDENT AND CEO J.P. MORGAN CHASE & CO.

KATHRYN S. WYLDE **
PRESIDENT AND CEO NYC PARTNERSHIP & CHAMBER OF COMMERCE

WILLIAM RUDIN
PRESIDENT RUDIN MANAGEMENT COMPANY, INC.

GERALD M. LEVIN
CEO AOL-TIME WARNER, INC.

ROBERT D. YARO
EXECUTIVE DIRECTOR REGIONAL PLAN ASSOCIATION

CHARLES E. SCHUMER *
U.S. SENATOR, NEW YORK

DR. ARNOLD J. LEVINE
PRESIDENT THE ROCKEFELLER UNIVERSITY

IVAN SEIDENBERG
PRESIDENT AND CO-CEO VERIZON COMMUNICATIONS

* Honorary Co-Chair ** Co-Chair

GROUP

OF

35 STAFF:

WILLIAM J. MCDONOUGH **
PRESIDENT AND CEO FEDERAL RESERVE BANK OF NY

STEPHEN B. SIEGEL
CHAIRMAN AND CEO INSIGNIA/ESG, INC.

ERIC J. DEUTSCH
EXECUTIVE DIRECTOR

BRIAN M. MCLAUGHLIN
PRESIDENT NYC CENTRAL LABOR COUNCIL, AFL-CIO

STEVEN SPINOLA
PRESIDENT THE REAL ESTATE BOARD OF NEW YORK, INC.

NICOLE LARUSSO
ASSISTANT DIRECTOR

WENDY WHITE
ADMINISTRATIVE DIRECTOR

ACKNOWLEDGEMENTS

ACKNOWLEDGEMENTS
Te c h n i c a l A d v i s o r y C o m m i t t e e Members for the Group of 35:
INCENTIVES AND ZONING TECHNICAL ADVISORY COMMITTEE
ROBERT L. FREEDMAN, GVA/WILLIAMS – COMMITTEE CO-CHAIR STEVEN SPINOLA, REAL ESTATE BOARD OF NEW YORK – COMMITTEE CO-CHAIR Jason Boxer, Loews Corp. Jonathan Fair, NYC Economic Development Corp. Barry M. Gosin, Newmark & Co. David Greenbaum, Mendik Mgmt. Co. Andrew Haughwout, Federal Reserve Bank of NY Donald J. Lutt, GVA/Williams Thomas L. McMahon, NYC Partnership & Chamber of Commerce Ross F. Moskowitz, Stroock & Stroock & Lavan Peter Serafino, Empire State Development Corp. Michael Slattery, Real Estate Board of New York James P. Stuckey, Forest City Ratner Companies Ann Weisbrod, Metropolitan Transportation Authority John West, Community Preservation Resources James Whelan, Downtown Brooklyn Council

REAL ESTATE MARKET RESEARCH SUB-COMMITTEE
George Archer, Newmark & Co. Jason Bram, Federal Reserve Bank of NY Anne Covell, Cushman & Wakefield James Chin, NYC Partnership & Chamber of Commerce Lou D’Avanzo, Cushman & Wakefield John Gallagher, Insignia/ESG Nate Gilbertson, NYC Partnership & Chamber of Commerce Jason Gorman, Insignia/ESG Glenn Markman, Grubb & Ellis Catherine McKneil, Jones Lang LaSalle Martin Meyer, GVA/Williams James Orr, Federal Reserve Bank of NY Michael O’Connor, Clarion Partners Justin Stein, Grubb & Ellis NY Elisabeth Troni, Newmark & Co.

BIOTECH TECHNICAL ADVISORY COMMITTEE
MICHAEL CROW, COLUMBIA UNIVERSITY – COMMITTEE CO-CHAIR HAROLD VARMUS, MEMORIAL SLOAN-KETTERING CANCER CENTER – COMMITTEE CO-CHAIR Jonathan Bowles, Center for an Urban Future Ron Cohen, Acorda Therapeutics Karin A. Duncker, NY Biotechnology Association Mitch Gipson, Audobon Center David Hirsh, Columbia University Steven Katz, Ortec International Raju Kucherlapati, Albert Einstein College of Medicine Daniel Kurtz, NYC Economic Development Corp. Arnold J. Levine, Rockefeller University Maria Mitchell, AMDEC Arthur Rubenstein, Mt. Sinai Medical School Joseph Schlessinger, New York University Ellen S. Smith, Columbia University Samuel D. Waksal, Imclone Systems, Inc.

INFRASTRUCTURE TECHNICAL ADVISORY COMMITTEE
ROBERT B. CATELL, KEYSPAN ENERGY – COMMITTEE CO-CHAIR PAUL A. CROTTY, VERIZON COMMUNICATIONS – COMMITTEE CO-CHAIR Richard T. Anderson, NY Building Congress William Floyd, Verizon Communications Andrew Haughwout, Federal Reserve Bank of NY Jay Hector, Empire State Development Corp. Chris Jones, Regional Plan Association Thomas P. Maguire, Int’l Union of Operating Engineers David J. Manning, KeySpan Jon Vogel, Jonathan Rose & Co. Robert B. Yaro, Regional Plan Association

NEW-TECH TECHNICAL ADVISORY COMMITTEE
JOHN J. GILBERT, III, RUDIN MANAGEMENT – COMMITTEE CO-CHAIR BRIAN HOREY, EQUITY GROWTH MANAGEMENT – COMMITTEE CO-CHAIR Bruce Bernstein, NY Software Industry Association Jason Bram, Federal Reserve Bank of NY Gerald Cohen, Information Builders Dave Falk, Newmark & Co. Nate Gilbertson, NYC Partnership & Chamber of Commerce Thomas Hyland, PricewaterhouseCoopers Michael Ippolito, Newmark & Co. Richard Karson, Insignia/ESG Richard Kennedy, Cushman & Wakefield Liza Kent, NYC Economic Development Corp. Peter Kestenbaum, Agency.com Matt Kunkel, Empire State Development Corp. Alice O’Rourke, NY New Media Association William B. Shore, Institute of Public Administration

REAL ESTATE TECHNICAL ADVISORY COMMITTEE
DAVID GREENBAUM, MENDIK MANAGEMENT CO. INC. – COMMITTEE CO-CHAIR ARTHUR MARGON, ROSEN CONSULTING – COMMITTEE CO-CHAIR Dean Angelakos, NY Building Congress James Y. Chin, NYC Partnership Michael Gutnick, Sloan-Kettering Glenn Markman, Grubb & Ellis NY Bruce Mosler, Cushman & Wakefield James Orr, Federal Reserve Bank of NY Geoffrey Rockhill, Goldman, Sachs & Co. Jonathan Rose, Jonathan Rose & Co. Brian Schwagerl, Hearst Corp. Margie Seaman, Seaman Realty & Mgmt. Christine Serrano-Glassner, Empire State Development Corp. James Whelan, Downtown Brooklyn Council

ACKNOWLEDGEMENTS

WE’D LIKE TO OFFER SPECIAL THANKS TO:
Seth Bornstein, Queens Borough President’s Office Gayle Baron, Long Island City Business Development Corp. William Bernstein, Alliance for Downtown New York Paul Brick, GVA/Williams Wellington Chen, TDC Development James Y. Chin, NYC Partnership & Chamber of Commerce Jennifer R. Cox, Regional Plan Association Teri Dennin, Downtown Brooklyn Council William Floyd, Verizon Communications Adam Friedman, NY Industrial Retention Network Sharon Greenberger, Alliance for Downtown New York Chris Jones, Regional Plan Association Donald Lutt, GVA/Williams Thomas L. McMahon, NYC Partnership & Chamber of Commerce Ross F. Moskowitz, Stroock & Stroock & Lavan Maura O’Shea, Newmark & Co. James Orr, Federal Reserve Bank of NY Michael Slattery, Real Estate Board of New York Jason Spicer, Cushman & Wakefield Steve Weber, Regional Plan Association Carl Weisbrod and all the staff of the Alliance for Downtown NY John West, Community Preservation Resources James Whelan, Downtown Brooklyn Council

WE’D ALSO LIKE TO ACKNOWLEDGE THE HELP

OF:

John Aboud, Modern Humorist Hardy Adasko, NYC Economic Development Corp. Florence Adu, NYC Economic Development Corp. Frank Altieri, DoubleClick Jo Ann Andreassi, Office of U.S. Senator Charles E. Schumer Jason Anthony, Alliance for Downtown New York Willa Appel, NY Structural Biology Center Averlyn Archer, Advance Internet Tristan Ashby, Alliance for Downtown New York Robert Balder, NYC Economic Development Corp. Gally Bar-on, StarMedia Network Dan Barr, Walker Digital Ulli Barta, Lomographic Society Richard Barth, NYC Department of City Planning Michael Berfield, NYC Economic Development Corp. Rahul Bhatia, Washington Design Laurel Blatchford, Alliance for Downtown New York Tom Block, J.P. Morgan Chase & Co. Richard Brancato, Rockrose Development Corp. Leslie Broberg, North Carolina Biotech Center David E. Bronston, Wolf, Block, Schorr and Solis-Cohen LLP Jeff Brooker, Webb & Brooker Real Estate Greg Brooks, Brooklyn Borough President’s Office Gail Broschart, J.P. Morgan Chase & Co. James Brown, NY Department of Labor Steven Burke, North Carolina Biotech Center Paula Luria Caplan, Bronx Borough President’s Office Lilo Carr, Goldman, Sachs & Co. Lisa Rae Castrigno, Real Estate Board of New York Richard Cefaly, Cushman & Wakefield Joe Chan, Brooklyn Chamber of Commerce Jack Chin, StarMedia Network Guadalupe Cipres, NY Biotechnology Association

Caesar Claro, Staten Island Economic Development Corp. Arthur Cohen, Hawkins, Delafield & Wood William G. Cohen, Newmark & Co. Real Estate Michael Cohn, Logicept Pierre Cote, Ma Biotechnology Research Institute Christine Cumming, Federal Reserve Bank of NY Michael Cusick, Office of U.S. Senator Charles E. Schumer A. Stephen Dahms, CSUPERB-California State University Mitchell Datsz, Brooklyn Marriott Susan Markland Day, Bay Area Bioscience Center Tyson Daugherty, Gigmania Andrea DeSanti, Bioscience Alliance Maryland Richard DiFuria, Goldman, Sachs & Co. Fred Di Maggio, NY Department of Economic Development Constantine Dimas, Office of U.S. Senator Charles E. Schumer Candice Dobbs, Dobbs Associates Inc Anne Dyring, Nat’l. Assoc. of Industrial & Office Properties Bob Eaton, Bio MD Stuart Eisencraft, Insignia/ESG Tony Felzen, NYC Economic Development Corp. Brad Fountain, Red Eye Design Elizabeth Gaskin, U.S. Census Bureau Michael D. Gargano, Argent Ventures Mary Jane Garland, Rudin Management Co. Dimitri Genaris, NYC Economic Development Corp. George Glatter, NYC Dept. of Business Services Kelly Glynn, Office of U.S. Senator Charles E. Schumer Maria Gotsch, NYC Partnership & Chamber of Commerce Vivian Gradus, Albert Einstein College of Medicine Eva Hanhardt, The Municipal Arts Society Carley Hauser, Goldman, Sachs & Co. Barbara Hayes, Sacramento Area Commerce & Trade Org. Helene Heller, Mayor’s Council on New Media David Hohn, Roswell Park Cancer Institute Warren Hyman, NYC Department of Finance Owen Jackson, Hugh & Cameron Systems Adv. Inc. Jody Kass, New York City Housing Partnership Maura Keaney, Office of NYC Council Member Christine C. Quinn Carol Kellerman, Learning Leaders Gary Kesner, Silvercup Studios Marcie Kesner, Queens Borough President’s Office Patricia Kiarney, Chadbourne & Parke LLP Evan Kingsley, Brooklyn Public Library Judy Kjelstrom, Center for Environment Plants Resistance Against Pathogens Neil C. Klarfeld, The Clarett Group Michael Kwartler, Environmental Simulation Center Jennifer Landis, NYC Partnership & Chamber of Commerce Ben Lee, Control Technologies Peter B. Lederman, NJ Institute of Technology Nathan Leight, Vast Video Emily Lloyd, Columbia University Jeanne Lutfy, BAM Local Development Corp. Mike Lynch, Office of U.S. Senator Charles E. Schumer Andrew Lynn, NYC Dept. of City Planning Charles J. Maikish, J.P. Morgan Chase & Co. Manzur Mazumder, Netcom Information Technologies Norman Marcus, Swidler Berlin Lillian Martinez, Goldman, Sachs & Co. Maria Martinez, Goldman, Sachs & Co.

ACKNOWLEDGEMENTS

Elissa Jane Mastel, Green Galactic Jay Mazur, Unite Frank McArdle, The General Contractors Association Peter McCabe, Ingram & Hebron Realty Jay McCarthy, Office of Senator Charles E. Schumer Mary McCarthy, Solano Economic Development Corp., California Pete Magnani, Queens Borough President’s Office Richard Miller, New York City Economic Development Corp. Hiro Mitsuji, Dept. of Business and Economic Development, Maryland Angela Molenaar, Eyebeam Atelier Daniel Moss, Jonathan Rose & Companies Joshua Muss, Muss Development Regina Meyer, New York City Department of City Planning Richard Nicotra, The Nicotra Group Ronald Novita, Harlem Community Development Corp. Elizabeth O’Donohue, New York City Economic Development Corp. Hugh O’Neill, Appleseed Marc Palumbo, Merrill Lynch James Parrott, Fiscal Policy Institute Anand Pathuri, Grocereez.com Karen Phillips, Abyssinian Development Corp. Diane P. Phillpotts, Harlem Community Development Corp. Marianna Plummer, Memorial Sloan Kettering Cancer Center Leighton Prabhu, Grocereez.com Carl Proper, Unite Rana Quraishi, NYC Investment Fund Barbara Randall, Fashion Center Business Improvement District Bruce Ratner, Forrest City Ratner Companies Dan Reznikov, University of Maryland Biotechnology Institute Sloane Rhulen, Newmark & Co. Peter H. Rider, Office of New York City Councilmember Christine C. Quinn Fabian Rivera, KeySpan Nelson C. Rising, Catellus Development Corp. Rodney Robbins, Bio Science Production Corp. Missy Rohrbach, Office of U.S. Senator Charles E. Schumer Hal Rosenbluth, Kaufman Astoria Studios James Henry Rowe, III, Walker Digital Jaron Rubenstein, Logicept Frederick Rudolph, Rice University Roland Ruocco, Best Brands Home Products

Michael Sammut, Four Eyes Production Russell Sarder, Netcom Information Technologies Titu Sarder, Angryman.com Richard Schaeffer, Columbia University Harvey W. Schultz, Muss Development Sara K. Schwittek, Four Eyes Production Steve Scoppetta, NYC Partnership & Chamber of Commerce Alan Scott, Goldman, Sachs & Co. Gerald Scupp, The Fashion Center BID Ron Shiffman, Pratt Institute Center for Community & Environmental Design Elizabeth Spinelli, Hudson County Economic Development Corp. Larry Sragow, Liberty Science Center Haley Stein, Office of U.S. Senator Charles E. Schumer Stuart Match Suna, Silvercup Studios Mark Suprun, Merchants of Light Edward M. Sybert, University of Maryland Fred W. Telling, Pfizer Sharon Tepper, Newark Economic Development Corp. Mary Ann Tighe, Insignia/ESG F. Carlisle Towery, Greater Jamaica Development Corp. Joseph Tracy, Federal Reserve Bank of New York Polly Trottenberg, Office of U.S. Senator Charles E. Schumer Michael Truese, Within Reach Concepts Guy Tsabar, Rufix Bradley Tusk, Office of U.S. Senator Charles E. Schumer Andy Udis, Newmark & Co. Brad Usher, Office of State Senator Thomas K. Duane Mary A. Vavruska, TCE Systems Phil Verges, New York New Media Association Michele Washington, Washington Design David Wasserberg, Jones Lang LaSalle Betsy Wild, Office Of. U.S. Senator Charles E. Schumer Lee Winter, Cushman & Wakefield Clint Works, Mixshows.com Rich Worth, Alliance for Downtown New York John Young, New York City Dept. of City Planning Bernd Zimmermann, Bronx Borough President’s Office Karen Zornow, Times Square Business Improvement District Barry Zubrow, Goldman, Sachs & Co.

TA B L E

OF

CONTENTS

PREPARING FOR THE FUTURE: A COMMERCIAL DEVELOPMENT PLAN FOR NEW YORK CITY
Mission Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Premise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 Market Supply and Demand Assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 Barriers to New Office Development in New York City . . . . . . . . . . . . . . . . . . . . . . . . . .22 Preparing for the Future: A Commercial Development Strategy for New York City . . .30 Part 1: Removing Citywide Barriers to Office Development . . . . . . . . . . . . . . . . . . . . .32 Part 2: Creating Three New and Expanded Central Business Districts . . . . . . . . . . . . .36 The Expanded Downtown Brooklyn Central Business District . . . . . . . . . . . . . . . . . . . . . . . .38 Long Island City Central Business District . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45 The Far West Side Central Business District . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53 Part 3: Making Room for High-Growth Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . .60 Real Estate Development for Biotech Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60 Real Estate Development for Technology Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .66 Part 4: Ancillary Business Districts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71 Part 5: Accommodating the Real Estate Needs of the City’s Existing Manufacturing Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .87 Appendix A: Annual Average Vacancy Rates and New Construction Completions in Manhattan, 1980-2001 . . . . . . . . . . . . . . . . . . . . . . . .91 Appendix B: Alternative Build-out Scenarios for a Long Island City Central Business District . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .92 Appendix C: Map of Potential Development Sites Around Jamaica Station . . . . . . . . . . .96 Endnotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .97

M I S S I O N S TAT E M E NT

1

THE MISSION

OF

THE

GROUP

OF

35:

THE GROUP

OF

35

IS

D E D I C AT E D

TO

IDENTIFYING

O P P O RT U N I T I E S F O R C O M M E R C I A L D E V E L O P M E N T B O T H INSIDE AND OUTSIDE OF

M A N H AT TA N

IN ORDER TO

A C C O M M O D AT E T H E I N C R E A S I N G S PA C E D E M A N D S O F

NEW YORK CITY’S

GROWING

INDUSTRIES,

THEREBY

P E R P E T U AT I N G A N D E N H A N C I NG T H E P R O S P E R I T Y.

CITY’S

ECONOMIC

2

PREMISE
During the past decade, New York City’s economy reached astounding heights, and projections indicate the next 20 years could be better still. Estimates show that the City could gain nearly 600,000 new jobs by 2020. Just as in the past 20 years, these new jobs will come more and more from companies in the “Ideas Economy” where value is created by “thinking things, rather than moving things”. These growing companies need office space. In fact, half of the projected employment growth for the next 20 years will be found among office-based companies. To accommodate the growth in the office sector, the City will need to add approximately 60 million square feet of office space by 2020. Without this new space, New York City stands to lose thousands of jobs and the economic activity they will generate. In the 1990s, the City’s depressed real estate market offered growing companies affordable rents and an abundance of available office space. This helped to foster economic expansion and the creation of new businesses that eventually filled office buildings that had long been vacant. Now the once languishing real estate market has turned completely around, with rents climbing to historic highs and vacancy rates dropping to 20 year lows. The City’s main economic concern is not that new employment growth might wane in the short term – it is that there is not enough new office space to support future employment growth. In the market today, troublesome barriers block efforts to create new office space. At the outset of the Group of 35’s work in the spring of 2000, the City was experiencing strong office-based employment growth but was producing almost no new office inventory. In the following year, the City’s employment growth has slowed somewhat, with short-term employment increases likely to be less than have been seen in peak years. However, this has very little impact on the City’s need for more office space in the future. While economic recessions like the one seen in the late 1980s and early 1990s spawned severe contractions in the real estate market, conditions today are much different than in the past. New construction has all but stalled, and vacancy rates remain near historic lows. While a slowdown in the City’s economy could certainly loosen the extremely tight real estate market for a year or two, the supply shortage is so severe that even a recession would not restore the market to equilibrium in the long term. The barriers to new construction and subsequent limited development activity have left the City’s office market poorly equipped to meet the economic challenges of the next two decades. Without taking action to create more space, New York City will miss out on hundreds of thousands of new jobs and increased economic activity in the next 20 years.

E X E C U T I V E S U M M A RY

3

M A R K E T S U P P LY

AND

DEMAND ASSESSMENT

Employment in New York City is moving more and more toward the office-using segments of the economy. In order to accommodate new employment in these sectors, the City will need to create more office space.
! Estimates suggest that more than 80% of total employment growth in New York City over the

past 20 years occurred in the office-using segments of the economy.
! The City’s office sectors showed particularly strong growth in the mid- to late-1990s, adding an

estimated 196,100 new jobs to the economy.
! Projections suggest that New York City could add nearly 300,000 office jobs by 2020, requiring

approximately 60 million square feet of additional space to accommodate new office employment. Increasing demand and limited new supply have dramatically impacted the City’s real estate market and have created a supply shortage that threatens continued economic growth. The slower employment growth over the last six months does not obviate the need for new space. Supply growth will have to increase dramatically to meet new demand. Without new space and more affordable rents, New York City will lose jobs and economic activity to locations with readily available, affordable space.
! In the 1990s, New York City’s office inventory grew by about 15 million square feet, far less than

the nearly 54 million added in the 1970s and 46 million in the 1980s.
! While the lack of new office development was not an issue early on in the 1990s, the steady

increase in office employment eventually led to the absorption of nearly all the available office stock. From 1995 to 2000, an astonishing 37 million square feet of office space was absorbed in the Manhattan market.
! Without new inventory to accommodate the rapidly growing demand, the office market reached

a crisis. As of first quarter 2001, rents in Manhattan set all-time highs and vacancy rates dropped to the lowest levels in two decades.
! These conditions put a tremendous strain on the City’s capacity to accommodate additional

growth. As a result, many expanding companies have been forced to move to alternative locations where new office product is being built more quickly and at lower cost.
! Approximately nine million square feet of space will be added to the New York City market over

the next four years. While this is considerably more space than has been developed in recent years, construction activity in New York City has proven to be unpredictable, and there is no guarantee that this activity will continue over the long term.
! The City’s employment growth has slowed somewhat and short-term employment increases will

likely be less than have been seen in recent years. However, this will have only a small impact on the City’s need for more office space in the future. The existing supply shortage is so severe that even with current construction, the City will need millions of square feet of new space to eliminate existing shortages and meet projected future demand.

4

E X E C U T I V E S U M M A RY

BARRIERS TO NEW OFFICE DEVELOPMENT IN NEW YORK CITY
There are numerous and often overlapping barriers that interfere with the construction of new office space in the City.
! Insufficient Zoning – Numerous potential development sites are not zoned to encourage office

development. The rezoning process is expensive, time consuming and unpredictable.
! Difficulty in Completing Site Assemblage – The assemblage of sites with the appropriate size and

configuration for office development can be difficult, especially if it requires the purchase of numerous parcels held by various owners. When assembling sites, private developers face the risks of both holdout owners and tenants. The public sector can assemble through the use of condemnation, a process that can be expensive and time consuming but is often more predictable than assemblage by the private sector.
! Market Rents Not High Enough to Cover Development Costs – An analysis of development costs

and available incentives reveals that market rents are not high enough to support new office development in three New York City markets – Midtown Manhattan, Downtown Manhattan and the Boroughs. However, lower costs make Jersey City a more viable market.
Minimum Effective Rents
$76 $61 $44 $36

Location Midtown Downtown Boroughs Jersey City

Average Class A Asking Rents
$68 $53 $35 $40

! Lenders’ Requirement for Pre-Leasing Makes Financing Difficult – After suffering significant losses

from bad real estate loans in the early 1990s, lenders will no longer finance speculative urban office development. In most cases, a developer must secure a signed lease with a creditworthy tenant for at least 50% of a project, which is not an easy task for large-scale office development. These barriers have had a severe impact on the ability of New York City’s real estate market to add new office space in response to increasing demand. Accommodating the needs of the City’s growing businesses in the future will require more ready-to-go sites and a lower cost environment for development.

R E C O M M E ND AT I O NS : A C O M M E R C I A L D E V E L O P M E NT S T R AT E G Y FOR NEW YORK CITY
The Group of 35 proposes A Commercial Development Strategy for New York City that sets forth a blueprint for turning the City’s economic potential into reality. The Strategy is a pro-active, comprehensive approach to overcoming existing barriers to development and creating the office space that the City needs to support new employment growth in the next 20 years.

E X E C U T I V E S U M M A RY

5

The Commercial Development Strategy has five critical parts: Part 1: Removing Citywide Barriers to Office Development Part 2: Creating Three New and Expanded Central Business Districts Centered Around Three Urban Business Campuses Part 3: Developing Real Estate Solutions for High-Growth Sectors Part 4: Supporting Development in Ancillary Business Districts Part 5: Meeting the Real Estate Needs of the City’s Manufacturers This Strategy is designed not only to meet future demand for office space but also to spread economic activity throughout the five boroughs, to provide alternative low-cost locations, to maintain and grow New York’s existing employment base and to tap into the City’s potential in exciting, highgrowth sectors.

PART 1: REMOVING CITYWIDE BARRIERS TO OFFICE DEVELOPMENT
There are numerous opportunities today to create new office space throughout New York City, but conditions must be right to foster development. To create these conditions, we recommend several actions that will remove barriers associated with zoning, assemblage and costs.

Zoning ! Rezone appropriate areas of the City to allow for higher density commercial use (discussed in more detail in Parts 2 and 4 of the Commercial Development Strategy).
! Simplify the environmental review process to allow for quicker entry into the City’s Uniform Land

Use Review Procedure.

Assemblage
! Make greater use of public condemnation for assemblage. ! Adopt the practice of removing holdouts via condemnation when 85% of an office site is con-

trolled and development plans are ready to proceed.

Land Costs
! Sell existing public sites or those acquired through condemnation at costs low enough to ensure

office development.

Construction Costs
! Increase the supply of skilled labor.

Ta x e s
! Promote recently adopted enhancements to the City’s Relocation Employment Assistance Program

(REAP) and enact additional enhancements.
! Amend the City’s Industrial and Commercial Incentive Program (ICIP) to allow benefits for com-

mercial new construction in additional parts of Manhattan.
! Extend the one-year real estate tax progress assessment exemption to three years. ! Phase-in real estate taxes attributable to physical improvements for commercial property.

Implementing these recommendations would remove barriers to development throughout New York City and stimulate new office construction, including in the Midtown and Downtown Manhattan markets where there are existing opportunities for new office development.

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PART 2: CREATING THREE NEW AND EXPANDED CENTRAL BUSINESS DISTRICTS CENTERED AROUND THREE URBAN BUSINESS CAMPUSES
While Manhattan’s existing Central Business Districts offer opportunities for new office space, they do not have enough space to meet all of the projected demand. In addition, the City does not currently offer low-cost alternatives to compete with other locations in the region. To fill these needs, the Group of 35 calls for the creation of three new and expanded Central Business Districts, at the core of which will be an Urban Business Campus (see below). The three Central Business Districts will be in the following locations:
! Downtown Brooklyn – an expanded Central Business District anchored by MetroTech. The assem-

blage and development of sites along Willoughby Street and surrounding areas will yield an additional 12 million square feet of office space, which combined with existing office stock will produce a Central Business District with 20 million square feet.
! Long Island City – a new Central Business District centered around the Jackson Avenue corridor

and served by a new intermodal station at Sunnyside Yards. This development will provide 15 million square feet of office space.
! Far West Side – a new Central Business District on Manhattan’s Far West Side to be served by an

extended No. 7 train that will connect the area to Penn Station, the Port Authority Bus Terminal, Times Square and Grand Central Station. The development in the area will provide at least 20 million square feet of office space. Creating each Central Business District requires tailored strategies to induce development. While the elements of each strategy are similar (all require rezoning, condemnation and transportation improvements) the primary barrier to each Central Business District is different. In Downtown Brooklyn, the key to development is using condemnation to overcome obstacles to site assemblage. In Long Island City, the primary factor is providing enough zoning density for a sizable office district. On the Far West Side, the most critical issue will be providing mass transit access west of Eighth Avenue. These tasks present challenges that will require considerable public and private sector investments and strong political will. However, adding at least 47 million square feet of new office space in Downtown Brooklyn, Long Island City and the Far West Side must be a top economic development priority.

