Cross-Subsidy Models for Urban Manufacturing By Salma Abdelgawad
B.S., Architectural Engineering The American University in Cairo
Cairo, Egypt (2014)
Submitted to the Program in Real Estate Development in Conjunction with the Center for Real Estate in Partial Fulfillment of the Requirements for the Degree of
MASTER OF SCIENCE IN REAL ESTATE DEVELOPMENT
at the
MASSACHUSETTS INSTITUTE OF TECHNOLOGY May, 2020
©2020 Salma Abdelgawad. All rights reserved
The author hereby grants to MIT permission to reproduce and to distribute publicly paper and electronic copies of this thesis document in whole or in part in any medium now known or hereafter created.
Signature of Author_____________________________________________________________ Center for Real Estate
May 12, 2020 Certified by___________________________________________________________________ Kairos Shen Lecturer, Department of Urban Studies and Planning
Thesis Supervisor Accepted by__________________________________________________________________
Professor Dennis Frenchman Class of 1922 Professor of Urban Design and Planning
Department or Urban Studies and Planning Director, MIT Center for Real Estate
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Cross-Subsidy Models for Urban Manufacturing
By Salma Abdelgawad
Submitted to the Program in Real Estate Development in Conjunction with the Center for Real Estate on May 12, 2020 in Partial Fulfillment of the Requirements for the Degree of Master of Science in
Real Estate Development
Abstract
Much has been written concerning the positive socio-economic values of urban manufacturing and the need for cities to advocate for the protection of existing middle-income wage jobs in the industrial sector. However, there lie governing factors as to why a use, that has always been essential to communities, has become very hard to grow or even sustain in the present time. Urban growth models were usually developed around the idea that industrial uses are a negative externality. Unlike numerous cities that witnessed complete deindustrialization after World War II, New York City has over the years transformed the identity of its Manufacturing districts. The revival of urban manufacturing in the heart of NYC, where the highest and best use is not in favor of industrial use, has pushed for re-visiting the outdated industrial zoning framework for the first time since the 1961 zoning resolution.
The North Brooklyn Industrial Business Zone, a protected manufacturing district spanning across 1,066 acres and the third-largest industrial hub in the city by employment, is set out to become the blueprint for a proposed rezoning framework by NYC’s Department of City
Planning. The rezoning was initiated as part of the industrial action plan launched in 2015 and aims to create new models for innovative and diverse neighborhoods through mixed-use commercial and industrial uses. In 2018, The Department of City Planning released a draft rezoning framework outlining an additional density to support commercial investment in a growing of a mixed-use market. However, the plan does not define a clear strategy that aims to maintain net-zero losses in industrial jobs. In effect, a simple up-zoning applied to industrial land will not hold back competing uses from outbidding industrial tenants and creating further
industrial displacement.
By shedding light on New York City’s industrial land use policies and the mechanisms that helped maintain and grow its manufacturing ecosystem thus far, this thesis will demonstrate the feasibility and challenges facing industrial space development within the newly proposed North Brooklyn Re-Zoning Framework and under current market conditions. As part of the feasibility study, several deal structures will be explored from private development, public-private partnership, and industrial community land trusts which improve both the feasibility as well as the retention of businesses.
Kairos Shen
Lecturer, Center for Real Estate Thesis Supervisor
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Acknowledgments
To my thesis advisor, Kairos Shen, for mentorship and guidance since setting foot at MIT and throughout this research process.
To all the interviewees who were willing to share their time and insights that helped construct my narrative of New York City.
To all the friends that this journey has brought, for being there through all the highs and lows. To Mohamed, for bringing unexpected kindness, laughter, and love into my life.
To Ahmed and Aly, for their constant encouragement and support.
To Mom and Dad, who, while being thousands of miles away, have given me an abundance of love to face the world with strength and courage.
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Table of Contents
Introduction
0801
Industry in NYC: Land Use Policies and Shifting Markets
1202
Unique Urban Manufacturing Development Models and lessons learned
2403
The North Brooklyn IBZ: A New Industrial Rezoning Framework
4504
Financial Analysis: Frameworks for Deal Structures in The NBK IBZ
51Conclusion
668
Introduction
“The North Brooklyn Industry and Innovation Plan” was launched in 2015 as part of Mayor de Blasio’s Industrial Action Plan and in alignment with New York City’s goal of creating 100,000 well-paying jobs in 10 years. The plan, which focuses on the protected The North Brooklyn (NBK) Industrial Business Zone (IBZ) and some surrounding manufacturing zones, is currently being studied by New York City’s Department of City Planning (DCP) to create new zoning models for diverse neighborhoods. 1 The NBK plan “aims to reinforce an industrial core
constituting two-thirds of the Study Area for essential, heavy industrial/manufacturing
businesses, while also increasing job density in targeted areas near transit and residential areas by supporting the growth of a dynamic mix of creative and tech-driven office-based and
industrial businesses.” 2 Before DCP initiated their work, Evergreen, the industrial service
provider of North Brooklyn IBZ, had also begun a study for the same area under The Brownfield Opportunity Area (BOA) Program with the goal of “strategic sites identification for
redevelopment, and a policy framework for supporting industrial employment growth”. 3
The NBK plan carried by DCP is considered the first comprehensive attempt to update the industrial zoning framework set as part of the zoning resolution in 1961. The zoning policy envisioned would preserve core industrial areas while allowing the growth of mixed-use office and industrial buildings through additional density. The plan would also “identify broad changes to use and bulk regulations, as well as parking and loading requirements, which have wider applicability to commercial and manufacturing districts throughout the city”. 2 If successful, the
plan would be a blueprint for future use in other Industrial Business Zones around the city. However, the department of city planning is facing a great challenge of balancing between creating an effective growth mechanism for these innovation models as well as maintaining the statewide mission of retaining and supporting the growth of manufacturing, industrial and other office-based jobs.
3 years after the initiation of the plan and before the release of a formal proposal, DCP was still facing pushback from the industrial community who could easily face displacement once a higher density is allowed in the study area. At the same time, several small-scale industrial neighborhood rezonings were occurring at an alarming rate in North Brooklyn and specifically in the Greenpoint-Williamsburg IBZ. For that reason, the city was criticized for the lack of a
comprehensive direction from planning authorities on which rezoning models prove efficient to both new investors and the industrial community.4 In October of 2017, Evergreen released the
NBK BOA study Nomination Report and in November of 2018, DCP released the NBK Industry & Innovation Plan Study report. Both provided insights about the needs of stakeholders, the existing conditions as well as proposed strategies for each defined subarea according to its goals. The DCP plan also provided an in-depth report called “Can Industrial Mixed-Use
Buildings Work in NYC?”. The report demonstrated that financially and under certain favorable market conditions, new commercial buildings can introduce industrial space without public subsidy allowing for an efficient cross-subsidy model. This is especially effective where the
9 spread between land cost and the rental rate is substantial, however, it would require a higher building density than what is currently allowed in the Manufacturing (M) districts. Under the existing zoning, these districts allow most commercial uses and some community facility uses but restrict new residential development. However, unlike commercial districts, they are characterized by a lower and bulkier density which was slowing investment in mixed-use buildings.
Figure 0.1
North Brooklyn Study Area 2(iii)
The report also recommended “pro-development tools, such as lowering parking and loading requirements, increasing allowable FAR, or creating incentive mechanisms in targeted, appropriate areas to enable such developments”. Through this incentive mechanism, the city could create a leveraging point to negotiate for more industrial space and an effective cross-subsidy model. A draft rezoning framework was released in April of 2019, identifying two zones for potential up-zoning: a transit and a growth district. An as-of-right higher density would be allowed for the growth district as it demonstrated strong market indicators and required little intervention to encourage investment while an incentive-based additional density would be
10 created for the transit district. Unlike the BOA study which identified an opportunity for an
incentive structure requiring a ratio of 1:2 industrial to commercial space non-for-profit management and master lessee structure, the DCP plan did not clarify any strategies for retention of industrial land. The ambiguity of the plan voiced concern about creating too many strings to the incentives as it would discourage developers from investing. But at the same time, it created little to no relief for the existing industrial community. Most industrial businesses would likely face displacement due to the redevelopment potential allowed by the additional density. If a higher density is applied, the highest and best use of the IBZ will not be in favor of industrial uses and will eventually outbid what industrial business can pay for rent.
Finally, the plan remains to be presented to the City Council for approval. However as it stands today, it is the first step that New York City is taking towards developing new tools addressing the pressing question of how to balance between preserving industrial space that support well-paying low barrier jobs while encouraging new investment reflecting today’s office-based tech economy. This question is part of a larger narrative that creates today’s urban manufacturing eco-system which was shaped over time through other city policies that aim to better protect land dedicated to industrial uses. As such, mapping the progress of NYC’s policies on industrial zoning, the shifting market needs, as well as the existing players and development models, can help clarify the opportunities in cross-subsidy models and agreement structures for urban manufacturing as well as their applicability with the North Brooklyn IBZ.
Methodology:
Chapter 1 takes a close look at the framework that governs industrial land policies within New York City, starting with the zoning code which as time passed has become irrelevant to modern-day businesses and a barrier to new development, followed by the available financing tools that currently subsidize industrial development and ending with the current market dynamics within NYC.
Chapter 2 explores key players, of non-for-profit and for-profit nature, in a case-study approach to formulate a set of lessons learned from unique urban manufacturing development models and an understanding of the tools employed. The case studies include The Brooklyn Navy Yard, The Greenpoint Manufacturing and Design Center (GMDC) and two unique private development projects; 25 Kent Avenue which initiated the Enhanced Business Area overlay, the first cross-subsidy zoning tool, and ACME Fish expansion by Rubenstein Partners, a creative deal to expand an existing business owner’s production space in a mixed-use project.
Chapter 3 dissects the North Brooklyn Innovation Plan and the Brownfield Opportunity Area Study to illustrate the cross-subsidy effect across existing uses as per current market trends, the demonstrated mixed-use development scenarios by both studies, and the relevant identified restrictions as well as recommendations. The chapter ends by breaking down the challenges that face the proposed zoning framework.
Finally, chapter 4 puts together the lessons learned from the case-study approach in addition to the understanding of the North Brooklyn IBZ rezoning framework to analyze the feasibility of creating mixed-use buildings that cross-subsidize industrial space through commercial uses. Three sites of different development potential are identified and analyzed from a financial standpoint with the criteria of (1) a net zero loss of industrial space at a minimum, (2) favorably providing affordable or market-rate rents and (3) defining the scale of subsidy required, if any, in
11 each case. Different agreement structures are explored depending on each site condition
including private development, public-private partnership, and an industrial community land trust model.
This thesis concludes with several findings on the challenges that face long term retention of industrial land in the light of revisiting the existing industrial zoning rezoning and recommends a series of strategies the in respect to implementing an efficient cross-subsidy zoning tool for mixed-used industrial development
00 Endnotes
1. New York City Government. Mayor de Blasio Unveil Action Plan to Grow 21st Century Industrial and Manufacturing Jobs in NYC. Published November 16, 2019. Accessed November 16, 2019. https://www1.nyc.gov/office-of-the-mayor/news/780-15/mayor-de-blasio-speaker-mark-viverito-action-plan-grow-21st-century-industrial-and#/0
2. NYC Department of City Planning. The North Brooklyn Industry and Innovation.; 2018. 3. Evergreen. The North Brooklyn Brownfield Opportunity Area Program.; 2017.
4. New Industrial Zoning Passes - Questions Remain | Association for Neighborhood and Housing Development. Published November 18, 2019. Accessed November 18, 2019. https://anhd.org/blog/new-industrial-zoning-passes-questions-remain
12
01
Manufacturing Districts in NYC: Land Use Policies
and Shifting Markets
Much has been written concerning the positive socio-economic values of urban manufacturing and the need for cities to advocate for the protection of existing middle-income wage jobs in the industrial sector. However, there lie governing factors as to why a use, that has always been essential to communities, has become very hard to grow or even sustain in the present time. Urban growth models were usually developed around the idea that industrial uses are a negative externality. As a result, land use planning has deliberately pushed industrial land to either contained districts or the suburbs. This negative value was associated with the
environmental nuisances of manufacturing and caused a gradual decline in the industrial sector over the years. However, urban manufacturing, which refers to industrial uses inside urban centers, brings a diverse economy to cities through low-barrier jobs and well-paying wages to middle-income households. To comprehend the challenges behind industrial land retention in the heart of a highly dense city like New York, it is beneficial to trace the relevant existing land use strategies and its relation to the real estate market.