Urban Business Campuses: Catalysts for Development in the Central Business Districts New York City cannot risk that private sector efforts alone will be enough to produce the space needed for new economic growth. At the heart of our proposal for each Central Business District is the development of an Urban Business Campus (UBC) to be initiated by the public sector. To jump-start the development process in the Central Business Districts, the Group of 35 is calling on the City and State to create these UBCs, which will include the following elements:
! Three-to-five million square feet of state-of-the-art office facilities ! Access to the vast regional labor force via mass transit ! Park-like setting with open spaces and pedestrian friendly-streetscapes ! Amenities such as new retail and dining establishments, business services, hotels, entertainment

venues and access to local cultural and academic resources

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These UBCs will create a sense of place in the Central Business Districts and serve as the catalyst for ongoing private sector development efforts that will follow in adjacent areas. In order to create the Urban Business Campuses, the City and State must partner together to accomplish the following:
! Identify several blocks in the new Central Business Districts where these campuses

should be located
! Assemble development sites, using condemnation and making financial contributions

when necessary
! Designate locations with the appropriate high density commercial zoning ! Solicit developers to build three-to-five million square feet of new office space ! Aggressively market projects and offer incentives to attract tenants

Each of the three proposed Central Business Districts offers unique strengths and confronts local obstacles to achieving this development. We recommend tailored strategies to address these unique conditions in order to bring about the creation of new and expanded Central Business Districts.

The Expanded Downtown Brooklyn Central Business District
The Group of 35 proposes the creation of an expanded Central Business District in Downtown Brooklyn that will provide an additional 12 million square feet of new commercial space. This will include the expansion of MetroTech into a larger Urban Business Campus through the assemblage of key parcels along Willoughby Street. The Central Business District will also include residential, academic, retail and open space development, which will help link the commercial core with the surrounding residential communities, the technology district in DUMBO, Brooklyn Bridge Park and the Brooklyn Academy of Music’s (BAM) cultural district.
Recommendations With its proximity to Downtown Manhattan, great transit accessibility, local business presence at MetroTech and nearby amenities, Downtown Brooklyn offers a tremendous opportunity for an expanded Central Business District that can attract companies who are being lured to New Jersey. However, the area confronts the issues of difficult site assemblage, insufficient zoning and the perception of being a government center rather than a business center. The area’s private sector business groups are already taking steps to overcome these challenges and enlarge the Central Business District. The public sector has an opportunity to partner with these groups to bring this vision to reality by implementing the following recommendations:
! Rezone the Downtown area to allow for additional density ! Assemble sites for the Urban Business Campus along Willoughby Street to provide ready-to-go sites ! Market sites for development ! Designate a State Empire Zone and offer enhanced real estate tax incentives to make the area

more cost competitive
! Relocate existing government tenants and reuse/sell public properties to free up space for private

sector businesses
! Encourage retail and residential development to link the Central Business District to the

surrounding communities and amenities from DUMBO to BAM
! Make required investments in infrastructure and open space, such as the Brooklyn Bridge Park ! Initiate an aggressive marketing campaign by targeting companies similar to those now at

MetroTech as well as those moving to the New Jersey waterfront

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The New Long Island City Central Business District
The Group of 35 proposes the creation of a Long Island City (LIC) Central Business District with 15 million square feet of new commercial space over the next 20 years. The Central Business District will include an Urban Business Campus with three-to-five million square feet of office space. The UBC will also contain open space, restaurants, retail shops and other amenities. The assemblage and development of the UBC will be initiated by the public/private partnership and serve as a catalyst to the development of rest of the LIC Central Business District. The Central Business District will be home to a world-class intermodal transit station at the Sunnyside Yards that will accommodate commuters from around the New York City metropolitan region. The greater LIC area will also accommodate a mix of uses, including residential, retail, manufacturing and open spaces.
Recommendations Long Island City’s proximity to Midtown Manhattan and its excellent transportation network make it an ideal location for creating a new Central Business District. The area has adequate space to allow for large-scale office development, and the successful completion of the current rezoning initiative by the City will be the first step in achieving this potential. However, obstacles such as the lack of existing office presence, limited local amenities and concerns over traffic and air quality, present challenges to creating the Central Business District. In order to achieve the critical mass of new office and other development needed to create a vibrant Central Business District, we recommend the following actions:
! Approve the current rezoning application to increase allowable density ! Designate a State Empire Zone and offer enhanced real estate tax incentives to make the area

more cost competitive
! Assemble sites for an Urban Business Campus (perhaps along Jackson Avenue) to provide

ready-to-go sites
! Make transportation enhancements, including constructing an intermodal station at Sunnyside

Yards for Long Island Railroad, New Jersey Transit and Metro-North
! Create open spaces and improve streetscapes to enhance the attractiveness of the area ! Encourage mixed-use and residential development to create a 24/7 environment ! Conduct a study and mitigate traffic and air quality issues, especially associated with the entry

to the Queensborough Bridge, to allow additional rezoning
! Add additional density to allow for ongoing development that will create a critical mass of

economic activity
! Conduct an aggressive marketing campaign to promote the area as an extension of Midtown

Manhattan’s Central Business District

T h e N e w Fa r We s t S i d e C e n t ra l B u s i n e s s D i s t r i c t
The Group of 35 proposes the creation of the Far West Side Central Business District with at least 20 million square feet of new office space. The Central Business District will be located in the area west of Ninth Avenue between 28th and 42nd Streets and will be served by an extended No. 7 train that will connect the area to Penn Station, the Port Authority Bus Terminal, Times Square and Grand Central Station. At the heart of the Central Business District will be a three-to-five million square foot Urban Business Campus, which will incorporate a pedestrian-oriented commons area with open spaces, restaurants, retail shops and other amenities in addition to office space. The

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assemblage and development of the UBC will be initiated by a public/private partnership and serve as a catalyst to the development of the rest of the Central Business District.
The Far West Side Central Business District will contain areas of high and moderate-density development. In addition to office space, the Central Business District will offer hotels, mixed-income housing, open spaces, industrial facilities and other uses that suit the needs of the local community. The entire area will be connected by wide tree-lined sidewalks and pedestrian-oriented streetscapes that will link workers, residents and visitors to a number of open spaces throughout the Central Business District and will draw people westward to the newly created Hudson River Park. The ongoing planning and development of the Central Business District should reflect the concerns of the local community.
Recommendations Proximity to the existing Midtown Central Business District, accessibility to the regional workforce and a vast amount of vacant and underdeveloped land make Manhattan’s Far West Side an ideal location for creating a new Central Business District. However, a lack of subway access, existing low-density zoning, congestion around the Lincoln Tunnel and community concerns about potential displacement are all challenges to development in the area. In order to fulfill the Far West Side’s potential for a new Central Business District, we recommend the following actions:
! Assemble sites for the Urban Business Campus to provide ready-to-go development sites ! Invest in critical infrastructure improvements including extending the No. 7 train, bringing Metro-

North to Penn Station, mitigating traffic around the Lincoln Tunnel, building a platform above the rail yards, and expanding the Javits Center
! Rezone the area and conduct an environmental review to allow additional density ! Offer City real estate tax incentives to make office development financially feasible

PART 3: MAKING ROOM FOR HIGH GROWTH INDUSTRIES
The biotechnology and information technology sectors have tremendous potential to create new high-skill, high-wage jobs for New York City. The Group of 35 offers tailored real estate strategies to help fulfill that potential.

Recommendations for Real Estate Development for the Biotech Industry The City offers a number of competitive advantages to support the growth of the biotech industry, including a critical mass of top research institutions, an ability to attract a sizable amount of research funding and access to a cluster of the country’s top pharmaceutical companies. Despite these strengths, the industry is still struggling to take off in New York City. This is due in large part to a lack of affordable space to meet the needs of start-ups and early-stage companies. The challenge facing New York City is to create an ample supply of space to support the growth and development of a cluster of commercial biotech companies in the City. To do this we recommend the following actions:
! Offer direct and indirect subsidies for new Biotech Enterprise Centers which would provide

facilities for start-ups and larger commercial biotech firms
! Encourage joint development projects among academic and medical institutions ! Allow biotech companies to access tax-exempt bonds to lower financing costs for real estate and

other capital investments

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! Provide incentives to encourage the redevelopment of space for biotech use ! Create a revolving loan fund program to help defray costs of real estate improvements and

equipment acquisition
! Increase the number of zoning designations that allow biotech uses

Recommendations for Real Estate Development f o r Te c h n o l o g y I n d u s t r i e s New York City offers numerous strengths to support the growth of the technology sector, including access to a large pool of talented workers, contact with a broad customer base and superior technology infrastructure. However, landlord/developer concerns over credit risk, demand for special building infrastructure and a need to expand quickly are all factors that make it difficult to meet the space needs of tech firms. In order to ensure that New York City has the space that tech firms need to grow and expand here in the future, we recommend implementing the following actions:
! Designate sites for Technology Enterprise Centers within the Urban Business Campuses ! Create a pooled credit program to assist companies without long credit histories to lease office space ! Provide real estate tax incentives to encourage landlords to make investments in tech-ready space ! Allow tech companies to access tax-exempt bonds to lower financing costs for real estate and

other capital investments
! Improve access to telecom services ! Create incubator/accelerator space within local educational institutions

PART 4: SUPPORTING DEVELOPMENT IN ANCILLARY BUSINESS DISTRICTS
There are opportunities throughout New York City for Ancillary Business Districts, smaller scale office centers with new and/or redeveloped space. Supporting commercial office development in these districts will enhance the City’s growth capacity and help spread economic development to areas that have not yet realized their full potential. While these areas are not likely to achieve development on the scale of the Central Business Districts, each of these potential Ancillary Business Districts offers strengths to support a modest amount of office development. These five locations are well suited to support Ancillary Business Districts:
! Jamaica ! Flushing ! Harlem ! The Hub in the Bronx ! Staten Island Corporate Park

We examine the unique strengths and obstacles for development in each of these locations and then discuss tailored strategies for bringing about development.

Recommendations for Jamaica – ( F o c u s o n t h e Tr a n s p o r t a t i o n S e c t o r ) With superior transit access, the development of AirTrain, ongoing public investment and numerous potential development sites, Jamaica is well suited to serve as an office center for airline and other transportation-related tenants. However, the lack of an existing office presence, low-density zoning,

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increasing traffic congestion and image issues all present obstacles to making this development happen. To create an Ancillary Business District in Jamaica that could provide up to four million square feet of new development, including office space, an airline training center and a hotel/ conference facility, we recommend the following:
! Use public condemnation to assemble sites for new development targeted toward the

transportation industry
! Rezone the Jamaica Center area to allow additional density ! Use government tenancy to anchor development projects ! Direct public funds for parking and other projects ! Mount a joint public/private marketing campaign

Recommendations for Flushing – (Focus on International Business) Flushing’s diverse local labor pool, transportation access to a regional workforce, ongoing investment and a recent rezoning all combine to provide the right environment for new office development. Yet, achieving commercial development in Flushing is complicated by existing parking requirements and image factors. To create an Ancillary Business District in Flushing that could provide new office space for international businesses, we recommend the following actions:
! Build a municipal parking garage ! Create a business improvement district and a local development corporation ! Make transit improvements ! Mount a joint public/private marketing campaign

Recommendations for Harlem – (Focus on Not-for-Profits and Government) Harlem’s excellent transportation network, recent residential and retail resurgence, existing office presence and ample opportunities for both new and redevelopment make the 125th Street corridor an ideal location for an Ancillary Business District. However, image factors, zoning and other issues complicate efforts to develop office space. To create an Ancillary Business District with new and redeveloped office space that will accommodate government, not-for-profit and private sector tenants, we recommend the following actions:
! Encourage the redevelopment of existing properties ! Identify potential tenants and aggressively market projects ! Rezone to allow for additional density and uses ! Use public condemnation to assemble key development sites ! Make new office development a public sector priority

Recommendations for the Hub in the Bronx – (Focus on Small Business and Healthcare) The best opportunity to create an Ancillary Business District in the Bronx can be found at the Hub. This lively retail center attracts shoppers from all over the area but has little in the way of an existing office market. The extensive transportation network, ongoing revitalization, strong retail activity and proximity to large healthcare and education sectors offer opportunities to bring activity to the Hub’s existing office inventory. However, much of this office space is in disrepair, and the area also has a

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limited local pool of skilled labor, increasing traffic congestion and image issues. To create an Ancillary Business District that can accommodate small businesses as well as healthcare and other local services, we recommend the following:
! Support the Bronx Center plan ! Encourage the redevelopment of existing properties ! Create a Surface Transportation Zone ! Consider long-term opportunities for new mixed-use development projects

R e c o m m e n d a t i o n s f o r t h e S t a t e n I s l a n d C o r p o r a t e Pa r k – (Focus on the Suburban Office Market) The Staten Island Corporate Park is a unique asset, providing New York City’s only suburban style office park to compete with alternatives in the region, particularly in suburban New Jersey. The Corporate Park is home to numerous private sector tenants, is accessible to a large labor pool and offers access to an array of amenities. However, image issues and high costs present challenges to further development in the area. To take advantage of the strengths and to support ongoing development in the Corporate Park, we recommend the following actions:
! Approve the proposed State Empire Zone on the West Shore ! Mount a joint public/private marketing campaign

PART 5: ACCOMMODATING THE REAL ESTATE NEEDS OF THE CITY’S EXISTING MANUFACTURING INDUSTRIES
While the presence of manufacturing in New York City has been on the decline since the 1970s, this industry segment continues to be a vital source of employment and an important economic engine for the City’s economy. In addition to creating opportunities for new office development, the Group of 35 also recognizes the importance of meeting manufacturers’ real estate needs, particularly for those firms that might be displaced by expanding office use in places like Long Island City and the Far West Side of Manhattan. In order to address these issues, we recommend the following:
! Create a trust for industrial space ! Fund the “Move Smart” Program ! Remove the obstacles to brownfields redevelopment ! Redevelop public sites for industrial use ! Increase access to tax-exempt industrial revenue bonds ! Create an industrial development tax credit program ! Reform the ICIP and REAP programs to increase utilization by small manufacturers

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The following discussion of real estate market demand and supply conditions in New York City demonstrates how in the past decade the lack of new construction combined with strong demand created a space crunch that could have severe repercussions for the City. The data presented below highlight the need for action today in order to accommodate the City’s economic growth in the years to come.

HISTORIC SUPPLY AND DEMAND TRENDS
Overview Over the years of strong economic expansion from 1995 through 2000, the City’s growing office sector absorbed over 37 million square feet of the available office stock. This voracious appetite for space drove up rents at a dramatic pace and caused a swift drop in vacancy rates. Under such strong demand conditions, one would have expected a boom of new construction activity. However, what occurred in the market was quite the opposite, as the inventory growth rate (new construction as a percent of existing inventory) for the 1990s was only 4.6%, well below historic levels. A number of market and non-market factors – including a reluctance among financial institutions to lend, the high cost of construction, prohibitive zoning and a lack of large commercial development sites – have created tremendous obstacles to office development in New York City. Without significant new construction, the ongoing space shortage is likely to push vacancy rates lower still and drive rents even higher over the long term – two conditions that signal economic trouble for New York City.
H i s t o r i c E m p l o y m e n t Tr e n d s i n N e w Yo r k C i t y Trends in the demand for office space in New York City reflect not only the overall employment growth experienced during the past several decades, but also the City’s changing employment composition. Over the 20 years from 1980 to 2000, overall employment grew by 312,000 (an increase of 9.2%) to reach a total of approximately 3,720,300 jobs. The majority of this growth came from the office sector of the economy.1
In order to estimate total office employment, we tallied employment in sectors where one would expect most employees to work in offices, such as FIRE (Finance, Insurance and Real Estate) and Membership Organizations, Business Services, Engineering and Management Services, and Legal Services. In addition to these categories, we also included employment in the Publishing and Cable 2 TV sectors, since in New York City many workers in these industries also work in offices.
!T A B L E 1
HISTORIC TRENDS IN TOTAL EMPLOYMENT AND OFFICE EMPLOYMENT IN NYC, 1980 – 20003
Year Total Employment 3,408,300
3,720,300
312,000 9.2 %

Office Employment 924,900
1,179,700
254,800 27.5%

Office as a Percent of Total Employment
27.1%
31.7%
81.7% —

1980
2000

Total Change Percent Change

Table 1 shows trends in both total employment and office employment from 1980 to 2000. Estimates suggest that over this period, approximately 254,800 of all new jobs added in New York City were in office-using segments of the economy. This accounts for about 82% of overall employment growth

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over the period. In fact, the composition of the City’s employment has been shifting toward office employment, which grew from 27.1% of all employment in 1980, to 31.7% in 2000.

Recent Employment Growth and the Demand for Office Space The office segment of the City’s economy had particularly strong growth in the mid- to late-1990s. From 1995 to 2000, office-using industries added about 196,100 new jobs to the economy, and this robust employment growth fueled tremendous increases in the demand for office space. During this same period, more than 37 million square feet of office space was absorbed in the Manhattan market. By 2001, almost all of the City’s available office stock has been filled by growing businesses.
!T A B L E 2
ANNUAL NET ABSORPTION FOR COMMERCIAL REAL ESTATE IN MANHATTAN, 1995 – 20004
Year 1995 1996 1997 1998 1999
2000

Downtown -1.91 0.82 6.17 2.49 1.72
3.39 12.68

Net Absorption (in millions of square feet) Midtown South Midtown
-1.19 1.60 8.20 1.96 2.29
5.22 18.08

Total -1.71 3.05 16.08 5.52 4.18
10.34 37.47

1.39 0.63 1.71 1.07 0.17
1.73 6.71

Total

New Construction Activity and Supply Conditions While office employment levels reached a historic high by 2001, the construction of new office space is at one of its lowest points in decades.5 As Figure 1 shows, since 1948 more than 177 million square feet of new office space has been built in Manhattan. With this construction, the City’s inventory of competitive space has grown to over 320 million square feet, making New York City home to more office space than any other city in the country.6 Yet very little of this space has come to the market since 1992.
!F I G U R E 1
ANNUAL NEW COMMERCIAL CONSTRUCTION COMPLETIONS IN MANHATTAN, 1948 – 20007
22 20
Square Footage ( in millions)

18 16 14 12 10 8 6 4 2 0
1948 1952 1956 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 Year

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For the past two real estate market cycles (occurring roughly between the years 1970 and 2000), there was a trend of declining new commercial construction. The peak of construction activity took place in the early 1970s. The completion of Two World Trade Center and 55 Water Street capped off three years of astonishing inventory growth that added over 45 million square feet to the market. By 1974, this construction boom ended as the economy entered a recession and the City encountered severe financial problems. There was little new construction again until 1982. Over the next eight years, Manhattan experienced a renaissance of commercial construction activity. During this period, favorable real estate tax policies and zoning bonuses on the west side of midtown Manhattan created a huge incentive for new office development, especially as developers tried to beat the sunset of these provisions in 1987. In addition, the availability of capital encouraged real estate developers to build offices on speculation. Speculative building continued into the late-1980s, despite quickly rising vacancy rates in the marketplace. By 1990, over 45 million square feet of new inventory had been added in Manhattan.
!T A B L E 3
SUMMARY DATA ON NEW CONSTRUCTION AND INVENTORY GROWTH RATES BY DECADE8
Decade 1970s 1980s 1990s 2000s New Construction 53,904,100 45,645,000 14,627,755 n/a Inventory in Base Year 222,484,000 269,300,000 315,800,000 320,186,000

Decade Inventory Growth Rate
24.2% 16.9% 4.6% n/a

N e w C o n s t r u c t i o n i n N e w Yo r k C i t y C o m p a r e d t o O t h e r R e g i o n a l and National Markets Stalled development activity is beginning to erode New York City’s preeminence in both the regional and national office markets. Over the last ten years, the City has lagged behind other places in providing new space to accommodate growing office employment.
The New York Regional Market The office inventory in the metropolitan area, which includes New York City, northern and central New Jersey, Long Island, Westchester County, NY, and Fairfield County, CT, grew by just over six percent in the 1990s, adding approximately 35.3 million square feet of new office product. Of this new office space, over half of it was built outside of New York City.9 Failure to keep pace with the growth of office markets around the region threatens New York City’s importance as the anchor of the regional office economy. Much of the region’s new office space was developed along New Jersey’s Hudson County waterfront. This development has had the most direct impact on the New York City economy. With an existing inventory of 12 million square feet of Class A space and ongoing construction of another 6.7 million, Jersey City, Weehawken and Hoboken have been attracting New York City-based companies across the Hudson River to find the affordable space they need to grow.10

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National Markets During the 1990s, new construction in New York City has also been stagnant compared to other major downtown areas around the country. The Central Business Districts in Chicago, Washington, D.C. and Boston, the three largest office markets outside New York City, had inventory growth that outpaced what was seen here.11
! Washington, D.C ! Chicago ! Boston ! New York City

20.0% 9.4% 6.6% 4.6%

R e c e n t Tr e n d s i n M a r k e t R e n t s a n d Va c a n c y R a t e s Early in the 1990s, the lack of new office construction was not an issue. The overbuilding of the 1980s, coupled with a stalled economy, created a great deal of vacancy in the office market. When the national recession ended in 1993, employment levels began to recover again in New York City, creating an increased demand for office space. Eventually this steadily increasing demand led to the absorption of nearly all the available office stock, while at the same time, there was little new office product being built to meet ongoing demand. As a result of these conflicting conditions, the office market was in a space crisis by the end of 2000, with rents driven to astronomical levels and vacancy rates down to the lowest point in decades.
Trends in Rents As of the first quarter 2001, rents in the overall Manhattan market surpassed their highest levels in 22 years.12 Rents in the overall Manhattan market have increased at a remarkable rate since 1996, rising an astonishing 78%. The average asking rent was well above average (at $54.88 per square foot), surpassing the previous peak rent-level of $51.77 in 1982.13

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!T A B L E 4
INFLATION-ADJUSTED ANNUAL AVERAGE ASKING RENTS FOR OFFICE SPACE IN MANHATTAN, 1980 – 200114
All Property Types Overall Manhattan Rents
$36.51 $46.32 $51.77 $48.24 $48.22 $46.28 $46.27 $45.54 $44.14 $46.44 $42.19 $38.66 $35.21 $32.64 $31.24 $30.94 $30.81 $31.07 $34.67 $40.02 $46.85
$54.88 $41.05

Year 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
2001*

Class A Midtown Rents
$49.83 $63.46 $65.83 $58.39 $57.45 $56.28 $55.96 $54.34 $54.87 $53.25 $51.28 $46.07 $41.43 $38.65 $38.39 $37.75 $37.85 $40.91 $48.26 $50.47 $62.36
$67.43 $51.39

Class A Downtown Rents
n/a n/a n/a n/a $50.64 $51.90 $50.20 $54.29 $49.87 $44.95 $41.86 $38.95 $38.11 $34.38 $33.26 $33.35 $32.71 $32.76 $39.70 $40.49 $47.35
$52.55 $42.63

New Construction Completions (in millions)
0.250 1.649 4.158 6.498 3.030 6.606 5.430 7.492 2.700 7.832 4.804 0.170 2.254 0 0 0 0 0 0 1.500 0
2.750** —

Average

*2001 rent data are averages based on 4Q 2000 and 1Q 2001 figures. **2001 new construction numbers based on estimated completion dates for projects currently under construction.

In the Class A sub-market of Midtown Manhattan, rents have soared 78%, from a low of $37.75 in 1995, to peak at $67.43 in early 2001.15 The Class A space in Downtown Manhattan has also seen incredible increases in market rents. Since bottoming out in 1996, average Class A rents Downtown have shot up by almost $20, to reach $52.55 in 2001, an increase of over 60%. These dramatic increases reflect the impact of the lack of new office construction in the face of rapidly growing demand. While rents may start to drift downward in the latter part of 2001 due to a softening of the local economy, this will only temporarily reduce pressure on rents. Without new construction, rents will likely climb in the long term as the City adds more and more new office jobs.

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! FIGURE 2
TRENDS IN DIRECT ASKING RENTS AND NEW CONSTRUCTION COMPLETIONS IN MANHATTAN, 1980 - 200116
10 9
Square Footage (in millions)

8 7 6 5 4 3 2 1 0
1980 1982

# "

" "

# # # # # # " $ # # $ $ $ $ # 50 $ " " " " # " $ " # " " $ " $ # " 40 $ $ # # # # # $ $ " " " $ $ $ $ $ " " " " " 30
20 10 0
1984 1986 1988 1990 1992 1994 1996 1998 2000 Year

#

60

Direct Asking Rents (in Y2000 dollars)

#

#

#

70

"
#
$

Overall Manhattan Rents
Midtown Class A Rents
Downtown Class A Rents
New Construction in Manhattan

Trends in Vacancy Rates In addition to the recent trend of rapidly increasing rents, the tightness of today’s market is exemplified by a sharp downward trend in vacancy rates. (Refer to Appendix A to see a complete table of vacancy rates from 1980 to 2001.) Since 1996, when rates were over 16%, the vacancy rate in the overall Manhattan market has dropped to just 3.4%, the lowest level the market has experienced in 20 years. In Manhattan’s Midtown and Downtown districts, vacancy in the sub-markets for Class A space has dropped even more dramatically than the overall market. Since 1995, when the Class A Midtown market was near an equilibrium vacancy level of 9.4%, the vacancy rate has fallen sharply, reaching a low point of 2.4% in early 2001. The drop in Class A vacancy has been even more remarkable in the Downtown market over the past several years, falling from 12.9% in 1996 to just 1.6% in the first quarter of 2001.
! FIGURE 3
TRENDS IN VACANCY RATES AND NEW CONSTRUCTION COMPLETIONS IN MANHATTAN, 1980-200117
8 7
Square Footage (in millions)

20%

Vacancy Rates (direct space)

6 5 4 3 2 1 0

# # " " " " 16% # # " 14% # " $ # # $ $ $ 12% # $ $ 10% # # # " " $ $ " " # " $ 8% # # $ $ $ " $ 6% " $ " $ " $ $ # $ " 4% # " " " $ $ $ $ # # 2%
0
1980 1982 1984 1986 1988 1990 Year 1992 1994 1996 1998 2000

"

"

"

18%

"
#
$

Midtown Class A Vacancy Rates
Overall Manhattan Vacancy Rates
Downtown Class A Vacancy Rates

New Construction in Manhattan

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The rapid decline in vacancy rates is the direct result of the lack of new construction over the past decade, particularly at a time when demand grew substantially. With such little liquidity in the market, tenants are unable to find the space they need when they need it. Today’s low vacancy rates indicate that the market is out of equilibrium, putting increasing upward pressure on rents. Real estate experts estimate that vacancy should be approximately 8 to 9% in order for rents to stabilize. However, in the next two years the market is only expected to add about 5.2 million square feet, an amount which is not likely to have a noticeable impact on either vacancy rates or rents. New York City has felt the effects of limited new office construction, high market rents and little available stock. Expanding businesses have been leaving the City to find the space they need in other locations. The greatest beneficiaries of New York’s tight market have been New Jersey municipalities along the Hudson River waterfront. From 1997 to 2000, 18 New York City-based companies have made commitments to occupy approximately six million square feet of space in Hudson County.18 This translates into approximately 30,000 jobs that could have stayed or been created in New York City if there had there been adequate space.19 This is perhaps the most obvious example of competition for New York City’s employment base, but there are others locally, nationally and internationally. As other locations continue adding new office product more quickly and at lower cost than can be built here, New York City will face an ongoing challenge to maintaining its strong level of employment growth.

PROJECTED FUTURE TRENDS IN DEMAND AND SUPPLY
In the next 20 years, estimates show that the City could gain hundreds of thousands of new office jobs, which will generate substantial new demand for office space. However, supply projections demonstrate that New York City is not on track to meet this demand for space. Overall employment projections were provided by the independent forecasting firm Economy.com, which forecasts using conservative assumptions for economic trends. Using this data, we estimated growth in office employment in New York City from 2000 to 2020. Base year 2000 figures reflect the recent slowdown of employment growth that began early last year. We derived our estimates of office employment using the same method as in the historic demand analysis. The trends of increasing office employment and of the sector’s increasing share of total City employment are both projected to continue in the short and long term.20 Table 5 shows how employment is expected to grow in the years from 2000 to 2020. The projections suggest that New York City’s overall employment will increase by 589,400 jobs in the next 20 years. Of these new positions, nearly 50% (293,200) are expected to be office jobs.

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S h o r t - a n d L o n g - Te r m E m p l o y m e n t P r o j e c t i o n s
!T A B L E 5
PROJECTED FUTURE TRENDS IN OVERALL AND OFFICE EMPLOYMENT IN NEW YORK CITY, 2000 - 202021
Time Period Total Employment Office Employment

Short-Term
2000 2005 Total Change Percentage Change 3,720,300 3,926,700 206,400 5.5% 3,720,300 4,309,700 589,400
15.8%

1,179,700 1,280,700 101,000 8.6% 1,179,700 1,472,900 293,200
24.9%

Long-Term
2000 2020 20 Year Change
Percentage Change

Office Growth as a Percentage of

Total Employment Growth, 2000 – 2020

49.7%

In order to understand the challenge New York City faces in accommodating the projected future office employment growth, it is necessary to translate the number of employees into a demand for space in terms of square-footage. Based on the assumption that each employee requires 200 square feet of space, we estimate that New York City would need about 23 million square feet in the shortterm. Over the entire 20-year period, the City will need approximately 60 million square feet to accommodate new office employment.

Future Supply Projections As the economy continues to shift more and more toward business and professional services, maintaining this office-based employment and fostering its continued expansion here in New York City is tremendously important to the City’s economic future. Therefore, it is critical that millions of square feet of office space be developed in New York City in order to accommodate the projected 293,200 new office jobs that could be created here in the next 20 years. Table 6 shows projected new construction levels for the years 2001 through 2004.
!T A B L E 6
PROJECTED NEW OFFICE CONSTRUCTION IN NEW YORK CITY, 2001 – 200422
Year
2001 2002 2003
2004

Square Footage Under Construction (in millions)
2.75 2.41 2.15
1.60 9.10

Total

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!T A B L E 7
PROJECTED INCREASES IN OFFICE EMPLOYMENT AND ASSOCIATED DEMAND FOR COMMERCIAL OFFICE SPACE IN NEW YORK CITY, 2000 – 202023
Projected Increase in Office Employment

Time Period Short-Term 2000 -2005 Long-Term 2000-2020

Projected Demand for Office Space (in millions of sq. ft.)

Projected Increase in Inventory (in millions of sq. ft.)

101,000 293,200

20.2 58.6

9.1* n/a

Incorporating only projects that are currently under construction, a total of 9.1 million square feet of space will be added to the New York City market over the next four years. While this is a great deal more space than was developed in the City in recent years, there is still reason to be concerned. It is important to note that almost all of these projects are being built in Midtown, the City’s highest rent district. Many of these projects required public condemnation and financial assistance in order to get started. Outside of Midtown Manhattan, the only other private competitive office space currently under construction is 200,000 square feet of space in Downtown Brooklyn (as part of a larger courthouse project). Construction activity in New York City has proven to be unpredictable, and there is no guarantee that this activity will continue in the long-term. Furthermore, even at this pace, the City is not on track to meet projected future demand for the next 20 years.

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BARRIERS TO NEW OFFICE DEVELOPMENT IN NEW YORK CITY
As we demonstrated in the Market Supply and Demand Assessment, the City’s latest economic expansion created an overwhelming demand for new office space but did not stimulate the creation of new supply. The supply shortage is expected to continue in the long run, as projected new construction levels will fall short of estimated new demand. Why has New York City’s real estate market failed to keep pace with the demands of the City’s growing office economy? The answer is that there are numerous, often overlapping barriers that interfere with the construction of new office space in New York City. These barriers cover a range of development issues including inadequate zoning, difficulties with site assemblage, high development costs and obstacles to securing the required financing. To better understand what strategies are needed to support the development of new office space, we must first explore the barriers that hinder present and future development efforts.

BARRIERS FOR POTENTIAL DEVELOPMENT SITES
One the biggest complaints often heard from tenants looking for space in New York City is that there are almost no sites that are ready for development. Looking around the City, a casual observer might be confused by this claim, as there seem to be numerous acres of land that are vacant or underutilized and can be developed for office use. However, while these tracts of land might have great potential for development, they are not “ready-to-go” because they either lack adequate zoning density or are not yet assembled to support office development.

Inadequate Zoning Much of the land that can support development is not zoned to encourage office construction. In order to stimulate office development, the underlying zoning must not only allow for office use but also enough density to make a project economically viable. The process to change existing zoning is expensive, time consuming and unpredictable. Whether a single site requires a special permit under the City’s Zoning Resolution or an entire area is in need of rezoning to allow for additional density and land uses, the rezoning process can take over two years and cost several hundred thousand dollars.
The unpredictability and high costs of rezoning makes tenants in need of office space reluctant to consider potential development sites that have not yet successfully completed the City’s formal rezoning approval procedure, known as the Uniform Land Use Review Procedure (ULURP). The overall process can be simplified into two phases, pre-ULURP and ULURP. Pre-ULURP, or pre-certification, is the period of time it takes to prepare a complete ULURP application to the satisfaction of the Department of City Planning. During this period, environmental reviews must also be undertaken, and the findings frequently necessitate the preparation of a Draft Environmental Impact Statement. This is the least predictable period in terms of timing and cost, since the amount of review can vary from project to project, and there is no mandated time limitation. Once the environmental review is nearly completed and the City Planning Commission certifies a project into ULURP, the process becomes very predictable in terms of timing but not necessarily in its outcome. ULURP is limited to a seven-month review, with approval required by a number of public entities.

Incomplete Assemblage Whether zoned appropriately or not, development cannot occur until a site is fully assembled under some form of common ownership. Most modern office buildings require footprints of at least 25,000 square feet, preferably in a squarish shape in order to allow for a structure with a central core. The challenges of assembling a site of this size and configuration can vary greatly from location to location,

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depending mostly on the existing land uses in the area and the extent to which parcels of land are already held under common ownership. If a potential development site requires the purchase of numerous parcels controlled by various owners, this process can be quite a challenge. For private sector developers, trying to assemble a site can take years and cost tens of millions of dollars. Timing risks are always present since an existing property owner can refuse to sell, or a tenant with a long-term lease can refuse to vacate, or both. These holdouts and complications could indefinitely postpone site assemblage and derail a proposed development project. Tenants are hesitant to commit to projects with such uncertainty and instead pursue office projects with more predictable delivery dates. The public sector can also assemble sites through the use of condemnation. This process can also be time consuming and expensive. However, as long as there is a valid public purpose and all parties are fairly compensated, condemnation automatically severs existing leases and thereby guarantees that sites will eventually be assembled. For example, New York State used condemnation to assemble all of the office sites that are being developed in Times Square. Without condemnation, these projects might not have been developed.

BARRIERS FOR READY-TO-GO DEVELOPMENT SITES
While most of the land suitable for office development is not yet zoned or assembled, there are numerous ready-to-go development sites throughout New York City. However, getting development to actually occur on these sites is complicated by issues of cost and financing.

High Costs vs. Market Rents While the lack of ready-to-go sites is the biggest complaint of tenants, the cost of development in New York City is the biggest complaint of developers. Even as rents climb to their highest level in decades, they are often not high enough to support the costs of constructing and operating a new office building.
For a better understanding of cost conditions in New York City, we examined the financial feasibility of developing new office product in three different City office markets: Midtown Manhattan, Downtown Manhattan and the Boroughs. We compared these cost conditions to Jersey City, where a great deal of new office development occurred in recent years and continues today. Our analysis considers the costs for hypothetical new office projects in these various markets, assuming development were initiated today. Based on these costs, we calculate the rents needed to support development in each location, after accounting for cost reductions attributable to local as-of-right incentives. Finally, we compare these figures to estimated market rents, which provides a compelling illustration of why so little new development has taken place in the City.

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Development Costs Table 1 illustrates how the cumulative effect of the relatively high costs of land acquisition, real estate taxes and construction impact the overall project budget, leading to a more expensive project in New York City as compared to Jersey City.
!T A B L E 1
COMPARATIVE DEVELOPMENT COSTS FOR HYPOTHETICAL NEW OFFICE PROJECTS24 (PER DEVELOPABLE SQUARE FOOT)
Downtown Jersey City

Item

Midtown

Boroughs

Comment

Site Acquisition Estimated as “ready-to-go.” Includes all costs of demolition, environmental and landuse approvals.
Hard Costs Includes: “bricks and mortar,” labor, all contingencies, general conditions, insurance, escalations and contractors fees.

$125

$75

$30

$25

Can vary widely based on ability of market rents to support price of construction.

$200

$200

$195

$170

2.5% reduction in the Boroughs, based on logistics and larger floor plates. 15% reduction in Jersey City due to logistics, larger floor plates, shorter construction period, wider choice of sub-contractors and no sales taxes. Estimated as 30% of Hard Costs.

Soft Costs Architects, engineers, legal, accounting, permits, etc.

$60

$60

$59

$51

RE Taxes During Construction Total over 3-year construction period. Tenant Installation Landlord contribution to fit-out space. Leasing Commissions 125% of a standard commission to cover tenant and landlord representation on a 15year lease.

$16

$5

$3

$1

NYC: Based on estimated assessment less ICIP in Downtown and Boroughs. Jersey City: Based on typical new construction agreement. Estimated, actual cost determined by market. Commissions are calculated as a percentage of the gross rent a tenant will pay, and are therefore higher for the higher priced locations. We assume this as a development cost, as the developer will look to finance this cost and seek to secure tenants prior to the completion of construction. NYC projects assume a 3-year construction period, while Jersey City assumes 2.5 years. Construction loan interest rate: Midtown: 9%; Downtown: 9.25%; Boroughs: 9.5%; and Jersey City: 9.25%.

$30

$30

$30

$25

$31

$29

$27

$19

Interest Accrued During Construction Cost of interest on construction loan.

$43

$39

$35

$29

Total Development Costs

$505

$438

$379

$320

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While the cost of land in Manhattan can be significant, especially in Midtown, this only accounts for part of the cost differential among the different markets. Construction costs are higher throughout New York City, with minimal or no savings when moving from the high-rent district of Midtown to Downtown or the Boroughs. Another important factor is real estate taxes, which vary considerably among the four locations. Unlike Jersey City, developers in New York City must pay a significant amount of real estate taxes during the construction process. After a one-year grace period, taxes are assessed based on the improvements made to date. Assessing taxes this way creates a substantial additional cost for a project that is not yet generating income. For projects in Downtown Manhattan and the Boroughs, developers can receive some relief from this tax burden through the Industrial and Commercial Incentive Program (ICIP). However, in Jersey City the real estate taxes reflect only the value of the unimproved land. The higher costs of construction and real estate taxes, as well as a longer construction period, also inflate the amount of interest accrued on construction loans in New York City as compared to Jersey City. Rent Calculation (not including incentives) Table 2 translates the total development costs into an annual per-square-foot rental cost and also includes the recurring costs of real estate taxes and operating expenses.
!T A B L E 2
RENTS REQUIRED TO SUPPORT HYPOTHETICAL NEW OFFICE DEVELOPMENT BEFORE INCENTIVES25 (PER SQUARE FOOT)
Item Midtown
$33

Downtown
$28

Boroughs $24

Jersey City
$20

Comment The stronger the market, the lower the risk. Therefore the lower the interest rate and the higher the percentage of cost that can be borrowed. Midtown: 7.25% interest rate on 80% of Development Costs Downtown and Jersey: 7.75% on 75% Boroughs: 8.25% on 70% NYC: Based on estimated projected assessment. Jersey City: Based estimated waterfront enterprise zone agreement. Less in New Jersey, based on lower cost of labor and other services. The stronger the market, the lower the risk, therefore requiring both a lower rate of return on equity and a lower percentage of equity be put into the project. Midtown: 15% return on 20% equity Downtown and NJ: 17.5% on 25% Boroughs: 20% on 30% Assumes 5% vacancy.

Debt Service on Development Costs Annual debt service based on percentage of “Total Development Cost” that can be borrowed, interest rate and a 30-year amortization schedule. Real Estate Taxes

$14

$12

$8

$2

Operating Expenses Cost of maintenance, cleaning, carting, common electric, etc.

$10

$10

$9

$6

Equity Return While the equity return is not typically realized until midterm rent increases take effect, our model calculates an average of a long-term return.

$15

$19

$23

$15

Vacancy Reserve

$4 $76

$3 $72

$3 $67

$2 $45

Required Rents to Support New Development

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Typically, development costs are financed with debt and equity, reflected in Table 2 as “debt service” and “equity return.” The relative strength of each market dictates the costs of funds, as well as how much equity will be required and how much debt a project can support. While the real estate taxes are less in Downtown and the Boroughs than in Midtown, taxes in New York City are still significantly higher than Jersey City. In fact, real estate taxes for new construction in Jersey City are typically held constant for up to 20 years, while New York City taxes are subject to assessment increases every year, and the incentive programs illustrated in the following chart expire after eight or 15 years. Finally, operating expenses are less in Jersey City. As-of-Right Incentives Table 3 shows the value of the as-of-right incentives available for developers and tenants in each location. Some incentives lower developers’ costs, and these savings are then passed along to tenants in the form of lower rents. Other incentives are provided as direct subsidies to tenants, which reduce out-of-pocket expenses for renting space. The value of these incentives were approximated on a persquare-foot basis and subtracted from the “required rent to support new construction” figures (calculated in Table 2). This calculation yields the “minimum effective rent” needed to support new construction. The as-of-right incentive programs differ greatly depending on location. In New York City, benefits are typically more generous for areas outside of Midtown, with most available in the boroughs. New York City offers a large corporate tax benefit to companies via the Relocation Employment Assistance Program (REAP). The City recently enhanced the REAP benefit to a $3,000 per-job tax credit for a company that moves from outside New York City, or from Manhattan (south of 96th Street) to any area of the City except Manhattan south of 96th Street. The benefit amount is based solely on the number of employees and is constant for 12 years. The New Jersey Business Employment Incentive Program (BEIP) provides companies that move into New Jersey from outside the state, a cash grant, based on the withholding from the employees’ state income taxes. The higher the pay scale for an employer, the higher the grant from the state. The BEIP grant is provided every year for ten years, and benefits rise as salaries are increased.

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!T A B L E 3
MINIMUM EFFECTIVE RENTS NEEDED TO SUPPORT NEW CONSTRUCTION26 (PER SQUARE FOOT)
Item Midtown
$76 NA

Downtown
$72 NA

Boroughs $67 NA

Jersey City
$45 ($7.80)

Comment Calculated in Table 2 New Jersey program that provides cash refund to company of up to 80% of employee state income tax withholding each year for ten years. Assumption of average salary of $65,000. City program allows for an eightyear exemption in Downtown Manhattan and 15 years in the Boroughs. New York City Energy Cost Savings Program, eligible in Downtown Manhattan and the Boroughs, reduces delivery costs of electricity by 45% and for gas by 35%. Assumption of energy costs at $2.50 per square foot. New York City program provides a $3,000 per-job-per-year tax credit/ refund for jobs relocated from Manhattan south of 96th Street to Manhattan north of 96th Street, or the Boroughs. Assumption of 200 square feet per employee.

Required Rents to Support New Development
Business Employment Incentive Program (BEIP)

Industrial and Commercial Incentive Program (ICIP)

NA

($10.50)

($7)

NA

Energy Programs

NA

($0.75)

($0.75)

($1)

Relocation Assistance Program (REAP)

NA

NA

($15)

NA

Total Incentives Minimum Effective Rents (Required Rents less Incentives)

$0

($11.25)

($22.75)

($8.80)

$76

$61

$44

$36

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This analysis does not include the discretionary incentives often offered to companies by both New York City and New Jersey. In New York City, benefits are typically provided by the New York City Industrial Development Agency (IDA), which can exempt sales, real estate and mortgage recording taxes. Benefits are typically negotiated as part of an agreement to retain or attract a company. However, all of the existing New York City incentives still do not make the City competitive with the lower overall business tax environment in New Jersey. For example, the City’s REAP credit against corporate income taxes only highlights the fact that there is no local corporate income tax in Jersey City. In addition, Jersey City is part of a New Jersey State Urban Enterprise Zone, and as such, the sales taxes are fully exempted for most building improvements. For items not exempted, the sales tax rate is only three percent as compared to New York City’s rate of 8.25%. Finally, New Jersey does not charge a Commercial Rent Tax or an Unincorporated Business Tax. Market Rent Comparison The following table shows the differential between the current market rents in each of these markets and the minimum effective rents (required rents less incentives) needed to cover the costs of new construction.
!T A B L E 4
MINIMUM EFFECTIVE RENTS NEEDED TO SUPPORT NEW CONSTRUCTION AND CURRENT ASKING RENTS27 (PER SQUARE FOOT)
Location Midtown Downtown Boroughs Jersey City

Minimum Effective Rents
$76 $61 $44 $36

Average Class A Asking Rents
$68 $53 $35 $40

The large differentials between minimum effective rents and market rents in New York City explain to a large extent why there has been so little new office development. The City’s only new office projects are being built in prime Midtown locations, where developers can get rents well above average. In addition, many of these sites were assembled years ago under lower cost conditions, and in most cases the developers and/or anchor tenants received discretionary incentives. Recognizing how difficult it has been to accomplish development in New York City’s most desirable office market only highlights the challenges to new office construction elsewhere in the City. In order to induce future development in all of the City’s markets, available incentives must be large enough to close the gaps between costs and market rents.

Pre-Leasing Requirements to Secure Financing Another major obstacle to building new office buildings involves securing the required financing and the strict requirements that lenders have about pre-leasing new space. While speculative office development was common in New York City through the 1980s, the real estate recession of the early 1990s changed the development climate. The failure of numerous speculative buildings constructed in the late 1980s led to huge losses for the lending institutions and created a sea change in banks’ underwriting standards. Throughout the 1990s and today, lenders have been unwilling to take on the risks associated with financing a potentially empty office building. In this more cautious lending environment, a precondition for financing is that a developer has signed a lease with a creditworthy tenant for at least 50% of a new office project (and sometimes more in weaker markets). In effect,

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the lending institutions are underwriting against the credit of the tenant as much as they are assessing the underlying real estate market dynamics of a given project. The need to pre-lease presents a significant barrier and can slow the delivery of new space to the market. One of the most onerous issues can be finding a tenant large enough to commit to sizable blocks of space. For example, to meet a 50% pre-leasing requirement of a one million square foot building, a developer would need to sign up tenants for 500,000 square feet before he or she could get financing for the project. Finding one tenant, or even two or three tenants together with such large space requirements can be quite a challenge. In addition, prospective tenants must have strong enough credit to satisfy lenders, which further limits the pool of tenants that can potentially anchor new construction projects. The impact of the pre-leasing requirement can be seen in development activity that occurred (or did not occur) in New York City over the past decade. The four office buildings built as part of the Times Square Redevelopment Project were anchored and significantly pre-leased by Condé Nast, Reuters, Ernst & Young and Arthur Anderson. The new building at 383 Madison Avenue will be fully occupied by Bear Stearns, as will the new Morgan Stanley and Random House projects. Without the commitments from these large, creditworthy tenants, this office space would never have been built. The fact that there are relatively few tenants in the New York City market looking for large blocks of space at any given time goes a long way to explain why only a handful of office projects are being built.

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NEW YORK CITY

PREPARING FOR THE FUTURE: A C O M M E R C I A L D E V E L O P M E NT S T R AT E G Y FOR NEW YORK CITY
New York City’s economy has the potential to add nearly 300,000 new office jobs in the next 20 years. However, if there is no action to overcome a number of obstacles in the real estate market, this growth potential will never be realized. Without at least 60 million square feet of additional office space, the City will lose prospective jobs and economic activity to other locations that are better prepared to accommodate growth. Fortunately, there are vast opportunities to foster continued economic expansion in New York City, and pursuing these opportunities can lead to growth that exceeds current expectations. To that end, the Group of 35 proposes A Commercial Development Strategy for New York City that sets forth a blueprint for how to turn the City’s economic potential into reality. The Strategy is broken down into five critical parts: Part 1: Removing Citywide Barriers to Office Development – creating an environment that allows the private sector to respond more quickly to increased demand for office space. Part 2: Creating Three New and Expanded Central Business Districts Centered Around Three Urban Business Campuses – the public sector leads the charge to spur new office development in Downtown Brooklyn, Long Island City and Manhattan’s Far West Side by creating Urban Business Campuses, which will be the centerpieces of three Central Business Districts. In addition to office space, the Central Business Districts will offer open space, housing, retail, dining, academic and cultural amenities in order to create a full service, 24/7 environment for businesses, residents and visitors. Part 3: Developing Real Estate Solutions for High-Growth Sectors – creating space tailored to accommodate the specific real estate needs of fast-growing biotechnology and information technology and industries. Part 4: Supporting Development in Ancillary Business Districts – developing small-scale office districts in Jamaica, Flushing, Harlem, the Hub in the Bronx and the Staten Island Corporate Park, that build off the local economic assets. Part 5: Meeting the Real Estate Needs of the City’s Manufacturers – mitigating the loss of industrial space to help maintain the existing base of manufacturing employment in New York City. This Strategy is a comprehensive approach to addressing the challenges presented by the demands of New York City’s growing economy. It is designed not only to meet the future demands for office space, but also to spread economic activity throughout the five boroughs, to maintain and grow New York’s existing employment base, and to tap into the City’s potential in exciting high-growth sectors. Pursuing these opportunities will not only ensure that New York City realizes projected employment growth, but it will also help the City move beyond expectations to achieve an even stronger economy.

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Central Business Districts

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PART 1: REMOVING CITYWIDE BARRIERS TO OFFICE DEVELOPMENT

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PART 1: REMOVING CITYWIDE BARRIERS TO OFFICE DEVELOPMENT
There are numerous opportunities today to creating new office space throughout New York City. However, as we discussed in the Barriers to New Office Development, there are roadblocks that stand in the way of getting this development to occur. Some issues that stall development, such as lenders’ requirement for pre-leased buildings, are not easy to overcome. However, there are other barriers such as zoning, assemblage and high costs that can be dealt with through joint efforts of the public and private sectors. Implementing these recommendations would remove barriers to development throughout New York City, including the Midtown and Downtown Manhattan markets where there are existing opportunities for new office development.

Zoning
! Re-zone appropriate areas of the City to induce office development

In Parts 2 and 4 of the Strategy section of the report, we discuss in detail specific areas of the City that should be zoned to encourage office development.
! Simplify the environmental review process to allow for quicker entry into ULURP

The process of conducting the requisite environmental reviews prior to ULURP must be streamlined. Whether done legislatively or administratively, changes could include the following items: placing limits on reviews, limits on litigation, reducing the number of items that must be reviewed, and allowing for increased assumptions of mass transit usage when creating new office districts.

Assemblage
! Making greater use of public condemnation for assemblage

The use of the powers of eminent domain eliminates a number of the barriers to assemblage by compelling property owners to sell and severing the leases of existing tenants. Although sometimes controversial and costly, when used appropriately this method has proven successful in creating the foundation for significant commercial development projects in New York City, including Times Square and MetroTech. Recommendations for the use of condemnation will be discussed further in Part 2: Creating Three New and Expanded Central Business Districts.
! Adopt the practice of removing office site holdouts via condemnation

Holdout condemnation would permit the completion of assemblage when 85% of a site is controlled and development plans are ready to proceed. This would eliminate the leverage of one or two small property owners who might refuse to sell, thereby allowing private developers to move ahead on a development. Appropriate safeguards must be developed to protect private owners’ property rights and also to guard the public sector against potential abuses by developers.

Costs As we show in the Barriers section, the costs of land, construction and operating expenses are all at a premium in New York City, putting the minimum effective rent at about ten dollars above market rents in all of the office markets around the City. Below we discuss numerous recommendations that should be implemented to close this gap, which will help stimulate the creation of new office product in New York City.

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PART 1: REMOVING CITYWIDE BARRIERS TO OFFICE DEVELOPMENT

Land Costs ! Sell public sites at costs that will ensure office development Whether part of an existing portfolio, or acquired via condemnation to facilitate development, the disposition of public sites should be done in a manner to encourage office development. For sites that are well suited to support office use, encouraging office development may require accepting less than other uses can generate. Furthermore, when sites are acquired via condemnation, the eventual sale of the land to induce office development may not be enough to cover the condemnation price. This should not deter the public sector from seeking to acquire sites for this purpose. The repayment of this investment would come both from future tax revenues and other benefits associated with increased employment generated by office development. Construction Costs ! Increase the supply of skilled labor A shortage of workers in certain trades has created competition for labor that has begun to affect project costs. The Group of 35 encourages efforts to help the City’s trade unions increase the supply of available skilled labor to reduce this shortage.

Ta x e s These recommendations focus on enhancements to the City’s current corporate and real estate tax incentive programs, as well as changes to existing real estate tax policies. The total cost of these additional incentives is difficult to estimate, since we cannot predict in advance how much utilization of these programs will increase. However, these additional incentives are likely to induce new development that would not occur otherwise, producing greater total revenues for the City. Furthermore, once these programs phase-out, the increase in tax revenues will yield even more income for the City, which more then justifies the initial tax expenditures.
Relocation Employment Assistance Program (REAP) The REAP is the City’s program to provide business tax credits to companies that relocate from south of 96th Street in Manhattan or outside the City to the Boroughs or north of 96th Street in Manhattan. Businesses can apply REAP benefits as a credit against City General Corporation Tax, Unincorporated Business Tax, Bank Tax or Utility Tax liability. The benefit is provided on a perjob basis for 12 years. Recently the City adopted a number of enhancements to the REAP:
! Increase the incentive from $1,000 to $3,000 per job ! Provide a refund for any unused credit over the first five years, and afterwards allow credits to be

carried forward against future tax liability We commend the City for these changes and support additional program enhancements currently being considered, which include the following:
! Two-year extension of the program to 2005

Currently, the REAP is only available to companies that relocate by 2003. Extending this deadline to 2005 will insure benefits will be available for new construction projects that will take several years to construct.

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! Reduce the required amount of time that eligible companies must be in existence

from 24 to 12 months This allows more companies to qualify for benefits, especially those in emerging industries.
! Lower the investment threshold from 50% of assessed value to 10%

Although the goal of the REAP is to encourage companies to relocate to the Boroughs and upper Manhattan, the program requires that a minimum investment be made to the buildings into which companies move. Reducing the eligibility threshold will allow companies to receive benefits for moving into buildings that may not require extensive renovations.
! Increase the total number of new employees that can count for benefits after the initial year

of the project Currently, companies that more than double their labor force over the 12-year period are only eligible for REAP benefits for the first 100% employment increase. For example, if a company enters the program with 25 employees, it is limited to benefits for a total of 50 people in the future, even if it grows to over 50 employees. This change would help ensure that New York City remains attractive to companies with the greatest potential for employment growth. We also encourage the City to consider the following changes to the REAP:
! Provide benefits to not-for-profit organizations and insurance companies

Since not-for-profits and insurance companies do not pay the taxes that are exempted under the REAP, they are not eligible for benefits if they relocate. With incentives, not-for-profits would be very likely to relocate to areas such as Long Island City, Harlem, and Jamaica, which would stimulate new construction or redevelopment in these areas. Encouraging these organizations to relocate would also free up space for tenants that are less likely to choose locations outside of Manhattan’s prime Central Business Districts. New York City’s insurance companies are also becoming more cost sensitive and looking to move out of Manhattan to lower-cost alternatives. Extending the REAP to insurance companies might encourage others to follow the lead of Met Life, which recently announced plans to relocate from Madison Avenue to Long Island City. Without these benefits, more insurance companies might follow CIGNA, which recently moved from Manhattan to Jersey City.
! Provide benefits to companies that were previously induced to move to the Boroughs and now face

lease expirations This would enable tenants in projects like MetroTech to remain after benefits expire. Without such assistance, companies face a dramatic increase in occupancy costs, which could cause them to seriously consider lower-cost alternatives in New Jersey and elsewhere. Industrial and Commercial Incentive Program (ICIP) This is the City’s real estate tax abatement and exemption program. The City is in the process of amending the program to make it easier to qualify when renovating office space. We support the following changes, which are currently awaiting City Council approval.