This chapter will take a close look at the framework that governs industrial land use policies and real estate market within New York City, starting with the zoning code which as time passed has become irrelevant to modern-day businesses and a barrier to new development, followed by the available financing tools that currently subsidize industrial development and ending with the current market dynamics and trends. This chapter highlights the pressing need for cities to support industrial development through both direct and indirect subsidies as well as the issues around zoning tools that distort the market’s efficiency and create more controversy around the notion of preserving industrial land.
A. Industrial zoning and Urban Planning Strategies
i. From Cumulative to Exclusionary Zoning Ordinance
Before 1961, residential uses in New York City were allowed within manufacturing zones following a “cumulative” or “inclusive” zoning ordinance. This ordinance followed a hierarchy of uses with the highest being single-family residential use and the lowest being heavy industrial use. Higher uses were permitted in lower use districts, but lower uses were not permitted in higher use districts. There existed no restrictions on industrial land conversions to either residential or commercial uses. This as-of-right conversion
13 allowed the market to dictate the highest and best use of land. 1 However, the city
planning commission released a zoning resolution in 1961, that identified and designated districts according to their use as residential (R), commercial (C), or
manufacturing (M). By that point, the zoning ordinance had turned into an exclusionary one. The separation voiced the environmental concerns that the public had about industrial uses spreading in the heart of cities and thus restricted the development of residential uses in industrial zones. The resolution also identified different manufacturing classifications from light to heavy as shown in the table below. This classification made it easier to identify districts with lesser nuisances where mixing of other uses could be possible such as offices, hotels, and retail with some exceptions in light industrial areas classified as M1. The envisioned manufacturing districts were of a low-rise scale with a floor area ratio (FAR) varying between 1.0 to 5.0, quite similar to an office park character with ample parking requirements. This is except for the M1-6 zoning which was
purposefully set at a higher FAR of 10.0 for joint living-work quarters such as the artists' live-in districts in SoHo/NoHo. The table below shows the breakdown of each use and its relevant maximum permitted FAR.
Table 1.1
Manufacturing FAR allowances as per 1961 City Planning Commission Resolution 2
M1 - Light Manufacturing
M2 - Medium Manufacturing
M3 - Heavy Manufacturing Maximum Permitted Floor Area Ratio
M1-1 1.0 M1-2 M2-1 M3-1 2.0 M1-4 M2-3 M3-2 M1-3 M2-2 5.0 M1-5 M2-4 M1-6 10.0
Moreover, the resolution allowed an incentive based additional density for buildings in M1 districts including community facility uses. In some zones, the as-of-right floor area ratio can be increased from 1.0 to 2.4 in M1-1 and from 2.0 to 4.8 in M1-2 as detailed in the table below. 2
Table 1.2
FAR allowances for Buildings partly for Community Facility and partly for Industrial or Commercial uses as per 1961 City Planning Commission Resolution 2
M1 - Light Manufacturing Allowable FAR For Industrial or Commercial Buildings Only
Allowable FAR For partly Community Facility and partly Industrial or Commercial Buildings
M1-1 1.0 2.4 M1-2 2.0 4.8 M1-4 2.0 6.5 M1-3 5.0 M1-5 5.0 M1-6 10.0 10.0
However, in a lot of cases, the incentive is misused and instead of leasing it to
14 these are leased to office uses. This is because community facility uses typically cannot pay the high asking rent that matches the expensive construction cost while office spaces usually can. 3
Unfortunately, at the time of this comprehensive zoning overhaul, an overall decline in the industrial sector was occurring, where most businesses fitting within the mold of low-rise bulky factories moved to the suburbs seeking less costly and more
transit-accessible lands. Even more, the growth in the service sector put pressure and
questioned whether manufacturing uses in urban centers was the highest and best use of valuable industrial land in the heart of New York City. Nonetheless, M-districts remained protected from being driven out by natural real estate market forces mainly due to its low allowable density and prohibition of new residential development. 4
Figure 1.1
Employment by Major Sector in NYC 1950-20174(p2)
Valuable industrial land in most U.S. cities witnessed a severe loss in businesses and jobs and many sat vacantly for a long time after World War II. And while the exclusionary zoning allowed some businesses to survive the industrial decline era, it could not change their economic model to compete with other higher-yielding uses. Thus, without the proper supply of tools and incentives to complement an exclusionary zoning policy, a lot of pressure is exerted to re-introduce as-of-right conversion of industrial land to other competing uses. 5
ii. MX-Districts
The conversions first started illegally but the residential encroachment on manufacturing uses manifested when the first Mixed Use districts (MX) in 1997 were permitted as a special zoning district. It re-allowed residential and industrial uses to be located side-by-side or within the same building in manufacturing districts within certain areas in New York City. 6 However, it never tied unlocking such conversions or the extra density that
comes along with residential and commercial uses as incentives to preserving existing businesses. This led to the industrial decline and gentrification of businesses along with
15 middle-income households who rely on industrial jobs. This is especially the case for The Greenpoint-Williamsburg MX district designation where the market naturally priced out industrial tenants once exclusionary zoning was no longer in effect.
Figure 1.2
Industrial Land Conversion Map in Brooklyn 2002-2012 8
The map above shows the number of land conversions that occurred in the Greenpoint area as a natural pricing out effect where for most industrial businesses, the economic
16 model which maintains their profitability does not allow them to compete in offering higher rents than residential or commercial uses. Thus, the redevelopment potential to other uses slowly drives up the rental rates, and lessees of industrial space are gradually priced out. 7
iii. Industrial Business Zones
To prevent further losses of industrial land in NYC, in 2006, Industrial Business Zones (IBZ) were first originated to identify protected districts from conversions in several areas within the Bronx, Brooklyn, and Queens. The designation was a renewed promise from the Bloomberg administration to put a halt to conversions as well as provide industrial businesses certainty about their ability to stay and grow especially in core manufacturing districts designated as M3.2 However, the conversions to residential and office uses did
not stop within IBZs, driving up rental rates and causing further industrial businesses gentrification. 9 Data published by New York City's Department of city planning show that
the highest land conversion percentile on the overall stock of industrial land was 31% and it occurred in Brooklyn from 2002-2012, a period where IBZs were established.
Figure 1.3
Industrial Land Conversion in NYC Boroughs as percentile on overall 2002-2012 8
Furthermore, a report published by New York City's Council shows that commercial land conversions from 2005-2014 did not protect IBZs located in strong urban markets. The Greenpoint Williamsburg IBZ, which contained no commercial uses in 2005 witnessed a 10% loss of industrial land due to conversions. Thus, over time and in critical urban real estate markets, the IBZ designation appears to provide an inadequate level of support for industrial land. 10
17
Figure 1.4
Commercial Land Use increase 2005-2014 in IBZs with the Greatest Rate of Commercial Conversion Land
10
The manufacturing advocacy groups argue that for a long time after their establishment, the IBZ boundaries were not written in the zoning code which has allowed for the
relocation of non-industrial uses within these boundaries on an as-of-right basis. Even more, the lack of guidelines that mandate job-producing industrial uses and restrict gentrifying competing uses has always been a hurdle to industrial land retention.11
However, over time, a few measures were taken to strengthen the IBZ designation.13
The Department of City Planning produced a version of the text amendment to ban self-storage in IBZs, which while allowed under manufacturing uses, does not contribute to
18 job creation and has very high-profit margins that compete with job-producing industrial businesses. In addition to that, restrictions on hotel permits were passed in 2018 where a public review process is required for each site. The City Council also led the effort in codifying the IBZ boundaries in zoning maps.12
On the other hand, there’s a disagreement on whether these policies should be part of a formal zoning code as it disables the market from naturally determining the highest and best use of land. Demand on land in dense urban centers has always driven its price up and created a mechanism that attracts higher yielding uses such as commercial and residential towers to central locations. As such, from a financial perspective, land use restrictions prohibit the conversion of land to better yielding uses, and superficially controls the supply of land creating market inefficiencies. 14
B. Financing Tools for Industrial Development
Hills and Schleicher speak about the high cost that cities bear when following a noncumulative or an exclusionary zoning ordinance in the University of Chicago Law Review. Both argue that while this cost is immeasurable, it can be observed in the loss of non-industrial development potential, which could be of a greater benefit to residents living in the adjacent neighborhoods. Their proposal towards an efficient market is to use direct and measurable subsidies towards the retention of industrial land. 1 While this chapter has
already illustrated the challenges facing IBZs that fall under an indirect type of subsidy according to Hills and Schleicher, it is also beneficial to trace the types of direct subsidy tools available in NYC today and their relevant restrictions. Direct sources of subsidies are typically financing resources made available to industrial developers and businesses.
Table 1.3
Financing Tools for Industrial Development
Type of Subsidy Example Restrictions/Remarks
Public Subsidy City Capital
Accessible through Non-profits only
Grants Regional Economic Development Corporation Grant (REDC)
Loans Industrial Development Fund (IDF) High interest rates Tax incentives Relocation Tax Credit and Land/Property Tax
Abatements Typically provided within IBZ boundaries
Business Support Small Business Services and Industrial Business Service Providers (IBSP)
Bonds Industrial Revenue Bond Outdated restrictions on capital value
i. Public Subsidy
City capital which is only accessible through Non-profits that fall under the 501(c)(3) is an essential source of funding for maintaining industrial city-owned assets. The De Blasio administration committed in 2015 a total investment of $115 million to develop 500,000 square feet of space in the Brooklyn Army Terminal and $140 million to develop 1 million square feet of space at the Brooklyn Navy Yard. 15 The following
19 chapter will provide more insights on this key funding mechanism as it related to the success of the Brooklyn Navy Yard today.
ii. Grants, Loans, and Bonds
Most financing tools are catered towards the non-profit development market. Among which is The Regional Economic Development Council (REDC) which offers one key grant to nonprofits, local organizations as well as business owners with a local economic development mission.