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PART 1: REMOVING CITYWIDE BARRIERS TO OFFICE DEVELOPMENT

! Removal of barriers to qualifying when converting industrial space to office

Currently, buildings must be vacant of industrial use for at least two years before property owners can receive benefits for improvements made to accommodate new commercial tenants. Eliminating this waiting period will encourage the renovation of underutilized structures for new commercial tenants.
! Easier access to benefits for mixed-use industrial and office buildings

Mixed-use industrial and commercial buildings with industrial use of at least 25% will be eligible for a new ICIP benefit, based on the proportion of commercial and industrial space in the building. The retention of benefits for manufacturers in industrial buildings recently renovated for commercial use will no longer discourage the conversion to office space while also helping stabilize manufacturing employment. We applaud these changes and would also recommend the continued expansion of the ICIP program to include the following:
! Extension of the area of Manhattan eligible for commercial new construction benefits

Currently, only the areas south of Murray Street in Downtown Manhattan and north of 96th Street in Upper Manhattan are eligible for benefits for new construction. Our cost analysis indicates that the rents needed to support new construction in Midtown Manhattan are approaching $80 per square foot. This is only realistically achievable in the prime sections of Midtown where the number of available development sites is limited. Therefore, the Group of 35 supports allowing a limited extension of ICIP benefits for new construction in appropriate portions of Manhattan. This will include the Far West Side, as discussed in Part 2. It should also be extended to other areas in Manhattan but exclude the prime parts of Midtown. The benefit can also be provided over a shorter term than in other parts of the City. This change will require City and State legislative approval. Additional Real Estate Tax Relief
! Extend the one-year progress assessment exemption to three years

Currently, real estate taxes on building improvements for new development projects can be exempted only during the first year of construction, even though most office buildings take three years to build. Since buildings do not start generating revenue until after construction is completed, the exemption should be extended two additional years. This change requires an amendment to local law.
! Phase-in taxes attributable to physical improvements for commercial property

Currently, additional real estate tax assessments based on market increases are phased in over five years, while assessment increases due to physical improvements are levied immediately. Phasing-in increased assessments attributable to physical improvements would reduce the tax increase associated with new investments in office space and would thus encourage more development. This change would require State legislative approval.

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PART 2: CREATING THREE NEW AND EXPANDED CENTRAL BUSINESS DISTRICTS CENTERED AROUND THREE URBAN BUSINESS CAMPUSES
While there certainly are opportunities for new commercial development in Manhattan’s existing Central Business Districts, there is not enough space to meet all of the projected demand. In addition, New York City must find opportunities to suit the needs of growing companies that cannot afford space in Manhattan’s high-rent markets. Therefore, in order to create the space required to accommodate future growth and also to offer businesses more affordable opportunities in New York City, it is critical to develop new high-density business districts outside of the traditional boundaries of Midtown and Downtown Manhattan. To this end, the Group of 35 offers the most ambitious component of the Commercial Development Strategy – the creation of three new and expanded Central Business Districts in:
! Downtown Brooklyn – an expanded business district anchored by MetroTech. The assemblage

and development of sites along Willoughby Street and surrounding areas will yield an additional 12 million square feet of office space, which, combined with existing space, will produce a Central Business District with 20 million square feet.
! Long Island City – a new Central Business District centered around the Jackson Avenue corridor

and served by a new intermodal station at Sunnyside Yards. This development will provide 15 million square feet of office space.
! Far West Side – a new Central Business District on Manhattan’s Far West Side to be served by an

extended No. 7 train that will connect the area to Penn Station, the Port Authority Bus Terminal, Times Square and Grand Central Station. The development in the area will provide at least 20 million square feet of office space. The build-out of these Central Business Districts could add at least 47 million square feet of new or redeveloped office space with potential for additional space, should there be greater demand. We selected these three areas because they offer the greatest potential to fulfill the City’s long-term demands for new commercial office space. Each area offers critical elements that will help ensure the successful development of a full-service, regionally-competitive Central Business District. These elements include:
! Accessibility to local labor and excellent transportation for the regional workforce – the new

Central Business Districts must offer potential employers access to a local labor pool well as to the larger regional labor force.
! Proximity to an existing Manhattan Central Business District – being within minutes of either

Midtown or Downtown is essential to supporting the growth of the new Central Business Districts.
! Adequate space to accommodate a critical mass of office development – the Central Business

Districts should have a total of at least 15 million square feet of office space in order to support the desired amenities that create a lively, 24/7 environment and attract private sector businesses.28 With these critical elements and numerous other strengths, the three proposed locations are well suited to support the creation of new and expanded Central Business Districts. Creating these Central Business Districts will not be easy. It is a challenge that will require sizable public- and private-sector investments and strong political will. However, bringing a critical mass of new development to Downtown Brooklyn, Long Island City and the Far West Side must become a top economic development priority – anything less will jeopardize New York City’s economic future.

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PART 2: CREATING THREE NEW AND EXPANDED CENTRAL BUSINESS DISTRICTS

Urban Business Campuses: Catalysts for Development in the Central Business Districts The Commercial Development Strategy proposes numerous recommendations that will support new office development led by private sector initiatives. However, New York City cannot afford the risk that private sector efforts alone will be enough to produce the space needed for new economic growth. Early on, it may be difficult to attract interest and investment in these areas. The private sector might be reluctant to consider locating to these new Central Business Districts initially because these locations may have few ready-to-go development sites, lack a sizable established private business presence and have limited amenities and business support services. Therefore, it is up to the public sector to take a pro-active approach to development of the Central Business Districts.
To jump-start the development process in the proposed Central Business Districts, the Group of 35 is calling on the City and State to create Urban Business Campuses (UBCs), which will be defined by the following characteristics:
! Three - to - five million square feet of state-of-the-art office facilities ! Access to the vast regional labor force via linkages to mass transit ! Park-like setting with open spaces and pedestrian friendly streetscapes to draw workers, local

residents and visitors
! Amenities such as new retail and dining establishments, business service centers, hotels, and

entertainment venues as well as access to local cultural and academic resources These UBCs will be the focal point of the City’s new Central Business Districts, attracting the attention of growing businesses not only in New York City but also from throughout the region and around the world. By creating a sense of place, the UBCs will serve as the catalyst for ongoing private-sector development efforts. In order to create the Urban Business Campuses, the City and State must partner together to accomplish the following:
! Identify several blocks in the new Central Business District where these campuses should be

located
! Assemble development sites, using condemnation and making financial contributions

when necessary
! Designate locations with the appropriate high density commercial use zoning ! Solicit developers to build three - to - five million square feet of new office space ! Aggressively market projects and offer financial incentives to attract businesses to new

developments Costs: The public sector should be prepared to make the investments necessary to assemble the sites for the UBCs. Some of these investments will be recouped when sites are sold to private developers. Although it is difficult to determine with much accuracy at this stage, estimated predevelopment and assemblage costs could potentially be on the order of $300 - $500 million, the bulk of which will come from assemblage in on the Far West Side. How these costs will be divided between the public and private sectors will be determined in part by land costs and also by initial private-sector interest in the various locations. The greater the market potential, the more likely the private sector will be to share in the cost of acquisition.

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Undertaking the actions outlined above will help overcome existing hurdles to building office space in New York City and will demonstrate that the City is prepared with ready-to-go development sites that can meet the needs of growing businesses. Now we take a closer look at each location, describing its strengths, examining local obstacles to development and recommending tailored strategies for creating new and expanded Central Business Districts.

The Expanded Downtown Brooklyn Central Business District
Downtown Brooklyn provides abundant opportunities to accommodate the City’s future economic growth and offers one of the City’s best defenses against business migration to New Jersey.

The Group of 35 proposes the creation of an expanded Central Business District in Downtown Brooklyn that will provide an additional 12 million square feet of new commercial space. This will include the expansion of MetroTech into a larger Urban Business Campus through the assemblage of key parcels along Willoughby Street. The Central Business District will also include residential, academic, retail and open space development, which will help link the commercial core with the surrounding residential communities, the technology district in DUMBO, Brooklyn Bridge Park and the Brooklyn Academy of Music’s cultural district.

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PART 2: CREATING THREE NEW AND EXPANDED CENTRAL BUSINESS DISTRICTS — DOWNTOWN BROOKLYN

Existing Market Conditions The greater Downtown Brooklyn business district encompasses Borough Hall and surrounding civic center, DUMBO (Down Under the Manhattan Bridge Overpass), MetroTech, Pierrepont Plaza, Renaissance Plaza, the Brooklyn Academy of Music and Atlantic Terminal. It is also surrounded by the increasingly popular residential neighborhoods of Brooklyn Heights, Cobble Hill, Carroll Gardens, Boerum Hill, Fort Greene, Prospect Heights and Park Slope. L o c a l Bu s i n e s s P r e s e n c e a n d E x i s t i n g S t o c k o f C o m m e r c i a l S pac e Downtown Brooklyn’s business center has over five million square feet of Class A office space occupied by many of New York City’s most prominent companies, including JP Morgan Chase, Bear Stearns, Morgan Stanley Dean Witter, Goldman Sachs, the Securities Industries Automation Corporation (SIAC) and KeySpan. Many of these firms are represented by the numerous local business groups in the area, including the Brooklyn Chamber of Commerce, the Downtown Brooklyn Council and the MetroTech Business Improvement District. The construction of a new courthouse at 330 Jay Street will add 200,000 square feet of new Class A by 2003. There is an additional 3.5 million square feet of Class B and C office space occupied primarily by the area’s 32 government and public social service agencies, as well as private tenants related to the seven courthouses and other municipal services. Class B office space is also found in several converted manufacturing buildings in DUMBO. C u r r e n t Vac a n cy a n d R e n t C o n d i t i o n s The vacancy rate in Downtown Brooklyn is approximately three percent, as almost all of the existing Class A space in the area is already fully occupied with large tenants that have long-term leases or own their spaces. Market rent for new Class A buildings is approximately $35 per square foot. Local Strengths Downtown Brooklyn has significant assets that offer tremendous potential to support commercial real estate development.

Proximity to Downtown Manhattan One of the reasons companies like JP Morgan Chase, Bear Stearns and Morgan Stanley Dean Witter already have offices in Downtown Brooklyn is the area’s proximity to Downtown Manhattan – the nation’s third largest Central Business District. The home of Wall Street and Silicon Alley, Downtown Manhattan is a vibrant, dynamic business center with over 6,000 firms and 335,000 workers. For companies that need to tap into this business activity, Downtown Brooklyn is a close, convenient, and low-cost alternative that can be reached in less than ten minutes via nine subway lines or a quick ride across the Brooklyn or Manhattan bridges.
Accessibility to Local Labor and Excellent Transportation for the Regional Workforce Downtown Brooklyn benefits from sizable residential and academic populations within walking distance or short bus/subway ride to much of the proposed Central Business District. The area is surrounded by the popular brownstone neighborhoods of Brooklyn Heights, Cobble Hill, Carroll Gardens, Boerum Hill, Prospect Heights, Park Slope and Fort Greene. In addition, 32,000 students arrive daily in Downtown Brooklyn to attend one of the area’s seven academic institutions, which include Brooklyn Law School, Polytechnic University, Long Island University, New York City Technical College, Pratt Institute, St. Joseph’s College and St. Francis College.
Downtown Brooklyn also offers excellent transportation for workers throughout the New York metropolitan region. Two hundred fifty thousand workers commute to Downtown Brooklyn daily, utilizing 15 subway lines, 15 bus lines and the Long Island Railroad (LIRR) at Atlantic Terminal.

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The Metropolitan Transportation Authority has begun a $100 million improvement project at Atlantic Terminal that will result in the complete renovation of the LIRR terminus, as well as an extensive upgrade of the three subway lines that connect at the station. LIRR service also connects the area to Jamaica’s AirTrain link, which will make Downtown Brooklyn less than 20 minutes from JFK airport.

Adequate Space to Develop a Large-Scale Office District around MetroTech There are two undeveloped commercial sites (MetroTech sites Nine South and 15 South), which are fully assembled and can accommodate approximately 1.5 million square feet of new office space. There are also numerous potential sites on Willoughby Street and Flatbush Avenue that could be assembled, rezoned and developed for office space. This could add up to 12 million square feet of new space, creating the critical mass of business activity needed to make the Central Business District thrive. Additionally, Downtown Brooklyn also has a number of vacant and underutilized City- and State-owned properties that could support new development or could be upgraded and adapted for commercial, residential, academic and retail uses.

Nearby Amenities Downtown Brooklyn and the areas surrounding it offer an array of amenities that add to the appeal of the Central Business District development. The nearby neighborhoods lend charm and character to the area and also support an array of local retail and dining establishments. In addition, the area’s numerous educational institutions provide resources such as incubator space and employee training to the local business community.

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PART 2: CREATING THREE NEW AND EXPANDED CENTRAL BUSINESS DISTRICTS — DOWNTOWN BROOKLYN

Downtown Brooklyn also offers access to a number of cultural and recreational amenities. The Brooklyn Academy of Music (BAM) is one of the world’s premier performing and visual arts centers, presenting concerts, contemporary and classical dance, performance art, drama, repertory and firstrun films. Recently, the BAM Local Development Corporation was established with plans to create an expanded arts district that will further enhance the cultural opportunities in Downtown Brooklyn. Other local amenities include the Brooklyn Museum of Art, the Brooklyn Botanical Gardens, Prospect Park and seven branches of the Brooklyn Public Library. The adjacent waterfront is also in the midst of a revival. DUMBO has transformed from a declining industrial district to a “Digital SoHo”-type neighborhood providing beautiful loft space to small tech firms, a growing residential population, new restaurants and numerous fine art galleries. The eventual development of Brooklyn Bridge Park will further enhance the area’s appeal. Obstacles to Development While Downtown Brooklyn’s development potential is clear and compelling, there are a number of obstacles to turning this potential into reality.

Barriers to Site Assemblage The most important barrier to development in Downtown Brooklyn is the difficulty associated with assembling ready-to-go development sites. There are numerous potential development sites along Willoughby Street, which offer an opportunity to expand the existing Central Business District from MetroTech. However, Willoughby Street is currently the home of many small retail establishments, making site acquisition and clearing for development very time-consuming and expensive. Given the rents that new commercial developments would generate, private developers have no incentive to undertake these costly investments. The long and unpredictable assemblage process also makes it impossible to market projects with a reliable delivery date. By comparison, development efforts along the New Jersey waterfront have benefited from the fact that there are several large, pre-assembled sites that can accommodate major tenants’ current and future space needs.

Low-Density Zoning While there are a number of potential development sites in Downtown Brooklyn, most are not currently zoned to accommodate large-scale commercial buildings. The existing low-density zoning, 6.5 Floor Area Ratio (FAR), makes the sites less attractive to developers and tenants. This puts Downtown Brooklyn at a disadvantage compared to Jersey City, where large-scale commercial development can occur quickly due to high-density, as-of-right zoning. Furthermore, the current zoning designations in Downtown Brooklyn do not allow for enough density to accommodate an expanded large-scale Central Business District.
Concentration of Government Tenants and Court-Related Uses Another obstacle to the expansion of Downtown Brooklyn’s business district is the existing concentration of government uses in the area. Private sector tenants typically want to be located in a cluster with other private sector businesses. While there are some private tenants, Downtown Brooklyn is dominated by public sector uses including seven courthouses, the FDNY Headquarters, a 911 call center and 32 other public or social service offices. This predominantly public-sector tenant base creates the impression that Downtown Brooklyn is not as much a business district as a civic center.

Image While Downtown Brooklyn has undergone a major revival in the last 15 years, misconceptions about safety and lack of local amenities in the area still persist. This is due in part to the commercial district’s isolation from the surrounding communities. The lack of linkages from the existing core business district to the surrounding residential communities and other amenities leaves the commercial

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district unpopulated after business hours, contributing to concerns about the area’s overall vitality and safety. A number of underutilized and vacant properties in and around the area also creates a visually unappealing aesthetic and adds to marketing challenges.

Less Proximate for New Jersey, Westchester and Connecticut Commuters While Downtown Brooklyn offers great accessibility to a local labor pool and to workers around New York City and Long Island, the area is somewhat less proximate for commuters from New Jersey, Westchester and Connecticut. Just as the potential of the New Jersey waterfront markets is limited by a lack of accessibility from Brooklyn, Queens, Long Island, Westchester and Connecticut, Downtown Brooklyn’s appeal might also suffer because the area is a difficult commute for certain segments of the regional labor force.

Recommendations for a Downtown Brooklyn Central Business District
An expanded Downtown Brooklyn Central Business District would provide an important alternative to business migration to New Jersey. With the successful development of MetroTech and Renaissance Plaza, the area has proven that it has the necessary infrastructure to support high-density commercial construction. However, in order to reach the critical mass required for a dynamic commercial business district, there must be additional development in Downtown Brooklyn. The area’s private-sector business groups are already taking steps to enlarge the Central Business District. The public sector has an opportunity to partner with these groups to bring this vision to reality by implementing the following recommendations:

Rezone the Downtown Area
The first critical step is rezoning the area, which requires a detailed development plan and environmental review. Accomplishing this will require a coordinated effort between the Department of City Planning (DCP) and the existing private-sector businesses. The private sector should participate through the creation of a Local Development Corporation (LDC), which could help fund the planning effort. The LDC could also help obtain local community and political support for the plan. The City, through the Economic Development Corporation (EDC), is currently putting in place the funding to conduct the environmental review in conjunction with the DCP. This planning effort could be completed, including all public reviews, within 18 months.

Assemble Sites for the Urban Business Campus and Additional Development
To provide a catalyst for the expansion of the Downtown Brooklyn Central Business District, the public sector must initiate the development of an Urban Business Campus. The Downtown Brooklyn UBC will be an expansion of MetroTech, providing additional commercial space as well as room for residential, retail and academic uses. The assemblage of sites will require the cooperation of both the public sector and the local business community and could necessitate the use of public condemnation. The Downtown Brooklyn Council currently estimates the total acquisition, condemnation and relocation costs at $176 million. The full assemblage should occur in three phases:
! Phase One – the UBC: Eight lots, to be assembled by 2003 at an estimated cost of $40 million,

will create three development sites along Willoughby Street. Once rezoned, these sites could allow for 5.3 million square feet of commercial space. This Urban Business Campus will serve as the catalyst for the future build-out of the Central Business District in Downtown Brooklyn, which will occur in two additional phases.

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! Phase Two: Eight lots to be assembled by 2006 to create three development sites along Willoughby

Street and one on Fulton Street (between Smith and Adams Streets). Once rezoned, these sites could allow for 4.1 million square feet of commercial space (and accompanying ground floor retail) and another 800,000 square feet for residential and academic use.
! Phase Three: Seven lots to be assembled by 2010 to create five development sites along Flatbush

Avenue. Once rezoned, these sites could allow for the development of 3.1 million square feet of commercial space (with accompanying ground floor retail) and 1.4 million square feet for residential and academic space.

Market Sites for Development As the LDC, City and State begin the process of assembling development sites, they must also begin to market these parcels to developers and tenants. It is critical that the focus be on attracting privatesector tenants, as this will ensure that Downtown Brooklyn gains momentum as a growing business center. The most likely tenants for the Downtown Brooklyn Central Business District are financial service companies with data center or other back office operations similar to and including those currently at MetroTech. Additionally, companies similar to those moving to Jersey City and others being priced out of Manhattan markets should be included on the list of target tenants for these sites. Designate a State Empire Zone and Offer Enhanced Real Estate Tax Incentives While the New York City real estate and corporate tax and energy benefits help close the gap in costs between Downtown Brooklyn and other areas (such as the New Jersey waterfront), during the initial phases of development tenants are likely to require additional assistance. To facilitate development, the State should designate the area an Empire Zone, which would provide businesses sales tax exemptions, property and wage tax credits, and a variety of other financial incentives. Additionally, the City should extend ICIP benefits for new construction in Downtown Brooklyn from 15 to 25 years. These additional incentives would enhance the appeal of the two existing assembled MetroTech sites and provide necessary inducements for ongoing development. These incentives will require State and City legislative approval. Relocate Existing Government Tenants and Reuse/Sell Public Properties There are opportunities to free up existing spaces in Downtown Brooklyn by relocating some of the government and social service tenants in the area. While government tenancy can be a good tool for initiating early stage development efforts, Downtown Brooklyn is already beyond this point and must build greater momentum as a center for private business. The City should catalogue all spaces currently occupied by its offices and agencies in Downtown Brooklyn and consider relocating these offices when leases expire. Some opportunities for relocation include moving the Human Resources Administration from the Sweeney Building in DUMBO and relocating the MTA from 370 Jay Street, (potentially to anchor a new office building above Atlantic Terminal).
Redeveloping underutilized publicly-owned properties is another important initiative for Downtown Brooklyn. One of the most notable opportunities is the redevelopment of the State-owned Empire Stores building, a historic abandoned warehouse in the future Brooklyn Bridge Park. This building is being proposed for an education and technology center by Polytechnic University, one of the country’s premiere institutions for science and technology education and research. Polytech and a local developer have submitted a proposal to the State to develop a 90,000 square feet of incubator space and 180,000 square feet to be leased to third party technology tenants. In addition, existing vacant and underutilized City- and State-owned properties should also be sold as soon as possible to developers for office use or, where appropriate, for retail and housing development that will help create a 24/7 environment and enhance the Central Business District.

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Encourage Retail and Residential Development The Downtown area not only provides the Borough’s greatest opportunity for office space, but it is one of the best locations for both new, market-rate housing and retail development. Including residential and retail uses in the Central Business District will add pedestrian and economic activity along the corridors leading from the commercial core into the surrounding residential communities and the waterfront, creating a 24/7 environment.
Providing more housing and shopping along Washington Street will bridge the divide between MetroTech and DUMBO, linking the commercial area to the waterfront. Accommodating a larger residential population along Livingston and Schermerhorn Streets toward Boerum Hill and also along Myrtle Avenue east toward Fort Greene will provide linkages to these brownstone communities. This will also create a buffer between high-density commercial developments and these quiet neighborhoods. The expansion of BAM’s cultural district along Fulton Street will add life and activity to the surrounding blocks and also help integrate the music academy into the Fort Greene neighborhood.

Make Required Investments in Infrastructure and Open Space In order to accommodate greater density, the environmental review may require certain infrastructure improvements. The City and State, in cooperation with other relevant public sector agents such as the MTA, must be prepared to finance improvements to mitigate transportation or environmental issues. These are likely to include transit enhancements, such as improvements to the existing subway stations, as well as roadway and streetscape enhancements. Additionally, long-term transit planning should consider improvements to enhance access for commuters from the City’s northern suburbs and New Jersey. This could include additional commuter rail or ferry service.
Providing additional open space will also mitigate congestion associated with increased development, make the area more attractive to potential tenants and strengthen the linkages between the commercial core and residential neighborhoods. Open space development could include a plaza across from the JP Morgan Chase building to enhance the character of Willoughby Street, as well as improvements to Cadman Plaza Park and continued efforts to create the Brooklyn Bridge Park along the waterfront.

Initiate an Aggressive Marketing Campaign An aggressive marketing campaign to attract the attention of those outside of Downtown Brooklyn should begin at the outset of the development process. The City, State, local business leaders and advocates at the Downtown Brooklyn Council, the Brooklyn Chamber of Commerce and the MetroTech Business Improvement District should form a partnership to market the area’s expanding business district as a low-cost alternative to Downtown Manhattan. The word must be spread that Downtown Brooklyn offers access to a large, well-educated labor pool and is a safe, convenient, affordable and attractive place in which to do business. In addition, the marketing campaign should highlight the community’s commitment to promoting a business-friendly environment by identifying the business development resources in the area. Finally, it is critical to promote Downtown Brooklyn as an extension of Manhattan’s Central Business Districts, a strategy that has proven effective for New Jersey.

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PART 2: CREATING THREE NEW AND EXPANDED CENTRAL BUSINESS DISTRICTS — LONG ISLAND CITY

The New Long Island City Central Business District
Long Island City’s proximity to Midtown Manhattan and its excellent transportation network make it an ideal location for creating a new Central Business District. The successful completion of the current rezoning initiative by the Department of City Planning will lay the groundwork for future commercial development, but it is only the first step in achieving Long Island City’s full potential.

The Group of 35 proposes the creation of a Long Island City Central Business District with 15 million square feet of new commercial space over the next 20 years. The Central Business District will include an Urban Business Campus with three-to-five million square feet of office space. The Campus will also contain open space, restaurants, retail shops and other amenities. The assemblage and development of the Campus will be initiated by the public/private partnership and serve as a catalyst to the development of the rest of the Central Business District. The Central Business District will be home to a world-class intermodal transit station at the Sunnyside Yards that will accommodate commuters from around the New York metropolitan region. The greater Long Island City area will also accommodate a mix of uses, including residential, retail, manufacturing and open space.

Existing Market Conditions The greater Long Island City (LIC) area includes the section of Queens along the East River waterfront, north of the Brooklyn border, South of 37th Avenue and West of 39th Street. The envisioned Central Business District is roughly bounded by 41st Avenue, Sunnyside Yards and 23rd Street and is proximate to Queens West.

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Local Business Presence and Existing Stock of Commercial Space LIC is home to more than 74,000 jobs, making it one of New York City’s largest and most diversified employment centers outside Manhattan. Currently, the area lacks a sizable office market, with only one Class A office building, the Citicorp building, a 50-story, 1.2 million square-foot structure built in 1986 at Court Square. There are a handful of older office buildings and a number of former industrial buildings that have been converted to accommodate commercial use. In total, there is approximately 3.5 million square feet of office space in and around Long Island City, which rents for between $20 and $30 per square foot.
Over 2,400 industrial firms make up the bulk of LIC’s existing business activity. These companies employ approximately 43,000 workers, giving LIC the highest concentration of manufacturing employment in all of New York City.29 Industries operating in LIC include printing, textile, metalworking, electronic equipment, food processing, warehousing and auto repair.

Local Culture and Amenities The area is proximate to an exciting mix of cultural institutions that include the American Museum of the Moving Image, the Center for Holographic Arts, the Isamu Noguchi Museum, the LaGuardia Performing Arts Center, Museum of Modern Art (MOMAQNS), PS1 Contemporary Arts Center, and the Thalia Spanish Theater. There are also several nearby parks including Queensbridge Park and Socrates Sculpture Park. The presence of Silvercup Studios at Queens Plaza and Kaufman Astoria Studios nearby make the LIC area the east coast center for television and motion picture production.
Other Local Conditions The predominance of industrial uses combined with the relative lack of concentrated residential and commercial spaces in the area leaves central Long Island City with few retail or dining amenities. The area is also characterized by heavy vehicular traffic, particularly along the Jackson Avenue and Queens Boulevard approaches to the Queensborough Bridge.
Local Strengths Long Island City has a number of assets that offer a great deal of potential to support commercial real estate development.

Potential to Develop a Large-Scale Office District One of LIC’s most important strengths is its potential to accommodate large-scale development within a compact district. There are a number of large sites under common ownership that could be easily assembled for development. In addition, many sites are underutilized, containing warehouses or other uses that yield limited economic activity.
The passage of the City’s current rezoning proposal in LIC will add density to a handful of pre-assembled sites that could lead to the development of approximately five million square feet of office space along the Jackson Avenue corridor south of Queens Boulevard. The presence of additional large lots and underutilized land within this corridor could provide another ten million square feet of office space if the City is able to further up-zone the area in the future. Finally, over the longer term, there could be opportunities to accommodate additional growth at the Sunnyside Yards. (For visual renderings of the potential build out of the Central Business District, please refer to Appendix B).

Proximity to Midtown Manhattan Sitting just across the East River from Midtown Manhattan, LIC is sometimes referred to as “Midtown East”, a moniker that highlights the area’s close proximity to this Manhattan business hub. It takes commuters less than ten minutes on one of five subway lines to travel between Midtown Manhattan and LIC. This proximity affords prospective tenants and workers superior

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access to Midtown – the nation’s largest Central Business District. Thus, LIC offers a convenient alternative to a Midtown location without significantly impacting business-to-business contact. It also makes the area an ideal location for back office operations for Midtown companies. The Manhattan skyline is also clearly visible from LIC, which helps bridge psychological barriers for companies doing business in Long Island City.