The Industrial Developer Fund (IDF) by New York City Economic Development Corporation (NYCEDC) is another one that was launched in the Spring of 2016 to offer both grants and loans 12. Anisha Steephen, who was part of NYCEDC and
worked on the IDF, clarifies that its goal was to replicate the financing model made available for affordable housing developers which uses a grant coupled with a low-interest subordinate loan. 19 However, the IDF was restructured to only offer loans
that are close to market rates defying its purpose. It faced a considerably slow start since its launch and awarded three NFPs only. However, in a progress report marking 3 years after the industrial action plan was announced, the Association for Neighborhood & Housing Development highlighted that "At a time when there are a few financing options available for the creation of below-market industrial space, the Fund has played a crucial role in making non-profit development of industrial space possible".12
The industrial revenue bond is another tool that was issued in 1984 but since it was never updated, it did not keep up with modern-day requirements of industrial
development. The bond is accessible to both for-profit and non-for-profit developers. However, two major constraints pose a problem, firstly, the capital expenditure is capped at $20 million, a number that is easily exceeded in today’s market and especially for development within urban markets where land prices are soaring. Secondly, a limit of $10 million on the value of bonds per project is set which poses a difficulty for small to medium business owners. 21
Financing tools encouraging private development are very limited and typically have harder requirements. 16(p102) Acumen Capital Partners is a private development firm
that successfully repurposed abandoned giant factories including the Pfizer building in Brooklyn and The Standard Motor Product building in Long Island City for small and medium scale industrial. Jeff Rosenblum, a co-founder of the firm commented that when the IDF grant was available, it required a previous track record of industrial development which generally limits the pool of applicants to existing players and does not expand the market 17. Other imposed restrictions include
requiring 30 years holding periods that are a hard commitment for private
developers.18 Alternatively, for-profit developers have better access to conventional
commercial loans and are typically in a better position to leverage capital or attract larger amounts of capital.16(p102)
20 Other direct sources of subsidy can be found under the IBZ Zone designation which carries support and incentives to industrial businesses. These include a relocation tax credit to businesses moving into IBZs. Property and land tax abatements are also made available through the New York City Industrial Development Agency (NYCIDA) up to 25 years and a full land tax abatement can be provided for sites within IBZ boundaries. 20 Each IBZ is assigned an industrial business services
provider (IBSP). IBSPs are non-profits operating under NYC's Department of Small Business Services (SBS) to provide consultation individually to their local businesses as well as advise the city on area-wide plans to maintain and help the growth of industrial jobs. 8
C. Market Shifts and Redevelopment Opportunities
The need for manufacturing space in NYC is unique as the demand is persisting and key non-profit developers such as the Greenpoint Manufacturing and Design Center (GMDC) and The Brooklyn Navy Yard Development Corporation (BNYDC) confirm having always had a waiting list for their industrial space in addition to a very tight vacancy rate. 22 The
complexity is that most tenants who require that space also require a specific rent rate that falls between $20-25. This range allows them to maintain their profitability and still pay for the cost of being in the city, close to their target market and employees. 17 However, NYC's
market is witnessing significant changes at the moment; vacancy rates are bumped to 5.2%, an all-time high since 2012, the land prices have been pushed to the mid-$480 range, and even higher in transit-oriented sites while cap rates approach the low 5 percent. Industrial tenants are outpriced in Brooklyn and Queens and thus are fleeing to Outer Borough locations in Staten Island and the Bronx, creating also additional price gains in these areas. Figure 1.5
21 This is speculated to be the result of current and planned city rezoning of major
neighborhoods along with the eastern coast of the East River and in specific the North Brooklyn Area. In 2015, the De Blasio administration unveiled the industrial action plan as a 10-point proposal which puts forward different tools in advocacy of industrial development. One key point was re-visiting the existing land use framework and proposing a new one that incentivized a mixed-use district allowing light industrial, commercial, and residential uses. 15
Shortly afterward, a re-zoning process was initiated to study the North Brooklyn IBZ which will be expanded upon in Chapter 3 of this thesis. A draft zoning framework was released in 2018 that proposed the upzoning of the peripheral districts in the area that buffers between the core manufacturing district, zoned as M3, and the residential neighborhood of North Brooklyn. However, the plan did not specify any strategies set for industrial land retention. The plan still needs to be presented to the city council for the next approval step. But it has already received pushback from the community as they want to preserve the affordability rate of their spaces which is not a priority that seems to be addressed in the latest proposed draft framework.
Similar to affordable housing, creating industrial space at reasonable rental rates, is not the highest and best land use. It does not create the required returns most private developers expect on their investments. For that reason, it has been undertaken by non-profit
organizations and city-owned development corporations who get the various subsidies explained earlier such as cheap land cost, city capital, and grants. However, with the lack of incentives for private developers to create or at least preserve industrial space, conversions will keep chipping away at the city’s stock. However, the mixed-income housing model has proven to be an efficient tool to invite private developers into the creation of affordable housing, where market-rate units cross-subsidize for affordable rate units. Thus, by taking a closer look at unique industrial development case studies in NYC we can learn how
industrial space can be cross subsidized through commercial space. This is especially beneficial in structuring a zoning tool which creates incentives for private developers to be part of the industrial market. The case studies included in the next chapter are BNYDC & Steiner’s Admirals Row; The Greenpoint Manufacturing and Design Center as well as 25 Kent Avenue, and ACME Fish by Rubenstein Partners.
01 Endnotes
1. Hills RM. The Steep Costs of Using Noncumulative Zoning to Preserve Land for Urban Manufacturing. The University of Chicago Law Review.:25.
2. New York City Department of City Planning and City Commission. Published December 15, 1961. Accessed November 16, 2019.
https://www1.nyc.gov/assets/planning/download/pdf/about/city-planning-history/zoning_maps_and_resolution_1961.pdf
3. “How Do You Build New Offices in Williamsburg? Add Manufacturing!” Commercial Observer. Published February 26, 2019. Accessed December 29, 2019.
https://commercialobserver.com/2019/02/how-do-you-build-new-offices-in-williamsburg-add-manufacturing/
22 4. New York City Department of City Planning. The North Brooklyn Industry and Innovation.;
2018.
5. Heikkila E, Hutton TA. Toward an evaluative framework for land use policy in industrial districts of the urban core: A qualitative analysis of the exclusionary zoning approach. 1986;(23):47-60.
6. New York City Department of City Planning. Zoning Districts & Tools: Special Purpose District : Citywide - DCP. Accessed November 18, 2019.
https://www1.nyc.gov/site/planning/zoning/districts-tools/special-purpose-districts-citywide.page
7. Wolf-Powers L. Up-Zoning New York City’s Mixed-Use Neighborhoods Property-Led Economic Development and the Anatomy of a Planning Dilemma. Journal of Planning
Education and Research. Published online 2005:379-393.
8. New York City Department of City Planning. Zoning Districts & Tools Manufacturing Districts: January 1, 2002 to January 1, 2012 - DCP. Accessed November 15, 2019.
https://www1.nyc.gov/site/planning/zoning/districts-tools/mfg-districts-2002-2012.page 9. McCormick L. The city and industry: Deurbanizing manufacturing in New York City?
:474-488.
10. Engines of Opportunity: Reinvigorating New York City’s Manufacturing Zones for the 21st
Century. The New York City Council; 2014.
11. Savitch-Lew A. With de Blasio’s rezonings, city’s industrial land becomes scarcer. Published online April 3, 2018. https://citylimits. org/2018/04/03/with-de-blasio-rezonings-citys-scarce-industrial-landbecomes- scarcer/.
12. Industrial Jobs Coalition. NYC Industrial Action Plan - 3 Years Later - A Progress Report. 13. New York City Department of City Planning. M1 Hotel Text Amendment - DCP. Accessed
January 2, 2020. https://www1.nyc.gov/site/planning/plans/m1-hotel-text/m1-hotel-text.page 14. Asabere PK, Huffman FE. Zoning and Industrial land values: The case of Philadelphia.
Journal of American Real Estate and Urban Economics Association. (19):154-160.
15. NYC Government. Mayor de Blasio Unveil Action Plan to Grow 21st Century Industrial and Manufacturing Jobs in NYC | City of New York. Published November 2015. Accessed November 18, 2019. https://www1.nyc.gov/office-of-the-mayor/news/780-15/mayor-de-blasio-speaker-mark-viverito-action-plan-grow-21st-century-industrial-and#/0
16. Evergreen. The North Brooklyn Brownfield Opportunity Area Program.; 2017.
17. Fabian S. Brownfield Opportunity Area Program Manager, Evergreen. Published online November 14, 2019.
23 19. Anisha S. Director of Real Estate, Spaceworks. Published online December 13, 2019. 20. New York City Indsutrial Development Authtority and New York City Economic
Development Corporation. Accessed January 1, 2020. https://edc.nyc/nycida
21. Urban Manufacturing Alliance. Policy Brief: Industrial Revenue Bond Program. ; 2013. 22. Smith C. Senior Project Manager, Greenpoint Manufacturing and Design Center. Published
online November 12, 2019.
23. Institutional Property Advisors. New York City 2019 Industrial Investment Forecast Report.; 2019.
24
02
Unique Urban Manufacturing Development Models
and lessons learned
In advocacy of preserving and growing the industrial sector in NYC, the city has over the years created several tools to strengthen its urban manufacturing ecosystem. Many of these tools have surfaced in reaction to the announced industrial action plan in 2015 and include new land use policies, financing tools in addition to investment commitments in city-owned industrial developments. 1 Participants in this ecosystem and especially its policymakers endorse a
non-for-profit development and management of industrial spaces as it provides the stewardship and knowledge that speaks to the needs of manufacturing businesses. 2 Additionally, NFP urban
manufacturing developers have an advantage especially in hard markets here the highest and best land use does is not in favor of manufacturing space. This is because they have access to different capital resources and have lower required returns on investment in comparison to a for-profit developer. 3 However, privately-owned land in M-districts still constitutes a larger
portion of NYC’s industrial stock, and thus formulating other tools that invite for-profit developers into this market becomes also essential to strengthening the urban manufacturing ecosystem. For that reason, new land use policies have emerged to leverage mixed-use models in favor of industrial uses in privately developed projects.
This chapter explores key players, of non-for-profit and for-profit nature, to formulate a set of lessons learned from unique urban manufacturing development models and an understanding of the tools employed. This includes the case of city-owned assets operated by NFP
corporations, The Greenpoint Manufacturing and Design Center (GMDC), and how they can selectively cater to businesses in need of affordable space. In addition to two unique private development projects; 25 Kent Avenue which initiated the Enhanced Business Area overlay, a cross-subsidy zoning tool, and ACME Fish expansion by Rubenstein Partners, a creative deal to expand an existing business owner’s production space in a mixed-use project.
City-Owned Industrial Assets and City Corporations: The Brooklyn Navy Yard
Before the mid-1950s, Brooklyn’s waterfront was called “The Walled City” about the endless warehouses that lined its shores. It was a bustling industrial zone that powered its economy and trade until the post-war economic shift. This shift not only caused the industrial decline but was also met by a resurgence in construction that converted many of the industrial assets and infrastructure to commercial and residential buildings.425
Figure 2.1
Aerial View of Brooklyn Army Terminal before 1970 (Top) 6
Figure 2.2
26 A couple of federal assets did not meet the same fate as the rest of the abandoned industrial infrastructure. Among which are The Brooklyn Army Terminal (BAT), which is a warehouse complex located in Sunset Park that served as a military supply base during WWII. It was rebought by the city in 1918 to be re-developed into an industrial hub and is now operated by NYCEDC.5
The Brooklyn Navy Yard (BNY), which was previously home to the leading naval shipbuilding facility follows suit as it was decommissioned in 1966 but was then also acquired by NYC for $23.5 million in 1969. 8 The yard struggled through its early years to regenerate the lost urban
manufacturing businesses, but today the 300 Acre-site is now an active industrial park with over 400 businesses operated by the Brooklyn Navy Yard Development Corporation (BNYDC).9 The
key to making this feasible is associated with several key factors that were also identified by The Pratt Center for Community Development as part of its study on the yard’s “Economic Impact and Opportunities for Replication”. These include public ownership of the asset, non-profit management, city capital, and the ability to leverage rent roll and earnings. 10
i. Public Ownership of Asset:
BNYDC works under a renewable lease agreement with the city which allows them to manage and develop the yard to maximize the number of jobs generated by projects within its premises. The agreement allows the annual base rent to be at zero cost if a minimum balance is retained in BNYDC’s reserve funds or The City Reserve Funds. The minimum balance was reduced from $5,000,000 to $500,000 in 2018. The corporation is required to also cover its operating expenses and maintain the yard’s assets and infrastructure. 11
Although NYC can invest in privately owned assets by nonprofits, the dual effect of public ownership and non-for-profit management by a mission-driven entity, is likely a reason why the capital influx to the yard’s development was as consistent. 10
ii. City Capital:
City capital, which is raised from general obligations bond, can only be used to finance projects that benefit the public at large. And although industrial development, unlike
affordable housing, is not narrowly defined as being for public benefits, non-profits qualify to receive this kind of capital because of their mission-driven purpose.2 During the Bloomberg
administration, over $200 million in city capital investments were put into infrastructure needs which BNYDC leveraged to acquire $500 million in private funding to use for the development of more than 10 buildings within the yard. Most recently and as part of the industrial action plan, a commitment was placed to invest a total of $442 million in city capital for the re-development of 4.7 million square feet of space and infrastructure of city-owned assets, almost a third of which is dedicated to the BNY.12 Additionally, the city is
expected to invest in the BNY’s new $2.1 billion masterplan which was announced in 2018 and envisions the creation of 5.1 million square feet of ground-up multi-story manufacturing spaces. 1
27
Figure 2.3
Aerial View of New Brooklyn Navy Yard Masterplan 13
iii. Leveraging rent roll and Earnings
The lease agreement allows the management to put back their project earnings into further development opportunities, including re-development and ground up construction, instead of paying it back to its landlord in rent dues or investor earnings. 8 When large scale
developments are run by one entity, they have an opportunity to cross-subsidize uses across their inventory as opposed to small scale projects where returns are either tied to one kind of asset or a smaller inventory in singular mixed-use projects. As explained earlier, the generated earning is not returned to the city and thus can be reinvested into the yard to support the creation of further industrial spaces in other buildings. Since 1997 and till 2015, the corporation has been able to reinvest the earning beyond their expenses with an average of $5 million. However, it is important to highlight that the sustained development progress in recent years would not have been possible without major city capital injections. This is clearly illustrated in the graph below.