Transportation for the Regional Workforce and a Growing Pool of Local Labor With great existing and proposed transportation infrastructure, LIC offers access to regional and local sources of labor.
Ac c e s s t o t h e R e g i o n a l L a b o r Fo r c e LIC is served by six subway lines, which bring workers directly from Manhattan, Brooklyn and elsewhere in Queens and offer easy connections to lines serving the Bronx. For Metro-North commuters, LIC is only two stops on the No. 7 train from Grand Central Station. Furthermore, the LIRR also stops at the Hunterspoint Avenue station on the southern edge of LIC. While LIC’s existing transportation system makes the area appealing to potential employers, the attractiveness increases even more when considering the potential of further transit enhancements. The MTA’s East Side Access plan will bring Penn Station-bound LIRR trains to the Sunnyside Rail Yards and also provide a convenient link to the AirTrain station in Jamaica for easy access to JFK Airport. In addition, the MTA is considering bringing Metro-North trains to Penn Station via the Sunnyside Yards. New Jersey Transit (NJT) service to LIC is also a possibility since many of its Penn Station-bound trains continue to the Sunnyside Yards, where they wait during the day before returning to Penn Station for the evening rush. Finally, the MTA is studying opportunities to extend the No. 7 and N trains, investments that would improve access to LIC from Midtown Manhattan and LaGuardia Airport. With these future and proposed transit enhancements, LIC could become one of the most accessible destinations in the New York City metropolitan area. Loca l Labor The ongoing residential development at Queens West has already produced 500 new housing units and will eventually create a total of 6,400 units near the Central Business District. In addition, the 11,000 students at LaGuardia Community College and the DeVry Institute provide additional workers for prospective LIC businesses.

Presence of Nearby Business Support Services There are a number of businesses already located in LIC that would help support a growing commercial business district. Printers, publishers, food production and furniture manufacturing firms have made their homes in LIC because they have quick, convenient access to their clients in Midtown Manhattan. If these same Midtown firms were to locate in LIC, they would benefit from having these essential production services in the immediate area.
Obstacles to Development While there is great potential for developing a Central Business District in Long Island City, there are substantial challenges to making this development happen.

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Lack of Office Presence While Downtown Brooklyn has over five million square feet of Class A space and a long tradition as an office district, LIC is only now emerging as an office center. Office tenants, (especially the established firms that can anchor new developments) typically seek out established office districts and all of the activity that they generate. With only one owner-occupied Class A building and a handful of converted industrial properties, Long Island City does not yet fit this criteria. Limited Local Amenities The lack of concentrated commercial users and limited residential presence currently leaves Long Island City without a base of activity to support amenities such as shops, restaurants and business services. LIC also lacks adequate parks, attractive streetscapes and public spaces, amenities that are necessary to attract workers and fashion a distinct image for the area. Image The look of the area, with its older gritty warehouses and production facilities and noisy, imposing elevated train line, gives LIC a somewhat uninviting appearance. Furthermore, the heavy traffic on Queens Boulevard and Jackson Avenue can be intimidating to pedestrians. Local development advocates also note that the area around Queens Plaza has deteriorated due to a lack of proper care. This area is considered by many to be the “Gateway to Queens,” and its current poor appearance sends the wrong signal about LIC to potential tenants.

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Barriers to Site Assemblage While LIC benefits from having several large, pre-assembled sites, there are not enough to create the critical mass of 15 million square feet of commercial development required to ensure a lively, full service business community. The costs and logistical obstacles associated with assembling additional commercial sites might make it financially prohibitive for private developers to undertake new commercial projects.

Increased Traffic and Pollution that Could Limit Additional Density While LIC’s development potential is evident, it cannot be fully realized without first addressing concerns about traffic and air pollution in the area. The environmental review required for the current rezoning initiative in LIC points out the limitations to adding additional density. In order to accommodate development beyond what is allowed by the current rezoning, the area will require numerous transportation infrastructure improvements. Reduced Transit Accessibility Due to Subway Service Modifications Plans to employ the newly completed 63rd street tunnel connection to the Queens Boulevard Line include altering G train service in LIC and throughout Queens. Under the current plan, Queens-bound G service will soon terminate at a new stop at Court Square, while service will be discontinued at the Queens Plaza station and all points west. This is problematic to development in LIC since the G line services growing neighborhoods in Brooklyn, such as Williamsburg and Greenpoint, whose residents would be very likely to seek employment in nearby LIC. In addition, the MTA’s plan would reroute the F Train (Express on Queens Boulevard) through the 63rd Street Tunnel, which would bypass all of LIC. This would substantially decrease access from the Hillside Avenue corridor in eastern Queens to LIC.
Recommendations for a Long Island City Central Business District (For visual renderings of the Central Business District, refer to Appendix B). Long Island City’s proximity to Midtown Manhattan and its excellent transportation network make it an ideal location for creating a new Central Business District. To accomplish this, we suggest the following recommendations:

Approve the Current Rezoning Application The City’s rezoning proposal for Long Island City will facilitate moderate- to high-density mixed-use development on 36 blocks between Court Square and Queens Plaza. The mixed-use designation will allow for various industrial, commercial, residential and civic facilities. While the rezoning will create mixed-use designations throughout the proposed Central Business District, it will also help preserve and encourage industrial development in a number of the areas surrounding the Central Business District. Most importantly, the approval of the rezoning (now in ULURP) will allow the development of several million square feet of office space. Based on existing assemblages and the current uses on those sites, the rezoning is expected to spur the development of approximately five million square feet of office space on five sites in the vicinity of Queens Plaza and Court Square.

Designate a State Empire Zone and Offer Enhanced Real Estate Tax Incentives While the New York City real estate and corporate tax incentives and energy benefits help close the gap in costs between LIC and other areas (such as the New Jersey waterfront), during the initial phases of development tenants are likely to require additional inducements to locate to LIC. To facilitate development early on, the State should designate the area an Empire Zone, which would provide businesses sales tax exemptions, property and wage tax credits, as well as a variety of other financial incentives. Additionally, the City should extend ICIP benefits for new construction in LIC from 15 to 25 years. These incentives will require State and City legislative approval but are needed to make LIC a compelling financial choice over alternative locations.

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Assemble Sites for an Urban Business Campus To provide a catalyst for the ongoing development of the LIC Central Business District, the public sector should initiate the development of an Urban Business Campus. This requires identifying key blocks in a strategic location that will accommodate three-to-five million square feet of new office space. The UBC would create a pedestrian-friendly environment that provides open space, retail, dining and other amenities to foster a dynamic, 24/7 environment for businesses, local residents and visitors. The commitment to create the UBC will enhance the appeal of the existing sites and help build the momentum for the development of the Central Business District.
The location of the UBC should be selected based on the ease with which sites can be assembled and accessibility to existing and future transportation nodes. In order to help link the development opportunities currently identified as part of the rezoning, one potential location for the UBC is the area along the Jackson Avenue corridor between Court Square and Queens Plaza. The siting process should also include input of the local community and attempt to minimize displacement. As the City and State begin the process of identifying the location for the UBC, they must also begin to seek out developers and tenants who will carry out the development. The public sector should be prepared to use condemnation if necessary to complete the assemblage process.

Make Transportation Enhancements There are several important transportation projects needed to improve access to LIC.
C o n s t r u c t a n I n t e r m o da l S t a t i o n a t S u n n ys i d e Ya r d s The construction of an intermodal station at Sunnyside Yards is critical to ensuring the successful development of a Central Business District in Long Island City. By accommodating metropolitan area-wide rail access and providing a convenient transit link to JFK Airport, this station will make LIC one of the premier transportation hubs in the region. The station should provide commuter rail access via the LIRR, Metro-North and NJT. Planning and funding this project will have to be a joint effort among New York City, New York State, New Jersey, the MTA and NJT. Since tunnels and pathways already exist to bring empty NJT trains to the yards, accommodating passenger service would not be exceedingly expensive. Construction of tracks and platforms for LIRR service is already planned as part of the MTA’s East Side Access project.30 The MTA is also working on a plan to bring Metro-North trains to Penn Station, which would include routing the New Haven line through Sunnyside Yards, providing commuters in eastern Westchester County and Connecticut a direct link to LIC. M a k i n g S u b way a n d Bu s S e r v i c e I m p r ov e m e n t s Under current plans, Queens-bound G service will terminate at a new stop at Court Square, discontinuing service to Queens Plaza. Instead, the existing G service should be maintained at Queens Plaza to ensure that Brooklyn commuters can access both ends of the proposed Central Business District. Furthermore, rather than the current proposal to divert service, F train should continue to run express on Queens Boulevard through the 53rd Street Tunnel in order to eliminate the disruption of express service to Queens Plaza. In addition, extra capacity should be added on the G, N and No. 7 trains in order to accommodate increased commuter demand for the Central Business District. The MTA should also consider extending the N train to provide access to LaGuardia Airport. Finally, extending the Q69 bus service from Queens West to the Central Business District and providing express bus service along Vernon Boulevard to Greenpoint can improve access from nearby communities.

Create Open Spaces and Improve Streetscapes Including parks and other open spaces will help create a sense of place for the Central Business District, making the area more appealing to workers and residents. Small parks and a larger, cen-

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trally located open spaces can help redefine Long Island City’s image and character. In addition, making aesthetic improvements to the area around Queens Plaza and the streetscapes throughout the Central Business District will make the area more alluring. Street improvements and open spaces will also encourage more pedestrian traffic and transit use, which can help reduce traffic congestion as well as create a vibrant commercial district.

Encourage Mixed-Use and Residential Development Mixed-use and residential developments serve several important functions related to the development of a Central Business District in Long Island City. Technology firms favor mixed-use settings with a diverse environment and a wide range of activities and cultural amenities, such as those found in many of Manhattan’s Silicon Alley districts. Encouraging technology entrepreneurs as well as artists, designers and high-end production firms to locate in and near the Central Business District can help create the amenities that will attract office tenants. This can also establish LIC’s identity as a regional center for the New Economy. An essential component of this strategy is to encourage the use of “live-work” space for entrepreneurs and artisans, and the development of new housing for a range of income levels. Residential uses will not only help accelerate the development of retail and entertainment but will also expand the local labor force and help reduce the need for additional commuters into the Central Business District.
LIC is already home to a large mixed-use district south of the proposed Central Business District area. The Hunterspoint district connects the Central Business District to Queens West and to nearby amenities such as the Historic District and PS1. Mixed-use development should be limited to this area and the Central Business District to help preserve industrial uses in the remainder of LIC.

Conduct a Traffic Study and Mitigate Traffic and Air Quality Issues In order to achieve a critical mass of office development in LIC, density must be added to what is allowed for under the current rezoning. Accommodating this added density will require significant infrastructure investments to mitigate traffic and air quality issues. A giant step toward this goal will be accomplished by the construction of an intermodal station at Sunnyside Yards, which will allow for a higher percentage of workers to reach the Central Business District via mass transit. However, transit improvements alone will not be enough to adequately mitigate the area’s traffic congestion and air quality issues.
The Departments of Transportation and City Planning should initiate a traffic study to determine the improvements that will be necessary to reduce vehicular traffic flow in and around the Central Business District, particularly around the Queensborough Bridge. The City and State must then determine which recommendations to implement, based on a comparison of the costs of infrastructure investments and the long-term economic impact of attracting more jobs to LIC.

Add Additional Allowable Density Once these transportation improvements are underway, the City can begin the next phase of re-zoning in order to achieve a business district of at least 15 million square feet. This should include the rezoning of the Central Business District to include more high-density designations, with bonuses available in exchange for the development and maintenance of transit, pedestrian and open space improvements. This additional density should be added in a compact area so as to create a dense, walkable Central Business District. This would also help limit displacement pressure on manufacturing in the surrounding area. With the appropriate timing of necessary infrastructure improvements, this second phase of development in LIC could begin by 2008. Extending beyond the 20-year time horizon of this report, another measure that would create additional development capacity in LIC is the building of a platform over the remainder of the Sunnyside Yards, which could possibly support additional commercial development.

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Conduct an Aggressive Marketing Campaign An aggressive marketing campaign to attract the attention to Long Island City must begin at the outset of the development process. The City, State, Queens Borough President’s office, business leaders and local advocates have already begun to market the area to outsiders. One local group, the Long Island City Business Development Corporation (LICBDC), has done a great deal of work in conceptualizing the area’s future development. The coordination of this effort will be important in order to attract private-sector tenants to existing space and new development projects. It is critical to promote Long Island City Central Business District as “Midtown East,” an extension of the Midtown Central Business Districts.

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T h e N e w Fa r We s t S i d e C e n t ra l B u s i n e s s D i s t r i c t The proximity of Manhattan’s Far West Side to the existing Midtown Central Business District and the area’s accessibility to the regional work force make it an ideal location for creating a new Central Business District. Creating a vision for this future development is the first step to fulfilling the Far West Side’s potential.
The Group of 35 proposes the creation of the Far West Side Central Business District with at least 20 million square feet of new office space. The Central Business District will be located in the area west of Ninth Avenue between 28th and 42nd Streets and will be served by an extended No. 7 train that will connect the area to Penn Station, the Port Authority Bus Terminal, Times Square and Grand Central Station. At the heart of the Central Business District will be a three-to-five million square-foot Urban Business Campus, which will incorporate a pedestrian oriented commons area with open spaces, restaurants, retail shops and other amenities in addition to office space. The assemblage and development of the UBC will be initiated by a public/private partnership and serve as a catalyst to the development of the rest of the Central Business District. The Far West Side Central Business District will contain areas of high- and moderate-density development. In addition to office space, the Central Business District will offer hotels, mixedincome housing, open spaces, industrial facilities and other uses that suit the needs of the local community. The entire Central Business District area will be connected by wide tree-lined sidewalks and pedestrian-oriented streetscapes that will link workers, residents and visitors to a number of open spaces throughout the Central Business District and will draw people westward to the newly created Hudson River Park. The ongoing planning and development of the Central Business District should reflect the concerns of the local community.

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Existing Market Conditions The best opportunities for office development are found in the area west of Ninth Avenue, north of 28th Street and south of 42nd Street.

Existing Uses The Far West Side is a highly underutilized part of Manhattan. The area has an extremely low population (with almost no residential uses west of Tenth Avenue) and a great deal of underdeveloped land. The larger neighborhood of South Hell’s Kitchen has a population of about 5,000 people, making it perhaps the least densely populated part of Manhattan. The area also contains a number of small manufacturing firms, warehouses, auto repair shops, bus garages and taxi depots. Most striking is the lack of real estate development, with many vacant parcels, surface parking lots and underutilized properties. In addition, the Far West Side is marked by heavy surface transportation infrastructure, such as the Lincoln Tunnel approaches and the ramps leading in and out of the Port Authority Bus Terminal. The area is also home to the West Side Rail Yards, which cover the entire area between 30th and 33rd Streets from Tenth to Twelfth Avenue. Increasing Commercial Office Activity West of Midtown Manhattan There are a small but growing number of firms that have started moving west from the traditional Midtown Manhattan Central Business Districts, which highlights the opportunity to bring development to the Far West Side. Large properties at 111 Eighth Avenue, 450 West 33rd Street and the Starrett-Lehigh building on Eleventh Avenue have been renovated and leased by new office users. In addition to these properties, there are other low-rise Class B and C buildings that are home to office tenants. Growing office tenancy has reduced the vacancy rate to approximately nine percent and increased asking rents to over $38 per square foot at some properties.31
Local Strengths and Development Potential The Far West Side of Manhattan has a number of assets that offer a great deal of potential to support commercial real estate development.

Adequate Space to Accommodate a Large-Scale Office District The Far West Side is a remarkably underdeveloped area of Manhattan, with 128 unbuilt lots and 68 acres of vacant development space. With reasonable rezoning, the area could easily accommodate at least 20 million square feet of new office development, as well as other commercial, residential and retail uses. One of the most exciting long-term development opportunities is the West Side Rail Yards, a 30-acre site that could support several million square feet of commercial space as well as other large-scale uses, such as an expansion of the Javits Convention Center.

Proximity to Midtown Manhattan A fantastic location on the island of Manhattan is perhaps the most compelling factor for the creation of a Central Business District on the Far West Side. Being adjacent to the Midtown office district (the nation’s largest), the Far West Side can be seen as a natural extension of this existing market, providing convenient access to clients and other business services in Midtown and throughout the Borough’s business districts. The fact that the proposed development area is part of Manhattan also provides a tremendous advantage in terms of bridging the psychological barriers that often influence corporate location decisions. Excellent Transportation for the Regional and Local Labor Force With numerous existing regional transit nodes and opportunities for enhanced transportation linkages, the Far West Side offers access to a broad pool of labor.

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R e g i o n a l Ac c e s s i b i l i t y Penn Station, located in the area bounded by 31st and 33rd Streets and Seventh and Eighth Avenues, is the busiest transportation facility in the country, handling over 500,000 New Jersey Transit, Long Island Rail Road and Amtrak passengers daily. A new Penn Station, being constructed just across Eighth Avenue, will increase station capacity by 30%, double passenger circulation space and provide a grand Manhattan terminal to accommodate increased Amtrak service. The Port Authority Bus Terminal, located in the area between 40th and 42nd Streets and Eighth and Ninth Avenues, is the busiest in the nation, serving 188,000 passengers a day. Buses serve New Jersey, upstate New York and Pennsylvania and the region’s three major airports. Commuters from parts of New York and New Jersey can also reach the Far West Side via ferry to Pier 78. There are plans to open Pier 79 located at 39th Street, which would allow for increased trans-Hudson service for up to 60,000 passenger trips per day. Vehicular travelers can reach the Far West Side via the Lincoln Tunnel, which accommodates over 62,000 eastbound vehicles each weekday and approximately 21.5 million per year. The West Side Highway (Joe DiMaggio Highway), which is being rehabilitated as part of the Route 9A project, brings travelers from points north and south. L o c a l Ac c e s s a n d N e i g h b o r h o o d s The A, C and E trains run along Eighth Avenue and the Nos. 2/3 and 1/9 trains run along Seventh Avenue, providing direct access for workers from Manhattan, the Bronx and Brooklyn. To the south and east is Chelsea, a growing community that now includes a number of new residential developments along Sixth Avenue. To the north, the residents of Clinton are within walking distance or a short bus ride from the proposed development area.

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Nearby Amenities The Far West Side is proximate to a number of existing assets that attract thousands of visitors each year. Perhaps the most well-known of these is Madison Square Garden (MSG), home of the NBA’s Knicks and the NHL’s Rangers. In addition to the arena, MSG has a theater for concerts, dance performances and live theatric productions. The Jacob K. Javits Convention Center, located along the West Side Highway between 34th and 38th Streets, hosts hundreds of exhibitions, trade shows and conventions annually, bringing tens of thousands of visitors to the area. The world famous Broadway theater district is found just northeast of the proposed development area. Finally, construction has begun on the Hudson River Park, a five-mile-long waterfront park that will provide much needed open space, waterfront access and walking/bike pathways for recreational use.
Obstacles to Development on the Far West Side of Manhattan While the potential for large-scale office development on the Far West Side is obvious, there are a number of obstacles that must be addressed before this potential can be transformed into reality.

Limited Accessibility Due to Lack of Subway Access The lack of a direct mass transit link to the Far West Side is the greatest physical obstacle to promoting office development in the area. While commuter rail, bus and subway service brings millions of commuters to the edge of the Far West Side each year, there is limited accessibility west of Eighth Avenue. The long blocks along the avenues make the walk as long as 20 minutes to the westernmost parts of the area. In addition, there is no convenient link from Grand Central Station or elsewhere on the east side of Manhattan, making the Far West Side a difficult commute for workers from parts of Manhattan, Queens, Westchester and Connecticut.
Vehicular Congestion Associated with Lincoln Tunnel Traffic The heavy traffic around the Lincoln Tunnel is a detriment to the local neighborhood and is another obstacle to large-scale commercial development on the Far West Side. Each weekday more than 60,000 cars, trucks and buses leave Manhattan via the Lincoln Tunnel. Traffic clogs the streets (especially during the afternoon rush hours) and creates an unpleasant environment for future office tenants. The tunnel approach routes themselves cut through the neighborhood at various grades, breaking up the continuity of the street grid.

Existing Low-Density Zoning Just as is the case in Downtown Brooklyn and Long Island City, the Far West Side is not currently zoned to accommodate high-rise office development. Much of the area is designated for low-rise industrial uses, with a maximum of five FAR in most of the area between 28th and 42nd Streets. This low-density is not enough to encourage private investment in commercial development. Displacement of Existing Residents and Businesses Accommodating development while minimizing both primary and secondary displacement presents a challenge on the Far West Side. Local residents and owners of small business on the Far West Side fear the disruption that could come from increased development in and around their neighborhood. Despite a very low density of existing uses in the area, the process of assembling sites could require relocating longstanding residents and business owners. For residents and businesses in nearby Clinton and Chelsea (who would not be directly affected by new development) market pressures from increased activity in the area could lead to escalating rents and potentially cause additional displacement.

Recommendations for Creating the Far West Side Central Business District
The Far West Side offers tremendous potential to accommodate a new Central Business District. To fulfill this potential, we recommend the following actions:

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Assemble Sites for the Urban Business Campus
To provide a catalyst for the creation of the Far West Side Central Business District, the public sector should initiate the development an Urban Business Campus. This requires identifying key blocks in a strategic location to accommodate three-to-five million square feet of new office development. In addition to office space, this development should include restaurants, cafes, hospitality and retail facilities, which should all be centered around a commons area of pedestrian-oriented open space. This will help foster a dynamic, 24/7 environment to attract businesses, local residents and visitors to the area. The UBC will create a sense of place for the Far West Side, which will serve as the catalyst for additional development throughout the Central Business District. The location of the UBC should be selected based on the ease with which sites can be assembled and accessibility to existing and future transportation nodes (potentially along 34th Street). The process should also include the input of the local community and attempt to minimize displacement. As the City and State begin the process of identifying the location for the Far West Side UBC, they must also begin to seek out developers and tenants who will carry out the development. Once a developer is designated and financing secured, the public sector should be prepared to use condemnation if necessary to complete the assemblage process. As s e m b l ag e f o r N e e d e d O p e n a n d P e d e s t r i a n S pac e s It may also be necessary for the public sector to use condemnation to assist in the assemblage of key parcels to create open spaces and through-block pedestrian corridors that will enhance the appeal of the area.

Invest in Critical Infrastructure Improvements
There are key infrastructure enhancements needed to improve access to the Far West Side and support increased economic activity in the Central Business District. M a k e E n h a n c e m e n t s t o t h e S u b way N e t wo r k One of the most important public sector priorities should be to provide subway access to the area. Currently, the MTA is studying the feasibility of extending the No. 7 train from its existing terminus at Times Square. One of the proposed extension routes would bring the train west along 42nd Street to the Port Authority Bus Terminal, then south along Eighth Avenue to connect to Penn Station and finally west to Twelfth Avenue. By linking the Central Business District with Penn Station, Port Authority and Grand Central Station, this extended No. 7 train would maximize regional accessibility. If this plan proves infeasible, the City, State and the MTA must find an alternative solution to bring subway access to the Far West Side and make funding for the project a top priority in the capital budget. The cost of the proposed No. 7 train expansion is estimated at $1 billion. The Group of 35 supports the use of a tax increment district as a possible financing strategy for this or an alternative subway project for the area. Subway access would enhance the value of property in the area, which would generate increased real estate tax revenues that could be pledged to support bonds for the project. If over the long-term the successful development of the Far West Side generates additional demand for space in the area, it might be desirable to create a north/south subway line (perhaps along Eleventh Avenue). Bring Me t ro-Nor t h to Penn Stat ion The MTA is currently conducting a feasibility study for bringing two of the three Metro-North lines to Penn Station. This will allow commuters from Westchester, Putnam and Dutchess Counties in New York and from Fairfield and New Haven Counties in Connecticut direct access to the Far West Side Central Business District. This service will also alleviate any potential overcrowding that may

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occur on the expanded No. 7 train, as Metro-North commuters will not need to ride the No. 7 train to reach the Far West Side Central Business District. M i t i g a t e Tr a f f i c C o n d i t i o n s a r o u n d t h e L i n c o l n Tu n n e l As part of its land use and traffic study, the Department of City Planning is addressing how to best alleviate the congestion at the Lincoln Tunnel. Recommendations from the study should include ways to improve traffic circulation, eliminate the grade changes and minimize the obstruction of streets and intersections by cars and trucks queued up to enter the tunnel. The Port Authority should be the primary financial contributor to these improvement efforts and should make funding a priority in the capital budget in the near term. Bu i l d a P l a t f o r m a b ov e t h e We s t S i d e R a i l Ya r d s Over the long term, the City and State should consider creating additional development capacity in the Far West Side Central Business District by building of a platform over the West Side Rail Yards. The platform could support several million square feet of additional commercial space as well as a number of other large-scale uses. E x pa n d t h e Jav i t s C e n t e r The expansion of the Javits Center will add increased economic activity to the City and serve as a long-term catalyst to the development of the Far West Side. Whether expanded to the north or south, or even both, increased space at Javits will allow New York City to compete for more conventions. The development of the Far West Side will in turn make the Javits Center a more attractive place for visitors, which will also help support demand at the facility. Rezone Area and Conduct Environmental Review Rezone t he Area The Department of City Planning is close to completing a land use and transportation planning study of the Far West Side area. Once this study is complete, the City should immediately begin to rezone the Far West Side Central Business District in order to allow for the creation of at least 20 million square feet of office space as well as a significant amount of additional development for housing, retail, hospitality and other uses. The rezoning should include the entire area from 28th to 42nd Streets from Ninth Avenue to the Hudson River. From the outset of the rezoning effort, the City should seek out community input. The new zoning should create areas of high- and moderate-density and accommodate a mix of commercial, residential and retail uses. The high-density areas should run along the wide avenue frontages and be proximate to the existing and planned transportation nodes. The areas of moderate density should help preserve necessary existing uses in the area and encourage new development that suits the needs of the local community. The new zoning should also include changes to the City Map to create pedestrian through-streets between Tenth and Eleventh Avenues to add more street frontage. This would create more attractive development sites and help to break-up the long (800 foot) stretches between the avenues. New through-streets should have pedestrian-friendly features and have restrictions on vehicular traffic access in order to keep them accessible and safe for both workers and local residents. The planning should also look to preserve view corridors for to the waterfront and create linkages between the Central Business District and the new Hudson River Park. Environmen ta l Review After the completion of an in-depth planning exercise by the City to determine the appropriate zoning designations in these high- and moderate-density areas, a zoning application and the required

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environmental review should begin right away. The planning should be done in an inclusive process that involves an open dialogue with local community input. The environmental review will likely be costly and time-consuming, but it should be started as soon as possible and funded by the City and State. While the City serves as the primary arbiter of the land-use process, the State should contribute based on the number of important assets it controls in the area. These include the convention center, the Penn Station rail yards, the bus and train terminals and a significant amount of land. Offer City Real Estate Tax Incentives Unlike the other proposed Central Business District areas in Downtown Brooklyn and Long Island City, development on the Far West Side does not benefit from existing City tax incentives. Since market rents will likely be below the $70-80 per square foot needed to make development financially feasible, the City should offer a modified ICIP for new construction on the Far West Side. Incentives should be large enough to close the gap between costs and market rents but will not need to be as generous as those offered in Downtown Brooklyn and Long Island City. While real estate tax incentives will limit the revenues available to support tax increment financing (TIF) for subway access to the Far West Side, without some form of assistance it will be unlikely that construction will occur. Without tax breaks, rents will simply not be high enough to cover development costs. A short-term ICIP with partial assessment exemptions would likely be enough to induce development while still leaving adequate additional tax revenue to allow for tax increment financing.

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Another essential part of the Group of 35’s Commercial Development Strategy is Making Room for High-Growth Industries. We have identified biotechnology and information technology sectors as having tremendous growth potential for New York City, and promoting tailored office development strategies for these industries will help fulfill that potential and create new high-skill, well-paying jobs. Below we discuss the reasons why both these high-growth industries have great potential for future expansion, the real estate obstacles that inhibit their growth here and the strategies needed to overcome those obstacles and ensure new jobs for New York City.