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Figure 2.4
Annual Capital Investment by BNYDC vs. City Capital 1996-2015 10
iv. Cross Subsidy Models Across the Yard:
BNYDC has made several partnerships with private developers to incorporate new higher-yielding uses into the yard. Their newest developments include Dock 72, a 675,000 square feet of market-rate commercial space co-developed by Boston Properties, Rudin
Development, and WeWork.14 Furthermore, a deal between BNYDC and Steiner involves
several mixed-use buildings including Building 212 and 303.
Both these buildings offer light industrial space and market-rate creative office.15 BNYDC
typically offers light manufacturing spaces at rents which are roughly at the market rate10,
which were estimated in 2017 at $25/SF in North Brooklyn. 16 While the commercial space is
offered at Brooklyn’s office market rate where it is reported that the average asking rent is $39/SF.17 The spread between the rent rates can allow for the office to cross-subsidize the
industrial space, similar to a mixed-income housing scheme where the market rate housing units can subsidize for the cost of rate units at what is now mandatory inclusionary housing ratios set by each city. However, the subsidized cost of the asset, combined with the mission-driven entity of the corporation and a lower required hurdle allows for not only the opportunity to create industrial space but to have the ratio of industrial space be higher than market-rate commercial space. Both projects with Steiner have a product mix of 3:1 and 4:1 industrial to commercial space. 1815
29
Figure 2.5
Mixed-Use Buildings co-developed in Partnership with Steiner 19
The above factors are considered key to the success of the Brooklyn Navy Yard today. From a singular development perspective, the cross-subsidy model is applicable especially from a private development point of view. On the other hand, the public ownership of assets seems applicable only in a down cycle where asset values are low similar to the case of the BNYDC or Sunset Park when decommissioned. However, the ownership structure could be further explored in a model similar to a community land trust or a partnership between existing asset owners, the city, and an NFP corporation. Finally, the capacity of corporations such as BNYDC to leverage their earnings and city capital can be put towards exporting their NFP stewardship to other M-districts either as master lessees or co-developers. This can be a very powerful tool in strengthening the manufacturing eco-system, especially that the tenancy and management of spaces within the yard is the secret behind its remarkable transformation. NFP management of industrial spaces is vital to protecting businesses, particularly small scale ones at risk of displacement. Similar to the BNYDC, The Greenpoint Manufacturing and Design Center is a non-profit Corporation that has creatively found a unique way to create and manage spaces specifically for the growing small scale urban manufacturing businesses.
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Non-for-Profit Management and Catering for the New Niche Industrial Economy:
The Greenpoint Manufacturing and Design Center
One of the advantages of running industrial spaces by non-profit entities is enabling the compromise on higher returns on investment for the benefit of lower rent rates that are within reach of businesses. 10(p87) This is critical at least in the beginning when tenants need smaller
spaces till they grow enough to afford to move into bigger unsubsidized buildings. This is specific also to these types of small production tenants which are now a large portion of NYC’s urban manufacturing base. 20 Unlike numerous cities that witnessed complete deindustrialization
after WWII, NYC has over the years transformed the identity of its M-districts, especially the bustling manufacturing scene in Brooklyn, and as Joseph Berger described it; “Instead of Industrial Giants, Brooklyn Has Niche Factories”. The North Brooklyn side around Newton Creek which hosts several old industrial building that usually gets converted to residential lofts has witnessed a different shift in character, where giants such as the former Pfizer
pharmaceuticals on 630 Flushing Avenue or the massive Chelsea Fiber Mill Factory on 1205 Manhattan Avenue have been re-developed to serve several smaller-scale manufacturers by The Greenpoint Manufacturing and Design Center (GMDC) .21
i. Background
The Chelsea Fiber Mill Factory ended up in the city’s possession by the mid-1980s and received no interest from private developers. The building was in distress and required a great cost to upgrade. Several years later, the building tenants and several community organizations came up with a redevelopment plan 22 where the North Brooklyn Economic
Development Corporation purchased the building from the city for $1 to renovate and upgrade the building. The building was then acquired by GMDC and it became their pilot project. The corporation leveraged both public and private capital to redevelop the complex that now hosts 75 small businesses. 23 Looking to re-develop more buildings, they were able
to acquire their first commercial loan secured on the 1205 Manhattan Avenue Building 20 and
expand their portfolio through a blend of private equity, grants, and commercial loans to now include 5 buildings and 630,000 square feet. 24 Additionally, the corporation is committed to
offering spaces at affordable rent rates and has become one of the leading non-profit industrial developers to cater to that market. When asked about the limitations on creating affordable industrial spaces, Cassandra Smith, project manager at GMDC identified the biggest hurdle as the lack of clear infrastructure to identify affordability rates and merit to properly create spaces that meet the needs of industrial tenants.