Real Estate Development for the Biotech Industry
One industry with tremendous growth potential for the New York City economy is Biotechnology or “Biotech.” The City offers a number of competitive advantages to support the growth of this industry, including a critical mass of top research institutions, an ability to attract a vast amount of research funding and access to a cluster of the country’s top pharmaceutical companies. However, despite these strengths, the industry is still struggling to take off in New York City. While there are a number of factors that complicate the growth of a biotech cluster, at the top of the list is the lack of available, affordable space to meet the needs of start-up and early stage companies. The challenge facing New York today is creating an ample supply of space to support the growth and development of a cluster of commercial biotech companies in the City. The development of this cluster would help position New York City at the forefront of the sector’s ongoing growth, which is sure to yield tremendous economic benefits over the next 20 years and beyond. Below, we outline a strategy for meeting that challenge. Trends in the Biotech Industry in the United States Biotechnology is defined as being the practical application of breakthroughs in the understanding of molecular and cell biology, microbiology, and plant, animal and human genomics to practical problems. Applications of these scientific advances vary widely, providing tools for advanced agricultural production, improvements to the human immune system, enhanced medical research and diagnostic capabilities, and cleaner, more efficient industrial processes.32 Increasingly, pharmaceutical companies have been making use of new biotechnology to create better drugs and improved treatments to fight illnesses. Over the past 25 years, the biotech industry has become a powerful engine of growth for the U.S. economy. A handful of locations have been the primary beneficiaries of this boom, due largely to the presence of top research institutions whose staff provide the research and entrepreneurial ventures that fuel the industry’s growth. As the home to research powerhouses Stanford, UC San Francisco and UC Berkeley, the San Francisco Bay area has become the nation’s largest biotech center. As of 1999, there were nearly 750 locally-based biotech firms, which attracted $1.6 billion in private investment and generated eight billion dollars in revenues. In the Bay area, the industry employs over 80,000 people and pays out $5.6 billion in wages and salaries.33 The country’s second largest biotech cluster is found in the Boston/Cambridge area, which hosts the majority of Massachusetts’s 250 firms and is home to the Massachusetts Institute of Technology and Harvard University. Biotech employment in this area is estimated at approximately 25,000 as of late 1999.34 The biotech cluster found in the Raleigh-Durham Research Triangle Park area is supported by the presence of Duke University, University of North Carolina – Chapel Hill and North Carolina State University. This cluster has approximately 142 biotech and contract research companies employing an estimated 15,300 workers. As of 2000, Research Triangle Park companies had over $1.54 billion in annual product sales and provided $616 million in payrolls.35

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While there is a wealth of academic talent and institutional resources dedicated to biotechnology research in New York City, the City has not yet achieved the level of commercial biotech activity seen in other locations with similar assets. As of 2000, there were only approximately 40 biotech firms in the entire New York City metropolitan area, employing fewer than 2,000 people. While there are a handful of notable biotech firms located here, many more companies that initially emerged from the City’s research institutions have since left because they could not find affordable commercial space for their fledgling enterprises. Start-up firms typically locate in special facilities designed with pre-built spaces and offered at low rents. In New York City, the only such facility is the 60,000 square foot Audubon Biomedical Research and Technology Park, which is almost always fully occupied. There is also little space to be found for companies that outgrow Audubon or for the City’s few larger, more established companies. With an incredibly limited supply of space, New York City has lost thousands of potential jobs and millions of dollar in revenue. In addition, without space for start-ups, it is becomes harder to attract the talented staff whose research fuels commercial activity. Maintaining a strong base of researchers is critical in order to help attract the public funds that are the underpinnings of biotech research and provide the basis for ongoing commercial development. In order to catch up with the nation’s other biotech clusters, New York City must act today to make room for its commercial biotech industry. Strengths to Support Biotech Development New York City offers numerous strengths to support the development of a commercial biotech cluster.

A Strong Base of Research Institutions and Associated Potential Demand for Biotech Space Like the country’s most successful commercial biotech clusters, New York City is home to several heavyweights in biomedical research, with a least of 15 local academic and medical institutions. These include Columbia University College of Physicians and Surgeons, Memorial Sloan-Kettering Cancer Center, Albert Einstein College of Medicine, the Rockefeller University, Mt. Sinai Medical School, New York University School of Medicine, Beth Israel Medical Center, City University of New York Medical School, the Hospital for Special Surgery, Maimonides Medical Center, New York Medical College, St. Luke’s-Roosevelt Hospital, St. Vincent’s/Catholic Medical Centers of New York and the State University of New York Downstate College of Medicine and the Weill Medical College of Cornell University.
The talented staff and vast amount of research funding associated with these institutions is responsible for generating new biotech products each year. A recent study by the New York City Investment Fund estimates that the City’s research institutions produce approximately 30 new companies a year. It is estimated that these new businesses could (over a five-year period) generate a demand for nearly one million square feet of commercial space.36

Numerous Existing Proposals for Biotech Development Projects There are five sites that are currently being considered for the development of biotech facilities, including the following: Bellevue Hospital Campus in Manhattan – New York University is currently marketing the “East River Science Park” project, a commercial biotech facility to be developed on a site that was once part of Bellvue Hospital. This project could accommodate a total 700,000 square feet of space for biotech companies, 40,000 square feet of which would be incubator space for small start-up companies.
The Advanced Biotechnology Incubator at SUNY Downstate – SUNY Downstate is working to develop the “Advanced Biotechnology Incubator” on a site in the Flatbush area of Brooklyn, which

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would create 20,000 square feet of wet lab and office space for start-ups. This development should be bolstered by the recent announcement that New York City’s ImClone Systems, Inc. will lease a warehouse from SUNY Downstate in order to expand its biotech operations.

Audubon IV in Upper Manhattan – Columbia is working on plans to develop another 240,000 square-foot laboratory facility near its exiting Audubon Research Park on Broadway between 165th and 166th Streets in Upper Manhattan.
Queens West – Several leading New York City research institutions have expressed interest in developing a biotech facility at Queens West that would include incubator space for start-up firms, a research park for larger, more established companies and space for a cancer center. The site is just across the East River from a cluster of institutions including Memorial Sloan Kettering Caner Center, the Rockefeller University and the Weill Medical College of Cornell University.

Bronx Developmental Center – The Albert Einstein College of Medicine and the Bronx Borough President’s office have been promoting the creation of the Bronx Biomedical Science Park on the 32-acre site of the former Bronx Developmental Center. The site hosts a 320,000 square-foot building that could be redeveloped for biotech use or torn down and replaced by a 1.2 million square-foot facility with potential for biotech space.
None of these developments are ready to go forward with actual construction, as each still requires additional financial backing, occupancy commitments and in some cases rezoning and site assemblage. However, if the development of these biotech facilities were eventually achieved, it would provide a great deal of the space New York City needs to begin the development of a commercial biotech cluster.

Proximity to a Large Cluster of Pharmaceutical Companies The nearby presence of a large cluster of pharmaceutical companies is another strength that helps make New York City a good host location for biotech firms. According to a recent article in Business Facilities, there are strong ties between these two industries, as “the biotech industry plays a large part in providing the innovation and products needed by the…pharmaceutical industry.”37 The fact that New York City is proximate to the majority of the nation’s leading pharmaceutical companies, including Pfizer, Pharmacia & Upjohn, Bristol-Myers Squibb and Johnson & Johnson, provides a major boost to the potential for developing a large commercial biotech cluster here.38 Development of the State-of-the-Art Structural Biology Center A joint venture among ten of the City’s leading academic and medical institutions has resulted in the development of the New York City Structural Biology Center. This Center will soon be home to high-field magnets that can be used to gain a better understanding of the structure and function of molecules. The Center is also a groundbreaking achievement for New York City because it is one of the first joint endeavors of the City’s renowned research institutions. Technology Industry Presence to Support Development of Bioinformatics Applications The City’s large information technology sector offers opportunities for collaborations with biotech companies, especially in the field of bioinformatics. This biotech specialization involves the use of computer models to develop applications from gene sequencing. The City has had tremendous growth in the information technology sector in the last several years, and the talented labor force and numerous companies provide key business partners to help upstart biotech firms develop computer-based applications.

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Growing Public Sector Support for Developing the Industry Although behind what other locales offer the industry, both New York City and State have made strides to support biotech. The State offers biotech companies several benefits, such as an employee tax credit for new hires, a development tax credit and sales tax exemption for R&D expenses, carryback/carry-forward of net operating losses and investment tax credits available for investors in biotech companies. The State is also considering a sizable funding program for biotech development. In addition, the City has become more active in supporting the development of the commercial biotech industry, offering financing to small biotech companies through its Emerging Industries Fund. The City’s Economic Development Corporation is also developing a technology transfer initiative to assist universities and other research institutions with real estate assistance, low-cost business services and financing to help small and start-up companies commercialize their technologies.
Obstacles to Accommodating Real Estate Needs While there are a number of strengths to help support the development of a commercial biotech industry in New York City, there are also a number of obstacles, particularly in terms of real estate development, that currently pose challenges for the industry’s growth here.

Extremely Limited Stock of Pre-Built Space for Start-Up and Developing Firms The supply of available pre-built space for biotech start-ups is extremely limited in New York City. Small biotech start-ups cannot afford to build out their own facilities and must therefore find prebuilt, low-cost space. While the development of a number of incubator facilities is currently being proposed, there are no assurances that any of this badly needed space will actually get built. Under current supply conditions, only about 10,000 square feet of pre-built space is made available each year through turnover at the Audubon facility. Thus, until New York City creates an adequate number of biotech facilities, many of the newly created companies that come from the City’s research institutions will be unable to find the space they need to start their businesses here. The lack of affordable space is an even greater concern for companies graduating from Audubon or outgrowing other makeshift spaces within other research institutions, as these firms are typically unable to finance the tenant improvements needed to outfit proper space. As a result, these businesses will likely relocate outside of the City.
High Development Costs for Required Biotech Infrastructure It has been shown over and over again that development in New York City is very expensive, but the cost of developing the special lab space required by biotech firms is even greater. In addition to about 300 square feet or so of traditional office space, a typical start-up requires approximately 700 square feet of standard lab space, which includes a work bench for three- to-four scientists, a hood for handling chemicals, refrigeration/freezer and disposal facilities, a centrifuge and an autoclave.39 These specialized tenant improvements put the build-out cost for biotech lab space in the range of $150 – $200 per square foot, which is very expensive compared to traditional office space (about $30 – $40 per square foot). In addition, buildings with biotech facilities must also have more robust operating systems to handle the heavier HVAC, electricity and waste removal needs of its tenants. This contributes additional expense both when retrofitting buildings and for new construction projects. In order to recoup costs and turn a reasonable profit, a developer would have to charge rents of at least $50 per square foot, plus a minimum of an additional $20 per square foot to cover land costs, operating expenses and real estate taxes. Since most start-ups and mid-sized firms can only afford rents between $28 and $40 per square foot, the development of biotech facilities by private developers is not financially feasible.40

Concerns Over Credit Risk The short lifespan of many biotech start-ups leaves property owners wary of taking these fledgling companies as tenants. To mitigate this risk, property owners require large security deposits and make

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tenants finance their own leasehold improvements. These practices compound already high rental costs for biotech firms. In addition, developers have not responded to the demand for biotech space, in part because start-ups are simply too small to support new construction projects and lack the credit to attract construction financing.

Competition Among Local Institutions for Limited Public Sector Financial Support While the City benefits from having a base of strong research institutions, these organizations often find themselves competing for the same pool of talented staff and limited public funding sources. Clearly, the joint effort to create the Structural Biology Center demonstrates that these institutions can and will work together and that the outcome of this collaboration has tremendous benefits for all that participate. However, many of the City’s institutions are currently pursuing independent incubator and commercial facilities. Given that most institutions do not have the financial wherewithal to finance a particular project independently, each individual facility will require direct public sector subsidies. This creates a great deal of competition among the institutions, which is counterproductive to the development of a commercial biotech industry in New York City. However, joint efforts among a number of institutions could likely provide the financial commitment needed to leverage sufficient funds to get a project going.

Restrictive Zoning Zoning is a particular issue for the development of biotech facilities. There are very few zoning designations that allow for the “use group” that contains biotechnology firms. Only areas zoned for manufacturing allow for commercial biotech space on an as-of-right basis. Areas with C6 designations can also accommodate biotech firms, but property owners in these districts must apply for a special permit in order to go forward with their projects. This limits the number of sites around the City that could potentially be developed for biotech facilities.

Recommendations for Promoting Office Development for the Biotech Industry
The future of New York City’s commercial biotech industry hinges on being able to capture and hold on to the start-ups that are generated by local research institutions. Without an ample supply of prebuilt, affordable lab space, the prospects for developing of a commercial biotech industry in the City become far less likely. Therefore, the City, State and local research institutions must work together to spur the development of affordable pre-built space.

Offer Direct and Indirect Subsidies for New Biotech Enterprise Centers
In order to create the one million square feet of space that is likely to be needed in the next several years, the City and State should work to create new Biotech Enterprise Centers (BECs) at the most promising development sites – Bellevue, Audubon, Queens West, SUNY Downstate and the Bronx Developmental Center. These BECs will provide the space needed to accommodate the start-ups, mid-sized and larger biotech firms that are looking for space in New York City. These developments cannot realistically occur simultaneously but could potentially be done in phases over several years. Thus, the academic and research community in conjunction with the City and State must work together to determine funding priorities. Estimates suggest that these projects would require direct capital subsidies on the order of $50 to $60 million, which could be spread over a number of years.41 In turn, these resources could be used to leverage the additional private sector funds needed to get these projects built. Other subsidies, such as the contribution of public land, sales and real estate tax abatements, low-cost energy and loan guarantees, would also be required to make these projects financially feasible while also allowing for low-cost rents to small and developing mid-sized biotech companies. Projects that are proposed jointly by several research institutions should be given funding priority.

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Encourage Joint Ventures Among Academic and Medical Institutions
Competition among members of New York City’s academic and medical community is counterproductive to the development of commercial facilities for biotech companies. Rather than individually pursuing stand-alone facilities, the City’s research institutions should form joint ventures that pool together their vast development resources. Collectively, these institutions could likely generate enough commitments for space to secure private financing for several of the proposed biotech development projects. Joint ventures would help maximize the impact of public sector subsidies, as these funds can be used to meet the needs of numerous institutions simultaneously. It was a collaborative effort that is allowing for the development of the Structural Biology Center, which will soon provide a tremendous resource for advanced biomedical research and development in New York City. Another illustration of successful collaborative effort was the formation of AMDeC, the Academic Medicine Development Company, which brought together institutions from around the State to mount a long-term study for cancer research. These joint ventures demonstrate that New York City’s research institutions have been successful when working together, and this success provides a model for the similar collaborations that are needed to build the new Biotech Enterprise Centers and other biotech facilities.42

Allow Biotech Companies to Access Tax Exempt Financing
Currently, only small companies involved in the traditional “manufacturing” process are eligible for tax-exempt industrial revenue bonds. The current IRS regulations ignore the fact that in the technology age, the manufacturing of today and the future includes the production of biotech products. The definition of manufacturing should reflect trends in today’s technology age and should thus be expanded to include certain biotech firms. Providing biotech firms with access to tax exempt financing would make the space fit-out and equipment acquisition more affordable. Changing Federal eligibility standards would require Congressional legislative action.

Provide Incentives to Encourage the Redevelopment of Space for Biotech Use
By offering targeted incentives, the City can encourage the private sector to create space for biotech companies in New York City. One of the best opportunities for this redevelopment is through an extension of the Digital NYC: Wired to the World program. Two Digital NYC buildings in particular (the Brooklyn Information and Technology Center at Bush Terminal in Sunset Park and the Brooklyn Navy Yard) offer great possibilities for biotech companies. These buildings have large amounts of space (much of which is already built and wired for office use) which could be outfitted with lab space to accommodate biotech start-ups and other growing firms. The program should be expanded so that the owners of these and other properties with biotech redevelopment potential could receive financial incentives to build out small spaces with wet labs and other facilities to suit the needs of small biotech firms. These incentives should also be made available to encourage the redevelopment of properties, particularly those in M1 zones where biotech facilities are allowed as-of-right. Some of these properties include the Mink Building in Upper Manhattan, the former Manheimer Fragrance Building and City-View Plaza in Long Island City and the former Daily News Building at Queens West. The program should also offer companies assistance in navigating the often confusing bureaucracy involved in gaining needed approvals for operating a biotech business in New York.

Create a Revolving Loan Fund Program
Another way to help solve the real estate needs of biotech start-ups is through the creation of a revolving loan fund program. This would provide low-cost financing to upstart companies that need financial help to fit out their spaces. Below market-rate loans could be offered to companies that start up or move their biotech businesses to New York City. This type of program would help to close the gap between construction costs here and in alternative locations by helping to finance the high cost of creating the lab spaces that biotech companies need to operate.

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Increase the Number of Zoning Designations that Allow for Biotech Uses
Under current regulations, only areas zoned for manufacturing use allow for commercial biotech space on an as-of-right basis, and only areas with C6 designations can accommodate biotech uses via special permit. While allowing for additional as-of-right designations for biotech may not be practical, it could be feasible to increase the number of zoning categories in which biotech research laboratories are included as a permissible use group. Although the development of biotech projects in these new zoning categories would still require a special permit and be subject to the public review process, this adjustment to current zoning code would create more opportunities to develop biotech space around the City.

R e a l E s t a t e D e v e l o p m e n t f o r Te c h n o l o g y I n d u s t r i e s
Clearly, the creation of the Central Business Districts and the development of 60 million square feet of office space over the next 20 years will help support the growth of all office-based industries, including technology (or “tech”). However, this sector faces particular obstacles to meeting its real estate needs. Tech has tremendous potential to play a leading role in the City’s future economic growth, providing new high-wage jobs to the local economy and generating revenue for New York City. The technology sector is more than just “dot-coms” and e-commerce – it includes a host of other firms whose products and services have led to tremendous gains in productivity in recent years. The highly skilled workers in these firms use computer technology to express their creativity and problem-solving skills, creating products and services that enhance the operations of existing businesses and reach out to new markets and consumers. While this sector has suffered through recent lay-offs and lost market capitalization, tech companies that continue to innovate and design new products will thrive in the future. We cannot predict what this next wave of technology innovation will be. Yet, no matter what new innovations the industry devises in the future, tech entrepreneurs will surely be drawn to the talented workers and vast resources found in New York City. The challenge going forward is to create the space for these technology companies and ensure that New York City remains at the forefront of the sector’s ongoing growth. Technology Trends in New York City Across the country, the tech sector experienced explosive job growth and new business creation in the 1990s, and New York City became one of the nation’s hot spots for this activity. The City saw several hundred new businesses sprout up between 1996 and 2000, adding tens of thousands of jobs to the local economy. By 1999, tech was a multi-billion dollar industry in New York City, employing over 130,000 people and provided payrolls of $8.3 billion.43 The technology sector developed rapidly in New York City, far and away outstripping the rates of expansion seen in the staple sectors of the economy such as FIRE, business services and publishing. One of the main factors that initially helped stimulate new technology business growth here was the availability of space. When the tech industry began to take off in the mid 1990s, New York City’s real estate market was experiencing a slump. This created an abundance of cheap office space, particularly in the Class B and C buildings that are attractive to many tech firms. The availability of low-cost office space enticed local entrepreneurs to move fledgling businesses from their living rooms to commercial offices and also attracted businesses from outside New York City to set up shop here. However, with little new office development and the aggressive expansion of other sectors in the City’s economy, the available space was eventually absorbed. By the end of the 1990s, this created steep rent increases and left little room for continued growth. The lack of space, coupled with the recent stock market downturn has let some of the steam out the tech industry’s upward climb. While a number of e-commerce firms closed shop in 2000, the tech sector should thrive in the future as the use of new technologies continues to drive innovation and higher productivity across all sectors of the economy. The decline in market valuation does not change the fact that new technology is the key to successfully conducting business in today’s marketplace, and the ongoing demand for these technologies will help this sector grow in the future.

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Thus, it is important that New York continue to make investments in the industry in order to facilitate future growth. Strengths to Support Tech in New York City The City offers a number of competitive advantages to help support the ongoing development of the industry. The most often-cited strengths include the following:

Access to workers The tremendous size and diversity of the regional workforce and an ability to attract young educated workers is one of the City’s greatest competitive advantages.
Contact with a broad customer base The wealth of advertising, entertainment, publishing, finance, securities, fashion and other firms in New York City provide a vast pool of clients.

Presence of important industry participants The numerous investors and venture capital firms, as well as the traditional media, entertainment and advertising industries, allow for collaborative relationships that foster industry growth.
Availability of technology infrastructure New York City has been ranked as the world’s top telecommunications center, with six million internet users, a substantial presence of telco hubs and co-location facilities and a more competitive marketplace than other large cities.44
Obstacles for Meeting Tech’s Need for Space Even with these important strengths, companies continually point to the high cost of doing business in New York. The shortage of space adds to high rental costs and contributes significantly to overall expenses. In order to ensure that New York City remains an affordable and accessible option for tech companies, it is imperative that the City and its business community prioritize the development of new office space to suit the industry’s needs. There are numerous obstacles that interfere with the market’s ability to accommodate the real estate needs of tech companies in New York City.

Concerns Over Credit Risk Companies in the tech sector have consistently had trouble convincing both landlords and developers that they were stable long-term tenants. The start-up firms that dominate the industry lack the track record to convince landlords that they are good credit risks. To mitigate this risk, property owners often require large security deposits and make tenants finance their own leasehold improvements, which drives up occupancy costs.
Developers also have been reluctant to respond to the demand for space from the tech industry, as much of this demand is driven by small firms that cannot support new construction projects. Developers also hesitate to enter into deals with even the sector’s large, well-established firms, as the cautious lending community tends to doubt the creditworthiness of “dot-coms” and other tech companies.

Demand for Special Building Infrastructure and Amenities Tech companies have a number of critical infrastructure requirements that create an additional real estate concern for the sector. These firms need high-speed Internet access and many small tech firms look for pre-wired space. In addition, tech firms, especially server farms, telco hotels and web hosting facilities, require power redundancy and around-the-clock heating and cooling systems to ensure that equipment is protected from outages and climate control issues. These equipment-oriented

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companies also need to be in buildings that have 13-foot ceilings, can support floor loads of 150 pounds per square foot and offer power capacity of 120 watts per square foot. Many content-oriented tech firms also look for offices with high ceilings and column-free floor plans, which create the open, airy work environment that is conducive to the collaborative nature of their work. These companies also require flexible spaces that can accommodate rapid, short-term growth. While the lower rents and aesthetic appeal of older Class B and C buildings entice tech firms, these spaces tend to leave tenants without access to some of the structural needs that are critical to their business operations. These buildings also present challenges to meeting the demands for high-speed Internet access, particularly if property owners have not reached agreements with service providers to offer competitive telecommunications services to tenants. The out-of-the-way locations where some of these buildings are located can also create an obstacle for tech companies. Local retail services and other amenities may be hard to come by, and security can be an issue for staff who often work late hours. The more affordable buildings typically do not offer shared conference facilities and in-house business services that can be helpful to small tech firms. Spaces that are both affordable and suit the specific needs of tech firms are in short supply in New York City, which presents a challenge to accommodating the industry’s future growth.

Short Lead Time for Real Estate Expansion Needs One of the most often-cited complaints of technology firms is that they cannot find space quickly enough to suit their short-term growth needs. While other companies may be able to plan for their real estate needs years in advance, tech firms have a reputation for rapid and unpredictable growth. This presents a challenge for companies that may not be able to find or afford option space for future expansion. Without a significant stock of available space, New York City is not attractive to companies with short-term space needs.

Recent Decline of Market Valuations The well-publicized demise of several technology companies, the recent stock market correction and the growing timidity of venture capitalists to inject more money into the technology sector have undermined the ability of tech firms to invest in real estate. Market capitalization for public technology companies has plummeted across the board, and private companies have seen venture capital in the sector dwindle. This has made operating capital a scarce commodity, making companies more concerned about how to stay afloat than investing in office space. Current conditions also make it harder to excite both the public and private sectors to plough new capital into the bricks and mortar that will house the tech industry in the future.

Recommendations for Promoting Office Development for Technology Industries
The Group of 35 developed several recommendations to help overcome the obstacles to meeting the needs of tech companies. The implementation of these recommendations will help create the space needed to ensure that New York City remains at the forefront of the tech industry.

Designate Sites for Technology Enterprise Centers within the Urban Business Campuses
The development of new space for the tech industry is a critical long-term goal for New York City. Thus, during the assemblage of sites for the Urban Business Campuses in Downtown Brooklyn, Long Island City and the Far West Side, the City and/or State should designate certain sites for the eventual development of Technology Enterprise Centers (TECs). The centers would be home to new state-ofthe-art facilities to house a variety of growing tech firms. Sites for the TECs should be marketed to large tech tenants that may be able to anchor new construction or to more established firms that can benefit from being in a building that house numerous tech users. These centers should be

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designed to accommodate the needs of small and medium firms, and should include amenities such as shared conference space and in-house business services.

Create a Pooled Credit Program
Property owners with concerns over the credit risk of technology tenants typically require substantial security deposits, which can make space prohibitively expensive for some firms. One way to help tech companies gain access to office space is by creating a pooled credit program backed by the City, State and private lending institutions. Tech companies that meet certain capital and credit criteria could be eligible for the program, which would create a pool of money to secure letters of credit. This would spread the default risk over a large pool of tech companies in New York City, providing additional security for landlords and making them more willing to rent to small tech firms.

Provide Real Estate Tax Incentives for Tech Space
The City can encourage the private sector to add more tech space to the New York City market by offering targeted real estate tax benefits and other incentives. One way to provide these incentives is through the expansion of the Digital NYC: Wired to the World program, a City initiative to create eight technology districts spread across all five boroughs. The City’s Economic Development Corporation, with the help of local development groups, is working with property owners to provide affordable, pre-built/pre-wired space for small tech firms. Modeled after the success Plug n’ Go program in Downtown Manhattan, the City provides marketing funds that are matched by the landlords. In return, landlords offer rents at below market rates. To date, Wired to the World has been successful in helping tech firms find space in DUMBO, LIC and other designated areas. To make the program even more effective, Wired to the World should be expanded to include as-of-right tax incentives for property owners in existing designated tech district areas who make investments to upgrade the technology infrastructure of their buildings. Designated areas should also be extended to include the proposed Central Business Districts in Downtown Brooklyn, Long Island City and on the Far West Side. Tax incentives should target such investments as installing better telecommunications wiring, adding extra electric capacity, enhancing heating and cooling systems and other improvements that may be too small to qualify for ICIP tax benefits. These investments, in conjunction with low-cost rents, will help expand the availability of affordable space for tech firms.

Allow Tech Companies to Access Tax Exempt Financing
Currently, only small companies involved in the traditional “manufacturing” process are eligible for tax-exempt industrial revenue bonds. The current IRS regulations ignore the fact that in the information age, the manufacturing of today and the future includes the development and production of software. The definition of manufacturing should reflect trends in today’s information age and should thus be expanded to include certain tech firms. Providing tech firms with access to tax-exempt financing would make space fit-out and equipment acquisition more affordable. Changing Federal eligibility standards would require Congressional legislative action.

Improve Access to Telecom Services
Demand for high-speed telecom products has increased dramatically in recent years, particularly with the explosive growth of new technology companies. To better deal with the challenges of meeting this tremendous demand while also maintaining the quality of telecommunications services, service providers, industry associations, landlord groups and the public sector will need to work together to ensure tenants have quick, easy and efficient access to this basic infrastructure. Two key areas of focus should include decreasing the time it takes to provide tenants with service and advancing ways to make smaller buildings more attractive and accessible to competitive local exchange carriers. Provisioning issues can create long waits for tenants needing high bandwidth services. On the real estate side, smaller Class B and C properties are less attractive to the new competitors entering the New York City market, since these buildings provide fewer customers and provide limited

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telecommunications revenue. In addition, some landlords limit access to only one telecom provider. Therefore, tenants in these buildings are often left without a choice of service. One recent development that can serve as a model for future cooperation is the creation of the Silicon Alley Advocate’s Office. Verizon, the City’s largest provider of high-speed Internet access, and the New York Software Industry Association (NYSIA) recently established this office to serve as a liaison between telecom companies and the professional associations for the industry in New York City. The advocate’s office will intervene in cases where there are problems with the installations or repairs of high-bandwidth voice and data services, such as T-1 lines. The creation of this new office is a good step forward in helping to improve companies’ access to better telecom service.

Create Incubator/Accelerator Space within Local Education Institutions University students and faculty are often the source of new technology innovations. Fostering this entrepreneurial spirit requires low-cost space and access to services that support fledgling businesses. One effort to help spur educational-based business development is the recent launch of the “Telemedia Accelerator” by the New York City Investment Fund. The accelerator is the City’s first university-based incubator that provides a hothouse environment to spur the growth of start-ups focused on digital broadband content, technologies and services. The university partner is the Borough of Manhattan Community College, a member of the CUNY system. The facility includes state-of-the-art wired space to accommodate up to 11 companies and offers businesses access to interns and faculty provided by CUNY. The City should pursue opportunities to replicate this incubator/accelerator project at other local educational institutions.

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PART 4: SUPPORTING DEVELOPMENT IN ANCILLARY BUSINESS DISTRICTS
There are opportunities throughout New York City for Ancillary Business Districts, which are smaller scale office districts with new and/or redeveloped space. Supporting commercial office development in these Ancillary Business Districts will enhance the City’s growth capacity and help spread economic development to areas that have not yet realized their full potential. While these areas are not likely to achieve development on the scale of the Central Business Districts described in Part 2 (at least not in the next 20 years), each of these Ancillary Business Districts offers strengths to support a modest amount of office space. These five locations are well suited to support an Ancillary Business District:
! Jamaica ! Flushing ! Harlem ! The Hub (in the Bronx) ! Staten Island Corporate Park

We examine the unique strengths and obstacles for development in each of these locations and then discuss tailored strategies for bringing about development.

Jamaica Ancillary Business District Jamaica’s downtown, known as Jamaica Center, is an emerging area that is well suited to the creation of an Ancillary Business District.
The Group of 35 proposes in Jamaica the creation of a globally-oriented business and transportation center that will include approximately four million square feet of commercial office space and other supporting real estate development such as an airline training center and a hotel/conference facility. This development will be facilitated by public condemnation, subsides to attract private-sector businesses, public-sector tenancy commitments and marketing efforts.
Local Strengths Jamaica offers numerous strengths to support the development of an Ancillary Business District.

Diverse Local Labor Pool and Excellent Transportation to Regional Work Force The Caribbean, Asian and Hispanic populations in Jamaica’s immediate environs create a large, diverse local workforce. In addition, the presence of York College offers prospective employers an opportunity to tap into an additional pool of educated workers. The college can also assist employers in finding skilled workers through its Department of Career Services, Cooperative Education program and the newly established Aviation Institute.
In addition to the local labor pool, Jamaica’s central Queens location and superior transit network provide great access to workers throughout the New York City metropolitan area. Jamaica Center is proximate to Manhattan, Nassau County and both JFK and LaGuardia Airports. The area has extensive transit service, with access from the E, F, J and Z subway trains, ten of the LIRR’s 11 rail lines and 40 bus lines that provide excellent accessibility from the rest of the City and Long Island.

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In the future, the MTA’s East Side Access project will connect LIRR service from Jamaica to Grand Central Station. Finally, car and truck travelers can reach Jamaica via the Van Wyck and Long Island Expressways as well as the Grand Central, Cross Island and Belt Parkways.

AirTrain, a Convenient Transit Link to JFK International Airport The coming of AirTrain in 2003 will create in Jamaica a unique opportunity to serve as a center for companies based in the air-travel industry. The $1.5 billion light-rail system will provide fast, convenient transit access to better service many of the 32 million travelers who pass through JFK airport each year. AirTrain passengers will be able to travel between Jamaica Station and JFK in just eight minutes, making Jamaica an ideal location for airport-related businesses. Many airlines operating service out of JFK already have offices in Queens and Long Island. The AirTrain link would make Jamaica a low cost, convenient alternative for these regional offices. In addition, foreign airlines that are initiating increased direct service to destinations in Asia and the Pacific Rim might be drawn to Jamaica for the diverse, international character of the local population. The airlines could also locate training centers in Jamaica, a use that has increasing demand. The AirTrain also adds to the appeal of Jamaica to foreign companies looking for small, affordable office spaces in which to open up shop and test the waters of the American marketplace.

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Development Capacity There are a number of vacant and underutilized sites near the future AirTrain Station that are suitable for assemblage and could support the development of commercial and hotel facilities. Six of these proposed sites are either next to or just across from Jamaica Station and could be developed in the shortterm to accommodate approximately one million square feet of commercial space. Subsequent development over the longer term could add as much as 3.2 million square feet of commercial space to the Jamaica Center area. There is also space available on the campus of York College, which would be ideal for tenants who would benefit from being proximate to the new Food and Drug Administration (FDA) laboratories located there.
Ongoing Investment Recent private investments to improve the area are promising signs of Jamaica’s potential. One notable example is the development of a new 300,000 square-foot movie and retail complex. This new investment will be a significant upgrade to Parsons Boulevard and Jamaica Avenue, stimulating night-time shopping and providing a supportive environment for development. The U.S. Social Security Administration building and the new FDA laboratory at York College are also helping to set the stage for private investment in Jamaica. York College is also home to a new Aviation Institute, which could further enhance Jamaica’s appeal as a potential hub for transportation-related industries. Additionally, ongoing residential and community development activities have helped to transform the area and highlight Jamaica’s pro-development attitude.

Supportive Environment for Development The Greater Jamaica Development Corporation (GJDC) provides an invaluable resource to promote development in the area and has a long track record of bringing together Jamaica’s business and residential communities to support and facilitate the area’s ongoing revitalization. Additionally, the South Jamaica Empire Zone (SJEZ), which encompasses the Jamaica Center area, provides real estate, sales, wage and income tax benefits to qualified companies located in the area.
Obstacles to Development Despite its obvious potential, Jamaica has a number of hurdles that stand in the way of increased commercial development.

Image While Jamaica has advanced considerably due to major public investment and improvements to the residential and commercial infrastructure, many outsiders still hold the misperception that Jamaica is blighted and unsafe. Lack of Existing Office Presence With no private Class A office space and little Class B and C space, Jamaica has few private sector office tenants. This presents a challenge to attracting private tenants that have a preference for being located near other businesses. Low-Density Zoning and Difficulty of Assembling Sites Jamaica’s zoning has excessive parking requirements, inadequate permissible bulk and other regulatory barriers that interfere with office development. In addition, the cost and complications of assembling sites discourages the private sector and would likely require actions on the part of the City and/or State governments to create sites.

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Traffic Congestion and a Shortage of Parking With recent growth (particularly in conjunction with new public court projects) traffic congestion and inadequate off-street parking have become serious problems in the Jamaica Center area. While the GJDC and the City have launched a joint effort to provide more off-street spaces, traffic is still an obstacle to increased commercial development in the area.

Recommendations
Creating office space at Jamaica Center would accommodate the demand of various users, such as government tenants, airlines and airline-training centers, foreign companies looking to establish a presence in the American market, not-for-profit organizations being priced out of other parts of New York City and back office operations similar to those in Long Island. As an adjunct to office development, new hotel space would suit the growing need for hospitality facilities that will be generated by the AirTrain, especially extended-stay facilities to accommodate airline personnel. In order to achieve the vision of an Ancillary Business District for Jamaica, we recommend the following actions.

Use Public Condemnation to Assemble Sites
The City and/or State should use condemnation powers in order to assemble the key sites around the AirTrain Station. There are 14 potential sites that could be assembled and developed in phases over a 15-year period to provide for a hotel and conference center, offices for a new home for the LIRR, airport/airline-training centers and office space for other transportation-related tenants. The development could also include retail and residential components, as well as convenient parking facilities to accommodate both airport commuters and workers/visitors to the new office and travel business center. (Refer to Appendix C for a map of potential development sites around Jamaica Station.) Assemblage for the early development phases should begin immediately and not solely in response to the expressed interest of a tenant or user. While this speculative approach to developing Jamaica requires political courage, it is a proven approach elsewhere and is absolutely necessary in order to bring interest and instill confidence in private sector partners for development projects. These public actions are critical to facilitate the removal of blight and to enable economic development. Assembling these sites will also help solve the critical parking issues, as proposed developments have the potential to include upwards of 1,000 parking spaces.

Rezone the Jamaica Center Area
The zoning surrounding the AirTrain station is currently designated for light industrial and low-scale commercial uses. In order to encourage office and other development, the area should be rezoned (possibly to C6-1) to allow for higher-density uses with reasonable off-street parking requirements.

Use Government Tenancy to Anchor Development Projects
Initial development efforts would greatly benefit from bringing increased tenancy from the City, State and Federal agencies, particularly those associated with the transportation sector. The diverse multi-ethnic population in and around Jamaica is an ideal source of workers to fill the many entrylevel jobs that these public sector agencies provide. In addition, using public sector tenants to anchor development projects can mitigate the risks associated with aggressively assembling development sites. One potential tenant is the LIRR, which could anchor the first office building.

Direct Public Funds for Parking and Other Projects
Since much of Jamaica’s parking demand is generated by Federal and City offices and courts, these public sector entities should fund the development of additional parking in the area. The U.S. Department of Transportation should also assist with funds for a number of roadway access improvements, including improvements to the VanWyck Expressway, rights-of-way acquisition and other projects.

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Mount a Joint Public/Private Sector Marketing Campaign
Attracting attention to the investments and planned developments in Jamaica is another important part of making the Ancillary Business District a success. The Queens Borough President’s office, the GJDC, the City and State should partner together to promote Jamaica’s potential and attract outside investment.

Flushing Ancillary Business District While the area’s greatest development potential lies in retail and residential uses, Flushing also provides an excellent opportunity for new office space.
The Group of 35 envisions in Downtown Flushing the creation of new office space for international businesses as part of an emerging retail, hospitality and entertainment center. Traffic concerns will be mitigated by the construction of a new municipal parking garage in conjunction with other transit enhancements that will allow for increased development to attract businesses and visitors from around the world.
Local Strengths Flushing offers numerous strengths to support an Ancillary Business District.

Diverse Local Labor Pool and Transportation Access to Regional Workforce One of Flushing’s greatest strengths is its large, ethnically-diverse population. The residential population of approximately 350,000 has been bolstered over the past several decades, due in large part to steady migration from Asian countries. The diversity stretches beyond Asian immigrants, as residents speak 109 different languages. Nearby Queens College also contributes 15,000 students to the area.
Flushing’s extensive transportation network also grants potential employers access to a broad labor pool. The No. 7 Subway train stops at the Main Street station in Downtown Flushing, the busiest station outside of Manhattan.45 On the No. 7 train, commuters can travel between Flushing’s Main Street station and Grand Central in only 30 minutes. The LIRR’s Port Washington Line has a stop adjacent to the Main Street subway station, providing access to workers from northwestern Long Island. Finally, 11 MTA and several other private bus lines run through the Main Street station, and direct bus service links the area to LaGuardia Airport.

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Ongoing Investment and Proposed Development Projects A great deal of investment has been going on in recent years, and many other projects are in various stages of development and marketing. These include the Sheraton LaGuardia East Hotel, another combined hotel, retail and dining project, a 70,000 square-foot retail and office building and several other retail and residential projects. This activity demonstrates private sector interest in Flushing that will help support further development of an Ancillary Business District.

Recent Rezoning and Potential for Office Development Another strength is the recently enacted rezoning that allows for higher density development in the area. Besides being able to support large-scale retail and residential developments, the rezoning has created the potential for more than two million square feet of commercial office and exhibition space in the downtown area. There is also potential for new office space as part of the Muss Development Company’s retail and residential development at Roosevelt Avenue and College Point Boulevard.
Obstacles to Development While Flushing has many positive attributes, there are a number of challenges to bringing commercial development to the area.

Restrictive Parking Requirements When the area was rezoned in 1998, community concerns over increased traffic led to a C4-2 designation, which has a strict parking requirement (one space per 300 square feet) that necessitates the construction of numerous levels of underground parking for large commercial buildings. This construction is prohibitively expensive, especially given Flushing’s high water table. Since this designa-

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tion, developers have instead built two- and three-story commercial buildings, which bring increased traffic but do not require accompanying parking.

Lack of Existing Office Presence Despite the commercial business activity in Downtown Flushing, there is very little office space in the area. The lack of space is indicative of the limited presence of commercial office users and thus creates an obstacle to attracting new office tenants to potential development projects. Image Rather than facing perceptions of crime, Flushing faces the difficulties of the image projected by some of the existing streetscapes and land uses. One factor contributing to the problems is the proliferation of illegal signage that clutters the downtown area. Numerous bright signs dangle from the sides of buildings, overwhelming the area and creating the feeling of a tourist area rather than a business district. In addition, there a number of unsightly land uses such as littered vacant lots, surface parking, illegal auto shops and junkyards that create an unappealing visual landscape in the area, particularly along the view corridors along Main Street to the Flushing River.

Recommendations
Fulfilling the potential that exists in Flushing requires undertaking a number of important actions.

Build a Municipal Parking Garage and Reduce the Parking Requirement
The public sector should build a parking structure for several hundred vehicles in a central location (west of Main Street) in order to accommodate additional commuters. Part of the development of this new garage must include a strategy to discourage Manhattan-bound commuters from using this as a “park and ride” facility. The investment in a public parking facility could allow for a change in the parking requirement that currently discourages large-scale office development.

Create a Business Improvement District and a Local Development Corporation
The City should encourage local business leaders and property owners to form of a business improvement district (BID) to provide sanitation and security services, advocate to remove illegal uses, and enforce local signage regulations. The numerous local business groups, including the Flushing Chamber of Commerce and Business, the Flushing Chinese Business Association, the Korean American Business Association and the Korean Small Business Service Center, could coordinate economic development efforts in Downtown Flushing through the creation of local development corporation (LDC).

Make Transit Improvements The MTA should commit to the ongoing maintenance of the newly repaired Main Street subway station and should also add another entrance at the western end of the platform to make the train more accessible to the proposed development area. In addition, upgrading the LIRR station will encourage greater utilization of commuter train service, which will help mitigate vehicular traffic. Mount a Joint Public/Private Sector Marketing Campaign The proposed Flushing BID and LDC, in conjunction with the Office of the Queens Borough President and the City, must partner together with the area’s existing business community to promote Flushing’s potential and attract the attention of outsider investors.

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Harlem Ancillary Business District Harlem’s recent residential and retail resurgence has sparked the interest of real estate investors who see potential for office development and redevelopment in Harlem.
The Group of 35 calls for the development and redevelopment of existing office space in Harlem to create an Ancillary Business District as part of the growing retail, hospitality and entertainment center along the 125th Street corridor. This district will accommodate government, not-for-profit and private - sector tenants. The district will also include a new mixeduse area near the Hudson River waterfront between Columbia University and City College, which will allow for moderate- density commercial, retail, academic and other uses.

Local Strengths Harlem offers a number of strengths that encourage office development in the area.

Accessibility to Local Labor and Transportation Access for a Regional Work Force As a primarily residential community, Harlem offers potential employers access to a large pool of workers. In addition to Harlem, Upper Manhattan is also home to the residential neighborhoods of Inwood, Washington Heights, and Morningside Heights. The overall area north of 96th Street has almost 580,000 residents, many of whom currently commute elsewhere to work (particularly other parts of Manhattan).46 The presence of Columbia University and City College also offer potential employers important business support services and a pool of highly-educated workers.
In addition, four subway stations along 125th Street make Harlem highly accessible to workers from elsewhere in the City. All three Metro-North lines stop at the station at Park Avenue and 125th Street, which currently brings tens of thousands of commuters from Westchester and Connecticut through the area every day. Drivers can reach 125th Street via the Triborough and Willis Avenue

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bridges, the Harlem River and FDR Drives and the West Side Highway, which provide convenient access from the rest of New York, as well as New Jersey and Connecticut.

Existing Office Space and Potential for New Construction Harlem has approximately 1.4 million square feet of office space (much of it along 125th Street), which houses a mix of government offices, not-for-profits, social service organizations and small professional businesses (such as architects, lawyers and medical offices). Many of these properties have space currently available, and the announcement that former president Bill Clinton has leased office space on 125th Street increases interest in the area. The 125th Street corridor also has potential for additional office space as part of ongoing projects, such as Harlem Center. Near the Hudson River waterfront between Columbia University and City College, there is also potential for new mixed-use development. This area is characterized by pockets of underdeveloped land with numerous one- and two-story industrial structures and vacant lots.
Ongoing Investment and Community Revitalization The recent boom of economic activity in Harlem has included the development of several new retail and entertainment establishments along the 125th Street corridor. In addition to Harlem Center, another noteworthy new retail project is Harlem USA, a 275,000 square foot retail and entertainment complex that opened in Spring of 2000, bringing a Magic Johnson multiplex movie theatre, an Old Navy Store and an HMV music store to the area. 125th Street is also now home to Circuit City, The Gap, Starbucks, Pathmark, Citarella’s, Blockbuster, Duane Read and Rite Aid stores. These retail projects are helping to revitalize the area, yielding new life and economic activity that can help support the development office use.

Available Incentives for Development As a federally designated Empowerment Zone (EZ), Harlem offers prospective employer wage tax credits, increased tax expensing and additional benefits. In addition, part of East Harlem is designated as part of the State Empire Zone program, which carries other tax and energy benefits. Finally, the New York City REAP and ICIP incentives provide substantial financial benefits to businesses that relocate to Harlem.
Obstacles to Development While Harlem has many positive attributes, there are a number of challenges to bringing commercial development to the area.

Image Harlem’s recent renaissance has brought new investment and employment to the area, however negative images still persist among members of the outside business community. In addition, the lack of a sizable office presence also gives the impression that Harlem’s potential is limited to residential and retail development. Inadequate Zoning for Long-Term Growth If Harlem develops a stronger office market in the future, the existing moderate-density zoning along 125th Street could constrain development. In addition, much of the area between Columbia University and City College is designated for low-density manufacturing, which will not allow for new mixed-use development. Lack of Coordinated Effort to Encourage Office Development While there has been a great deal of new investment in Harlem in recent years, members of the local development community have recognized the need for a coordinated effort to ensure that office space is included in the area’s development mix. Currently, a number of separate organizations control key

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development sites in the area and conceive of development projects independently. Without a joint effort among the City, State and Federal entities, the development of office space will be less likely to occur. Recommendations Fulfilling the potential that exists in Harlem requires undertaking a number of important actions.

Encourage the Redevelopment of Existing Properties Making better use of the existing stock of office properties is a critical piece of the development strategy for creating an Ancillary Business District in Harlem. Ways to accomplish this including the following:
! Educate property owners and potential tenants about the numerous tax and other incentives that

are currently available
! Use government tenants to take space in vacant and underutilized buildings ! Replicate the success of the association center at 120 Wall Street by creating another center for

not-for-profits in one of the existing underutilized buildings in Harlem
! Offer REAP or other cash incentives to not-for-profits to encourage these groups to lease space

in redeveloped properties

Identify Potential Tenants and Aggressively Market Projects The ongoing development of an Ancillary Business District in Harlem requires targeting and aggressively marketing projects to private sector tenants. Harlem’s proximity to Midtown Manhattan and its long-standing status as a center for urban entertainment and popular culture make it a potentially appealing location for advertising and entertainment firms. In addition, the existing office tenant mix and low-cost environment could help attract not-for-profits, particularly those in the health and education fields. Rezone to Allow for Additional Density and Uses In order to encourage a mixed-use district in the area between Columbia University and City College the low-density manufacturing zoning should be rezoned to a moderate-density, mixed-use designation. This will encourage development that feeds off the strength of these two nearby institutions. In addition, if there appears to be additional demand for office space along 125th Street in the future, the City should consider increasing the density in the area, but only in accordance with a development strategy supported by the local community. Use Public Condemnation to Assemble Key Development Sites Potential development sites along the 125th Street corridor (especially in the area west of Convent Avenue between Columbia University and City College) are characterized by small parcels of land owned by numerous private owners. Since office-related and other desirable projects require larger footprints, assembling enough of these small lots could present a challenge for development. In order to expedite the assemblage process, the City and/or State should consider utilizing condemnation powers. Make New Office Development a Public Sector Priority The various public sector and local development groups must coordinate their planning efforts in order to make sure that future development in Harlem includes office space. Strategies should include:
! Prioritizing office development as part of the RFP process ! Pricing public land sales to induce office development ! Using government tenants to anchor new office projects

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The Hub in the Bronx
The best opportunity to create an Ancillary Business District in the Bronx can be found at the Hub. This lively retail center attracts shoppers from all over the area but has little in the way of an existing office market.

The Group of 35’s vision for an Ancillary Business District in the Bronx focuses on creating a “main street” at the Hub by renovating existing office spaces and bringing small business, healthcare and other local service providers and government tenants to the area. This effort also involves creating a Surface Transportation Zone to ease traffic, as well as improving Third Avenue’s streetscapes and facades and attracting higher-quality retail shops. These efforts, combined with improved educational services, will help stimulate new economic activity that could support the development of new mixed-use projects over the long term.

Local Strengths The Hub offers several strengths to support the development of an Ancillary Business District.

Large Local Labor Pool and Transportation Access to the Regional Work Force With a large residential population, the Bronx offers a sizable pool of potential workers. The Bronx is also home to 11 colleges and universities including nearby Hostos Community College and the College of New Rochelle as well as the Bronx Community College, Fordham University, Monroe College, Lehman College, Manhattan College, College of Mt. Saint Vincent, Mercy College, Albert Einstein College and Maritime College. Recently, Boricua College initiated plans to build a new campus at 163rd and Third Avenue that will serve as its new main New York campus. Together these

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institutions enroll more than 39,000 students and employ over 7,000 people. As one of the highest local concentrations of students in the region, this academic population in the Bronx adds a strong pool of local workers to the labor force. The Hub also benefits from an excellent intermodal transportation network. With stops for the Nos. 2 and 5 subway trains at the 149th Street and Third Avenue station, workers from elsewhere in the Bronx and in Manhattan, Queens and Brooklyn have access to employment opportunities at the Hub. This station was recently refurbished by the MTA and now provides an excellent commuting environment. There are five bus lines that service the area, bringing commuters from Riverdale, Melrose and elsewhere throughout the Bronx. Commuters from Westchester and Connecticut can also reach the Hub area via Metro-North, which stops at the Melrose Avenue station and now accommodates 25 stops per day. In addition to transit access, vehicular commuters from New York and New Jersey can also reach the Hub by taking the nearby Triborough, Third Avenue, Willis Avenue and George Washington Bridges.

Strong Retail Activity The Hub serves as the retail center for the Bronx, drawing shoppers from throughout the Borough. The ongoing revitalization of the area has lead to recent investments in new retail developments that could generate enough activity in the area to stimulate a demand for office space.
Ongoing Revitalization in Nearby Neighborhoods The area around the Hub has witnessed a revival through the investment of two billion dollars in housing redevelopment and other projects since the mid 1980s. These new developments point to the positive trend in investment and commitment to rebuilding the local area. Further evidence of the growing activity in the area is the City’s effort to sell three vacant publicly-owned sites in the Hub for large-scale retail and commercial development.

Existing Stock of Office Space The recently renovated Hearns building at 149th Street and Third Avenue is now fully leased as the headquarters of SOBRO (a local economic development corporation) as well as an office for a Manhattan-based childcare agency. In addition, the Hub has upwards of 200,000 square feet of available office space, primarily over or behind storefront retail businesses. While this space has remained underutilized for many years, with redevelopment it could offer a ready-made home to potential office tenants, particularly small businesses and other tenant looking to provide local services to the community.
Available Incentives to Encourage Development As part of a Federally-designated Empowerment Zone (EZ), the Hub area offers prospective employers wage tax credits, increased tax expensing and additional benefits. In addition, the Hub is part of the State-designated Port Morris Empire Zone, which carries other tax and energy benefits. Finally, the New York City REAP and ICIP incentives provide substantial financial benefits to businesses that relocate to the Hub.

Presence of Large Healthcare Sector One of the largest sectors of the local economy that has exhibited consistent growth is healthcare. The 11 hospitals and numerous other healthcare service providers in the Bronx employ approximately 34,000 people. Lincoln Medical Center and Bronx-Lebanon Hospital Center are closest to the Hub and others, such as Montefiore Medical Center, Jacobi Medical Center and Saint Barnabas Hospital, are found throughout the Borough. The strong presence of the healthcare sector provides an economic engine for the Bronx.

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Obstacles to Development The Hub offers a number of strengths to support the development of an Ancillary Business District. However, there are several obstacles to realizing the area’s potential.

Underutilization of Existing Office Stock There is as much as 200,000 square feet of vacant office space in buildings in the Hub along Third Avenue. This vacancy is due in part to a lack of demand, as there are few office-based businesses serving the community. In addition, these properties require considerable investment to make them appealing to prospective tenants. Limited Pool of Skilled Local Labor Force A large portion of the working age population in the Bronx lacks the skills and education needed to take full advantage of the opportunities in the regional economy. Less- educated workers are not well suited to serve in the “new economy” jobs that are growing quickly in New York City. While there is labor available for low-skilled or entry-level jobs, the lack of a better-educated workforce limits office sector employers’ interest in the Bronx. Image While both the Bronx and the Hub area have advanced considerably due to major public investment and improvements to local residential and commercial infrastructure, many outsiders still hold the misperception that the area is blighted and unsafe. Traffic Congestion As retail activity around the Hub has grown, so too has the traffic and congestion in the area. Local merchants are concerned that the lack of parking could slow the continued expansion of retail activity, and this growing congestion also presents an obstacle to office development.

Recommendations
Creating the right environment to support the development of an Ancillary Business District at the Hub will require several actions.

Support the Bronx Center Plan
The Borough President’s office and local development groups are promoting a redevelopment plan called “Bronx Center” which targets a 300-block area centered around the Hub. The plan calls for a comprehensive approach to economic development that includes education and training programs, community health and service centers and residential and retail development. Implementing the Bronx Center plan will support the development of the Hub into a “main street” for the area by furthering the overall redevelopment that could help stimulate demand for office space.

Encourage the Redevelopment of Existing Properties
Making better use of the existing stock of office properties is a critical piece of the development strategy for the Ancillary Business District in the Hub. There are several ways to accomplish this, including the following:
! Educate property owners and potential tenants about the numerous tax and other incentives that

are currently available
! Use government tenants to take space in vacant and underutilized buildings ! Replicate the success of the association center at 120 Wall Street by creating another center for

not-for-profits in one of the existing underutilized buildings at the Hub

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! Offer REAP or other cash incentives to not-for-profits to encourage these groups to lease space

in redeveloped properties
! Target businesses related to the Borough’s large healthcare and education sectors as well as other

small firms in need of low cost space

Create a Surface Transportation Zone
The City should consider the creation of a special surface transit zone along Third Avenue, which would create new traffic flow patterns leading into the Hub, efficiently direct vehicular traffic to new parking and re-route buses in the area. This effort should also be supported by enhancements to existing bus service and more efficient links to the subway system. These steps would mitigate growing concerns over traffic congestion and help support increased activity in the area.

Consider Long-Term Opportunities for New Mixed-Use Development Projects
Ongoing retail growth and redevelopment of office properties at the Hub could be the catalyst to support new mixed-use development in the area over the longer-term. With increased economic activity, commercial office space should be included in larger retail and/or residential projects that are being considered as part of Bronx Center.

S t a t e n I s l a n d C o r p o r a t e Pa r k Although Staten Island is thought of primarily as a residential enclave, it is also home to emerging new commercial activity, primarily at the Staten Island Corporate Park.
The Group of 35 envisions an expanded Ancillary Business District at the Staten Island Corporate Park, which will provide additional suburban-style office space for professional service firms already in New York City and to others throughout the region. The creation of a State Empire Zone on the West Shore will make the Corporate Park an affordable alternative to other regional office markets, particularly in suburban New Jersey.
Local Strengths Staten Island offers numerous strengths to support the development of an Ancillary Business District.

Accessibility to Labor With its strategic location near the intersection of the Staten Island and West Shore Expressways, the Corporate Park is accessible to almost all of Staten Island’s half-million residents. In addition, the nearby Verrazano, Bayonne and Goethals Bridges allow companies at the Corporate Park to tap into the available labor in Brooklyn, Long Island and New Jersey. Manhattan workers can commute on the Staten Island Ferry to the North Shore terminal, which is only a short bus ride to the Corporate Park.

Existing Business Presence The Corporate Park is already home to nearly 1.3 million square feet of Class A office space that is configured in a low-rise, suburban-style office park setting. This space includes the Teleport and several other privately owned buildings that together are home to the Teleport Communications Group, Dun & Bradstreet, Merrill Lynch, WorldCom, Everything Yogurt and several insurance companies.
Available Development Sites The Corporate Park also benefits from having available sites to accommodate additional office development. The Teleport has over 30 acres that could be built out to accommodate another 600,000 square feet of office space. The Nictora Group, which owns several properties in the Corporate Park, also has sites that could house another 200,000 square feet.

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Suburban Style Office Product The low-rise developments of the Staten Island Corporate Park offer a unique suburban-style office product which includes plentiful parking, landscaped open space and highly individualized layouts that are characteristics of office parks found in New Jersey and Long Island. These buildings are unique in New York City and offer an opportunity to appeal to the same tenant base (primarily professional service firms) that is drawn to suburban office parks elsewhere in the metropolitan region.

Local Amenities The Corporate Park is situated within a 415-acre natural wildlife preserve that offers tenants a tranquil, park-like feel. The Corporate Park will soon be home to the Hilton Garden Inn, a 175-room hotel and conference center that will contain a banquet hall and two restaurants. The hotel will be surrounded by natural habitat walking trails. Not far from the Corporate Park are numerous amenities such as the Staten Island Ferry, National Lighthouse Museum, the Staten Island Institute for Arts and Sciences, the Snug Harbor Cultural Center and the Staten Island Yankees Baseball Stadium.
Obstacles to Development Despite the obvious strengths afforded by the Staten Island Corporate Park location, there are a number of obstacles that inhibit the further development of new office space.

Higher Cost Environment than Other Suburban Office Markets in the Region Staten Island’s primary competition comes from suburban office parks, particularly those found in central New Jersey. While rents in the Corporate Park are competitive, the City’s business taxes put Staten Island at a disadvantage.

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Tolls at All Vehicular Access Points in Staten Island The accessibility offered by the Outbridge Crossing and the Goethals, Bayonne, and Verrazano Narrows Bridges is offset by the high tolls that are charged on these crossings. For New Jersey workers, these tolls are a major deterrent to choosing employment in Staten Island over in-state alternatives. The cost burden placed on commuters is a drawback to businesses that draw on a regional labor force, which leaves Staten Island in a somewhat uncompetitive position to attract off-island tenants for new development. Image Despite the availability of land and affordable rents found in the Staten Island Corporate Park, outsiders’ negative misperceptions about the Borough limit interest in the area.

Recommendations
In order to achieve this vision, we offer the following recommendations:

Approve the Proposed State Empire Zone on the West Shore
The State should create an Empire Zone on the West Shore, including the Staten Island Corporate Park. This designation would allow qualified local and relocated businesses to receive sale tax exemptions, property and wage tax credits, and various other financial incentives for doing business in the zone. These incentives would go a long way to level the playing field between the cost of doing business in the Staten Island Corporate Park and the surrounding suburban office park market, especially in New Jersey. The employers receiving these benefits could use them to offset employee commuting costs associated with tolls at bridge crossings. The effort to designate the Empire Zone is being led by the office of the Staten Island Borough President and the Staten Island Economic Development Corporation. The proposal will require the approval of the State legislature.

Mount a Joint Public/Private Sector Marketing Campaign The City, State, private business leaders and local development groups should work together to actively promote both the opportunities and financial benefits available in the Corporate Park. In addition, marketing efforts should focus on promoting Staten Island’s other assets, including the Borough’s numerous amenities, low crime rate and highly-skilled workforce. The campaign should also highlight the closing of the Fresh Kills Land Fill, the development of the Staten Island Yankees baseball stadium, plans to renovate the Staten Island Ferry Terminal and the ongoing revitalization of the St. George area. Aggressively promoting these strengths should help make Staten Island a more attractive alternative for New York City firms and other off-island businesses that might be considering other suburban-style office park locations.

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PART 5: ACCOMMODATING THE REAL ESTATE NEEDS OF THE CITY’S EXISTING MANUFACTURING INDUSTRIES

PART 5: ACCOMMODATING THE REAL ESTATE NEEDS OF THE CITY’S EXISTING MANUFACTURING INDUSTRIES
While the presence of manufacturing in New York City has been on the decline since the 1970s, this industry segment continues to be a vital source of employment and an important economic engine for the economy. The City’s variety of manufacturing and industrial firms, many of whom specialize in the production of apparel and textiles, paper and printed materials, food, fabricated metals, and chemicals among others, continue to demonstrate an ability to adapt to changing global markets. A recent report issued by the New York Industrial Retention Network notes that the City’s approximately 12,000 manufacturing firms provide over 200,000 jobs, making this sector one of New York City’s largest employers. Maintaining a base of manufacturing employment is important to the City’s economy because this sector is a significant employer of immigrants, who comprise over a third of the New York City population. Fifty-two percent of City residents who have limited English-language skills work in the manufacturing sector. In addition, those with limited education skills are often employed in the manufacturing trades, as 60% of workers in this sector have a high school degree or less.47 It is important to the City’s overall economic health to retain opportunities for low-skilled workers. In addition, the lower-skilled service jobs that are being generated in today’s economy typically do not pay as well as manufacturing jobs. As competition from low-cost locations both inside and outside the U.S. has eroded the City’s manufacturing base, the sector has evolved from being home of large-scale manufacturers to one more specialized firms adapted to the strengths of the local economy. The recent relocations of the Farberware and Swingline production operations demonstrate that the heyday of large industrial firms in New York City is fading away. Yet, smaller niche firms have been able to thrive in the City. For example, Clark-Hess, Epner Technologies, Kern Manufacturing and Vahl Manufacturing make state-of-the-art electronic equipment and metalworking used in aviation world-wide, while Yohay, Damascus Baking, and Uhmanoff Parsons make cookies and cakes that are sold across the country.

Real Estate Issues for Manufacturers Like other tenants in the City’s real estate market, manufacturers are feeling the effects of the New York’s space crunch. While residential and office rents are typically in excess of $30 per square foot, industrial space rents for under $15. Since manufacturers cannot afford to pay as much as other users, industrial space is being converted to meet demand for office and housing. This conversion has reduced the amount of available industrial space. In addition, the relatively low rents paid for industrial space are not enough to cover the costs of new development, and thus little new product is being constructed in New York City.
In addition to creating opportunities for office space, the Group recognizes the importance of meeting manufacturers’ real estate needs, particularly for those firms that may be displaced by expanding office use in places like Long Island City and the Far West Side of Manhattan. In order to address these issues, we recommend the following actions:

Create a Trust for Industrial Space One way to preserve manufacturing space is through the creation of a not-for-profit “Trust for Industrial Space” that would acquire, renovate and maintain manufacturing buildings. A form of this is already being supported by the public sector at the Greenpoint Manufacturing and Design Center, which has renovated over 600,000 square feet of industrial space. As a not-for-profit, the trust would be immune to the financial pressures that prompt conversions. Another benefit to the trust is that, unlike implementing a new restricted-use zoning policy, space can be preserved for manufacturing use

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without invoking the fear among existing landowners that their properties will lose value. The estimated funding required to set up and capitalize the trust is $25 million over five years. Funding should come from City, State and Federal sources and be supplemented by private funds to be raised by the trust.

Fund the “Move Smart” Program As the real estate market in New York City continues to prompt manufacturers to move to lowercost space, companies face the daunting task of relocating operations. More so than in other sectors of the economy, moving costs for manufacturers can be extremely expensive, especially for those with heavy equipment or requirements for uniquely configured spaces. Additionally, if a company is considering a move to a location outside of New York City, the firm will likely receive offers from host municipalities to fund relocation costs. Creating the “Move Smart” program would assist displaced firms in their search and selection of new sites, as well as help fund the actual move and provide technology assistance to improve productivity in the new location. The City should be commended for recognizing the recent pressures on the printing industry in Manhattan by creating an eight-million-dollar relocation fund for this industry. Move Smart would expand on this effort by providing financial assistance to a broader segment of manufacturing industries. Remove the Obstacles to Brownfields Redevelopment New York City is home to an estimated 4,000 acres of brownfields which are vacant or abandoned industrial lands with varying degrees of known or suspected contamination. Cleaning up these properties would create opportunities for New York City’s manufacturing companies. However, the liability and lack of predictable, achievable standards in existing Federal and New York State laws are major disincentives for landowners and potential developers to engage in the sale or purchase of brownfields.
Another factor that frustrates the redevelopment of brownfields, particularly for industrial use, is that State law does not explicitly provide for what is known as “end use” cleanup standards. Adopted in most states around the country, these standards provide flexible cleanup criteria depending on what type of use – residential, commercial or industrial – will eventually be located on the site. The flexible standards recognize that manufacturing sites need not be held to as stringent a standard as residential sites. However, the existing State rules leave property owners, developers and lenders uncertain as to what standards will be applied, making it difficult to quantify the cleanup costs and consequently, difficult to attract private investment. In order to encourage the redevelopment of brownfields for industrial use, the Group of 35 advocates for publicly promulgated rules and regulations that establish and redesign the State’s Voluntary Cleanup Program by addressing the following issues:
! Creating an advisory panel to help determine predictable and appropriate cleanup standards and

presumptive remedies (formulaic remedies for former uses such as dry cleaners and gas stations)
! Establishing soil cleanup values that provide for flexibility and consider the end use of a property ! Creating a meaningful liability release that will encourage all parties to conduct cleanups and

redevelopment
! Developing short- and long-term strategies for cleaning up groundwater that acknowledge the

technological limitations of groundwater remediation and are thus more conducive to supporting development.

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By improving the design of the State’s Voluntary Cleanup program, these recommendations will help promote the redevelopment of the City’s brownfields into new space for manufacturers. In conjunction with the recommendations for the State’s program, the City must take steps to implement a comprehensive brownfields remediation strategy that puts the redevelopment of these properties as an economic development priority. The Governor, Senate and Assembly have each included brownfields in their budget proposals this year.

Redevelopment of Public Sites Over the years, the City has taken advantage of its various land holdings to accommodate the needs of numerous manufacturers. Examples include the redevelopment of the Brooklyn Army Terminal and the Brooklyn Navy Yard and the successful disposition of underutilized land in places like Zarega in the Bronx, College Point in Queens and East New York in Brooklyn. Additionally, the City has sponsored the In Place Industrial Park (IPIP) program that has helped fill eight industrial parks around the City with manufacturing businesses. However, as the economy has improved in New York City, the inventory of industrial space has begun to dwindle.
There are two opportunities for additional industrial development at publicly-owned sites. First, in conjunction with efforts to improve regulations for brownfields, there are 316 publicly-owned lots totaling 1,160 acres of manufacturing zoned brownfields land that can be reclaimed and marketed for manufacturers. The City and State should earmark funds for this redevelopment and assist private and not-for-profit developers who are interested in remediation of these properties for manufacturing use. Secondly, the City should continue to invest in the build-out of the Brooklyn Army Terminal, which provides an affordable home for hundreds of businesses. The Terminal includes approximately four million square feet of space in two buildings. Since the City took control of the complex in 1981, it has renovated all of first building and part of the second. The first building renovated (known as “Building B”) offers 2.2 million square feet of space that today is fully leased. The other building, (known as “Building A”) has a total of 1.8 million square feet, with 400,000 square feet already renovated and another 470,000 square feet currently being refurbished. This leaves an additional 970,000 square feet of space in need of work before it can be made available for industrial tenants. At an approximate cost of $55 per square foot, the City should commit to invest the $53 million required to complete to build-out of Building A. Based on the revenue brought in by tenants, the additional capacity to retain manufacturing jobs in New York City and the ability to free-up other space throughout the City for office uses, this is a sound investment.

Increase Access to Tax-Exempt Industrial Revenue Bonds The New York City Industrial Development Agency (IDA) provides small manufacturers access to tax-exempt financing that significantly lowers the cost of capital for new improvements. However, eligibility to utilize these private activity bonds is limited to the smallest manufacturers. Under current law, eligibility is limited to companies with total capital expenditures under ten million dollars over a six-year period (a limitation that has been in place since 1978). Based on inflation, the buying power of ten million dollars in 1978 would equate to less than five million dollars today. The ten- million-dollar cap also creates a bias against urban projects that tend to have higher land and development costs. The Group of 35 supports current efforts to have Congress increase the limit to $20 million.
Create an Industrial Development Tax Credit Program Like development for low-income housing, new industrial space is difficult to finance because these properties do not generate rents that are adequate to cover investment costs. To overcome this obstacle in the low-income housing market, the Federal government initiated the Low-Income Housing Tax

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Credit program, which offers transferable tax credits to be used against income generated by these development projects. A similar subsidy mechanism could be used to stimulate the development and redevelopment of industrial facilities. The credit would allow developers (including not-for-profits) to leverage capital from outside investors in order to get additional financing for industrial projects. Creating the Industrial Development Tax Credit program would require Federal legislation and annual funding appropriations.

Reform the ICIP and REAP Programs The current eligibility requirements for ICIP and REAP often create obstacles for small manufacturers seeking to rent space in large, multi-tenanted buildings. Eligibility is based on capital investment that must be equal to a certain amount of the assessed value of a building. A tenant renovating a small amount of space in a large building is unlikely to meet the threshold. Therefore, the investment criteria should be pro-rated so that the investment is measured against the assessed value for the appropriate share of the building.

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APPENDIX A

!

APPENDIX A ANNUAL AVERAGE VACANCY RATES AND NEW CONSTRUCTION COMPLETIONS IN MANHATTAN, 1980 – 2001
Years
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
2001* Average

All Classes Manhattan
2.9% 3.1% 3.6% 5.0% 5.5% 6.3% 8.4% 8.5% 10.1% 14.1% 16.1% 17.6% 18.6% 18.1% 16.9% 16.6% 16.8% 13.5% 9.6% 8.2% 4.5%
5.0% 10.4%

Vacancy Rates Class A Midtown
5.0% 2.5% 3.4% 4.8% 5.6% 7.2% 7.0% 7.1% 9.4% 10.5% 13.3% 13.0% 12.8% 13.2% 10.5% 9.4% 8.1% 6.1% 5.3% 4.0% 2.4%
2.4% 7.4%

Class A Downtown
n/a n/a n/a n/a 10.0% 10.2% 7.9% 9.9% 8.1% 11.1% 12.6% 13.9% 16.4% 16.1% 15.5% 14.5% 12.9% 7.5% 4.1% 3.3% 2.1%
2.1% 9.9%

New Construction (in millions)
0.250 1.649 4.158 6.498 3.303 6.606 5.430 7.492 2.700 7.832 4.804 0.170 2.254 0.000 0.000 0.000 0.000 0.000 0.000 1.500 0.000
2.750** —

* 2001 data are averages based on First Quarter 2001. ** 2001 new construction numbers based on estimated completion dates for projects currently under construction. All data refer to availability of direct space and do not include sublet space.

Data sources: Vacancy rates for all property types in Manhattan from the Real Estate Board of New York (REBNY), unpublished records. Vacancy rates for Class A properties from Cushman & Wakefield, unpublished records.

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APPENDIX B

APPENDICES

APPENDIX B Visualizations of a Long Island City Central Business District Over the next 20 years, the character and density of the proposed Central Business District for Long Island City will be determined by a combination of private market forces and public planning and investment decisions. However, one of the impediments for private investment and civic support is the difficulty in envisioning a high-density mixed-use center in LIC’s core. The image below, prepared by the Thompson Design Group and based on assumptions developed by a team of planners and developers convened by Regional Plan Association, represents one potential configuration of a new Central Business District.48 As one of many possible outcomes, it is intended to stimulate ideas of what the center could be, rather than a blueprint for what it should look like. Key assumptions for this scenario include the completion of an intermodal station that would serve the LIRR, NJ Transit and possibly MetroNorth; a rezoning that would allow additional density in the Central Business District; continued limits on commercial density outside of the Central Business District; a substantial portion of residential, as well as commercial, development in the core area; and major enhancements to open space and streetscapes, including a new park in the center and an attractive pedestrian-friendly boulevard along Jackson Avenue (see picture on page 94).

APPENDICES

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Alternative build-out scenarios for a Long Island City Central Business District The Group of 35’s proposal to create a Long Island City Central Business District with 15 million square feet of new commercial space depends on both market forces and the implementation of the policies and investments called for in this report. The exact timing, shape and density of development will be determined by a complex interplay of these factors, including cycles in the real estate market, changes in the type of space and amenities demanded by new and existing industries, the details of land-use decisions, the design of buildings and public spaces, and the scope of infrastructure improvements. The Thompson Design Group’s rendering of a Long Island City Central Business District (shown on previous page) represents one potential outcome. The two simulations depicted on the next page represent other possible ways that new development could be distributed and still achieve a threshold of 15 million square feet. These renderings represent a range of siting, design and development possibilities that would result in a vibrant center on the scale of other regional centers in Jersey City, White Plains and Stamford. These following scenarios, developed by the Environmental Simulation Center, are based on proposed zoning envelopes and assumptions for feasible site assemblage. They were developed for Regional Plan Association and the Group of 35, with input from Jonathan Rose and Companies, the Thompson Design Group and Richard Kaplan. Buildings shaded in dark gray represent existing buildings. Those in light gray represent new buildings. The scenarios are intended to primarily show different ways that density could be distributed, and make no assumptions about building facades or streetscapes.

Scenario One depicts a Central Business District with 15.4 million square feet of mixed-use space, 4.4 million in existing buildings and 11 million in new buildings. It includes a second tower paired with the current Citicorp building, a second density concentration at Queens Plaza and the remaining space distributed throughout the district. This scenario could develop gradually over the next 20 years and is consistent with a Central Business District that retains some high-end production (such as printing) and includes a substantial portion of “live-work” space for small technology companies and artisans. Scenario Two has more aggressive assumptions both for commercial demand and the public sector’s role in site assemblage. It assumes 18.1 million square feet of space, 3.4 million in existing buildings and 14.7 million in new space. Residential and production activity could still be part of the mix, and new development would still be phased in over time as infrastructure and amenities are improved. However, the City would need to take a more active role than in Scenario One for land acquisition and planning for open space.

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Long Island City Central Business District BUILD-OUT SCENARIO ONE
ENVIRONMENTAL SIMULATION CENTER, LTD.

Long Island City Central Business District BUILD-OUT SCENARIO TWO
ENVIRONMENTAL SIMULATION CENTER, LTD.

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APPENDIX C Map of Potential Development Sites Around Jamaica Station

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ENDNOTES
In this analysis office employment refers only to employees of private and not-for-profit organizations and excludes government workers. 2 Employment data obtained from Economy.com. While many workers in the Publishing and Cable TV sectors do not work in offices, there are many office workers in other manufacturing and service sectors. Therefore, our method of estimating office employment for New York City represents a compromise of these conditions. 3 Data sources for Table 1 are as follows: Total employment figures from Economy.com of West Chester, PA. Office employment estimates calculated by Group of 35. 4 Data sources for Table 2 are as follows: 1991 – 2000 data from Real Estate Board of New York (REBNY), unpublished records. 5 New Construction figures refer to competitive buildings only. Non-competitive buildings are 100% owner or government occupied. Most real estate brokerage firms only track data for competitive office inventory. 6 Competitive inventory data provided by Grubb & Ellis. Estimates of total competitive and noncompetitive inventory in New York City range from 400 to 450 million square feet. 7 Notes for Figure 1 are as follows: New construction figures refer to competitive buildings only. Data sources for Figure 1 are as follows: REBNY, Rebuilding Manhattan: A Study of New Office Construction, 1947-1997 and New York City Economic Development Corporation, unpublished reports. 8 Notes for Table 3 are as follows: New construction and inventory data reflect competitive buildings only. Base year refers to the last year before the beginning of the decade, i.e. 1969, 1979 and 1989. Inventory growth rate calculated as (new construction/base year inventory)100. One might assume that by adding the new construction to the base year inventory, one would arrive at the base year inventory for the following decade. However, while inventory increases due to new construction and conversion to office use, it also shrinks due to demolition and conversion from office to other uses. In addition, the inventory growth rate refers to the gross increase in inventory due to new construction, not the net increase, which would reflect both the additions and reductions in total inventory. Data sources for Table 3 are as follows: New construction data from REBNY, Rebuilding Manhattan and the New York City Economic Development Corporation, unpublished records. Inventory data from Grubb & Ellis, unpublished reports. 9 Suburban office inventory data from Clarion Partners, unpublished records and includes only competitive inventory. New York City data from the REBNY, Rebuilding Manhattan and from the New York City Economic Development Corporation, unpublished records. 10 Inventory and new construction data provided by GVA/Williams, unpublished records. 11 Data on Chicago, Washington, DC and Boston were provided by Cushman & Wakefield from unpublished records. 12 Unless otherwise noted, all comparisons of rents over time refer to inflation-adjusted figures. Figures that appear in the text are in Y2000 dollars. Nominal rents were adjusted to account for inflation using the Gross Domestic Product Deflator Inflation Calculator, base year 2000. 13 The comparison of 2001 rents and historic data relies on a 2001 figure that is not adjusted for inflation, as the GDP for 2001 has not yet been determined. Furthermore, the 2001 data were provided by Cushman & Wakefield, while the data prior to 2001 were provided by REBNY. 14 Notes for Table 4 are as follows: All rent figures from 1980 to 2000 are in terms of Y2000 dollars. Original data presented in nominal terms and adjusted for inflation by the author using the GDP Deflator Inflation Calculator. Data sources for Table 4 are as follows: Overall Manhattan rents 1980 to 2000 from REBNY, unpublished records. Original data provided quarterly. Annual averages were calculated based on federal fiscal year, which runs from October 1 through September 30. All Class A Midtown and Downtown rents and 2001 overall Manhattan rent data from Cushman & Wakefield unpublished records. New construction data from REBNY, Rebuilding Manhattan the and New York City Economic Development Corporation, unpublished records.
1

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Class A property comprises approximately 60% of the total inventory in Manhattan’s central business districts (i.e. Midtown and Downtown, and as of recent years, the sub-market of Midtown South). 16 Notes for Figure 2 are as follows: Construction figures for 2001 based on projected completion dates and inventory estimates of projects currently under construction. New construction reflects competitive buildings only. All rental data originally presented in nominal dollars and adjusted to reflect inflation using the GDP Deflator Inflation Calculator. Data sources for Figure 2 are as follows: New construction data from REBNY, Rebuilding Manhattan and rental data from REBNY, unpublished records. Overall Manhattan asking rent data from REBNY, unpublished records. Midtown and Downtown Manhattan Class A asking rent data from Cushman & Wakefield, unpublished records. 17 Notes for Figure 3 are as follows: 2001 new construction numbers based on estimated completion dates for projects currently under construction. All data refer to availability of direct space and do not include sublet space. New construction figures reflect competitive buildings only. Data sources for Figure 3 are as follows: New construction from REBNY, Rebuilding Manhattan and from the New York City Economic Development Corporation, unpublished records. Overall Manhattan vacancy rates from REBNY, Rebuilding Manhattan. Midtown and Downtown vacancy rates from Cushman & Wakefield, unpublished records. 18 Leasing data for Hudson County from Cushman & Wakefield, unpublished records. 19 Estimate of jobs accruing to Hudson County based on assumption that 200 square feet of space is needed to accommodate one employee. While all of these jobs have not actually been relocated from New York City to New Jersey, we do estimate that the space taken by these relocating New York City companies will likely translate into 30,000 new jobs for New Jersey. 20 Economy.com’s projections are based on historical employment and population growth rates, and assumptions regarding future trends in individual industries. Group of 35 estimates of future office employment were obtained by totaling Economy.com’s projected employment figures in the following sectors: FIRE, Membership Organizations, Business Services, Engineering and Management Services, Legal Services, Publishing, and Cable TV. 21 Data sources for Table 5 are as follows: Overall employment estimates from http://www.economy.com. Group of 35 estimated office employment based on total employment data. 22 Data sources for Table 6 are as follows: New construction in the years 2001 through 2004 was estimated based on surveys of several real estate brokerage firms as well as information available from the New York City Economic Development Corporation and the New York Department of City Planning. 23 Notes for Table 7 are as follows: New construction estimate based on projects currently under construction. Additional projects initiated by year end 2002 could be ready for occupancy for occupancy by 2005. Data source for Table 7 are as follows: Calculations of office employment based on employment projects from http://www.economy.com. Calculations of demand for office space using assumption of 200 square feet per office worker. 24 Data sources for Table 1 are as follows: Site acquisition, hard costs, soft costs, real estate taxes and tenant installation data reflect averages of cost estimates gathered through interviews with numerous developers, construction companies and real estate brokers that operate in these markets. Additional information provided by the New York City Economic Development Corp. and the New York City Department of Finance. 25 Data sources for Table 2 are as follows: Interest rates, real estate taxes, operating expenses, equity return and vacancy reserve data reflect averages of estimates gathered through interviews with numerous developers and real estate brokers that operate in these markets. Additional information provided by the New York City Economic Development Corporation and the New York City Department of Finance. 26 Data sources for Table 3 are as follows: BEIP, ICIP, energy program and REAP data gathered from surveys with numerous developers and real estate brokers that operate in these markets. Additional information provided by the New York City Economic Development Corp. and the New York City Department of Finance.
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Data sources for Table 3 are as follows: Average asking rent data for Midtown, Downtown and Jersey City from Cushman & Wakefield, unpublished records. Rent data for Boroughs from the Downtown Brooklyn Council. 28 The need for a minimum of 15 million square feet of office space to support a full service business district is expressed by Michael Kwartler & Associates and Robert B. Pauls in their report “Contemplating a CBD in LIC: Determining the Development Thresholds”, pp. ii – iii. 29 The largest of the City’s eight In-Place Industrial Parks (IPIP) is in LIC, encompassing over 900 acres in the area. The LIC IPIP borders the East River and the northern tip of Brooklyn. Its northern boundary is formed by the Queensboro Bridge and Queens Boulevard, while its eastern border follows Van Dam Street, approximately to Newton Creek. 30 East Side Access will route LIRR trains through this station (at the Sunnyside Yards) before continuing on to Penn Station in Manhattan. 31 Vacancy and rent data obtained from GVA/Williams, unpublished records. 32 The definition of biotechnology was adapted from the definition provided on the website for the Biotechnology Industry Association, http://www.bio.org/govt/whatis.htm. 33 California Healthcare Institute, The Millennium Report 2000 34 Massachusetts Biotechnology Council, Inc. “Big Pharma Moving to the Bay State,” <www.massbio.org/pubs/Bioline_v12_n3.pdf.>, statistics. 35 Teater, Barry. Director of Public Affairs, North Carolina Biotechnology Center. Interview by author, 11 April 2001. 36 New York City Investment Fund, Market Demand Study for Commercial Biotechnology, Biomedical and Bioinformatics Facilities in New York City, February 2001, p. 10. 37 Business Facilities, “15 States That Engineer Growth.” October 1999, p. 28. 38 The Center for an Urban Future, Biotechnology: The Industry That Got Away. September 1999, p.1. 39 Description of basic lab space was given in a footnote in the New York City Investment Fund study, p. 14. 40 Basic construction cost estimates from the New York Investment Fund study (p. 16), with adjustments for land, operating and taxes added by Group of 35 staff analysis. Data on what level of rent is affordable to biotech firms also given in the Fund’s study. 41 This estimate is taken from the New York City Investment Fund study and refers to the subsidy required to build approximately one million square feet of biotech space. 42 Information about AMDeC taken from the company’s Web site; http://www.amdec.org. 43 PricewaterhouseCoopers, New York New Media Association Survey. March 2000. 44 Lynche, Grahame; Tanner, John C.; Castillo, Ricardo; Levine, Shira et al. “Rating the Worlds’ Top 20 Telecom Hubs” America’s Network. 1 Sept. 2000. 45 New York Newsday; Archives; http://www.newsday.com/azq.flushter.htm. 46 U.S. Census Bureau, Current Population Survey, 2000 census data. As found on the American Fact Finder; http://factfinder.census.gov/servlet/DatasentMainPageServlet 47 New York Industrial Retention Network. Legislative Forum: The Status of Manufacturing in Manhattan, circulated 25 May 2000. 48 Participants in the RPA team included the Environmental Simulation Center, Johathan Rose and Companies, Richard Kaplan and the Thompson Design Group.
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