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ii. Identification of Affordability Rates
The affordability rates of industrial uses are harder to identify and selecting the type of businesses in need of subsidy is even more difficult. This is as opposed to affordable
housing, which has an entire infrastructure to identify and allocate affordability rates such as the Average Median Income (AMI), census tracts, and the common rule where housing expenses that are more than 30% are considered burdensome. While almost all BNY tenants identify the affordability of rental rates in the yard as a critical factor, the rents are offered at nearly market rates which is competitive from a location perspective in addition to other amenities served within the campus-wide facility. 10(p54) Meanwhile, GMDC identifies it
as 20% below the surveyed market rates in comparison to each area location. In the
Brownfield Opportunity Area Program study relevant to the North Brooklyn IBZ, which will be explored at depth in chapter 4, market rate light industrial spaces were identified at $25/SF while affordable rates were discounted by more than 45% and set at $16/SF.16 In addition to
that, the affordability rates differ from one business to the other depending on their profit margins which make the selection criteria even harder.
iii. Small Businesses and In-risk Businesses Tenancy
When asked how GMDC establishes that a specific business is meriting of affordable industrial space, Cassandra Smith, project manager at GMDC, clarified that the type of offering self-selects the kinds of businesses in need of subsidy. Over the years, they have established an informal selection process where they usually offer spaces ranging from 1,000-8,000 SF crafted for small businesses. They do allow tenants to combine spaces and grow their businesses but at a certain point, they outgrow the cap where they can grow more organically in a standalone building. They also utilize other measures to ensure local businesses that have been in the area have an advantage in finding spaces amidst being outpriced such as offering long-term leases in the range of 5-10 years and requiring financial records and 3 years of business tax returns. Finally, understanding the jobs created per SF sets industrial use tenants apart from other office-based uses that can benefit from the cheap rent offering where the typical woodwork space provides 1 job per 1,000 SF and other detailed crafts can go down to 1 job per 350 SF. 20
Finally, Considering the heavy up-front cost, expenditures, and low returns, the development, and management of urban manufacturing space, specially ground-up, has become a task well-suited for non-for-profit (NFP) developers. Anisha Steephen, who previously worked at
NYCEDC on launching the Industrial Developer Fund program, adds that “From a policy
perspective, the only way to maintain NYC’s eco-system, which is a very mission-driven one, is to have it done by non-profits”. 2 Unsurprisingly, affordable rate manufacturing spaces are even
a harder asset class to develop because it requires a greater capital subsidy. 3 And while
corporations such as BNYDC, NYCEDC, and GMDC, are successfully leading the development effort on industrial space development through the utilization of city-owned assets, capital and subsidies, only a fragment of the existing M-districts in NYC fall within their ownership, where the remainder is privately owned lands in IBZs which have received limited support thus far. A large stock of these areas is located in Brooklyn right next to competing uses with soaring land prices. 25 For that reason, the remainder of this chapter will present for-profit development case
32
25 Kent Avenue: The creation of the Industrial Business Incentive Area Zoning
Tool
The site which was acquired by Rubenstein Partners and Heritage Equity Partners is located within The Greenpoint-Williamsburg IBZ. 26 The IBZ was previously rezoned in 2005 from heavy
industrial uses under an M3-1 district and an allowable FAR of 5.0 to an M1-2 district which only allowed fully enclosed light manufacturing uses with a FAR of 2.0. This rezoning was created to increase compatibility between the growing neighborhood character of residential and mixed uses.27 This downzoning restricted feasible ground up developments especially with the high
land values in the area. Developers of 25 Kent Avenue initiated a Uniform Land Use Review Procedure (ULURP), which is a public review process to request a change of zoning. The construct of the request was developed by Heritage Equity Partners to primarily ask for
additional density that is unlocked with a proportional ratio to industrial use. This is in addition to waiving some of the parking and berth loading requirements that have become outdated to today’s light manufacturing tenants. Jeremiah Kane, who at the time was the senior advisor assigned to the project from Rubenstein Partners, recalls that “Once the idea of using additional office air rights as cross-subsidy for industrial space was proposed, the city planning applied for the special permit district alongside Rubenstein”.26
The application called for three requests; a zoning text amendment to identify the mechanism of the Industrial Business Incentive Area (IBIA) or Enhanced Business Area, the mapping of 14 blocks within the IBZ as an IBIA, two special permits including a density bonus and reduced parking requirements. 27 The first special permit allows an Incentive Use Area bonus of 3.5
square feet for every 1 square foot of Required Industrial Use with a maximum allowable FAR of 4.8. This is in addition to the as-of-right 2.0 FAR. The incentive uses were limited to office and light industrial uses only and excluded hotels, retail, entertainment, and self-storage which are competing uses that usually drive the rent rates and can easily displace industrial tenants in the area. 28
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Table 2.1
Floor Area Ratios Increase in Industrial Business Incentive Areas 28
Zoning District As-of-right FAR Min. Required Industrial Uses FAR Incentive Uses FAR Maximum Allowable FAR M1-2 2.0 0.8 2.0 4.8
The city planning commission highlighted in the zoning resolution that the mechanism provides for not only the first of its kind speculative office space in the Greenpoint-Williamsburg area but also unsubsidized new industrial space which alternatively would have required city capital to make feasible. As a result, it allows for a feasible unsubsidized mechanism to employ efficient market solutions in protecting manufacturing spaces. 27
Table 2.2
25 Kent Avenue Permitted Uses 29
Type of Use Definition Area
(SF) FAR % As-of-right Uses Commercial, Light Industrial and
Retail 159,848 2.0 42%
Min. Required Industrial Uses
Light Industrial and Manufacturing
Space 63,714 0.8 17%
Incentive Uses (Bonus) Commercial Office and Light
Industrial 156,533 2.0 41%
Total 380,097 4.8 100%
Table 2.3
25 Kent Avenue As-Built Uses 30
Uses Area (SF) FAR %
Office Space 210,501 2.6 55%
Light Manufacturing 84,000 1.1 22%
Retail 85,000 1.1 22%
Total 379,501 4.7 100%
The final permitted against the as-built uses are as shown in the tables above and although it shows slight variations, it is evident that the developer created the least allowable industrial ratio which was a point of controversy during the ULURP process among other points of concern.
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Figure 2.6
35
i. Controversies around Zoning Text Amendment section (74-96) and the IBIA
Special Permits
1. The Zoning Text Amendment and its Mapping
The city at first contemplated creating a zoning text amendment to a larger zone but withdrew the application and limited it to 14 blocks to include the entire M1-2 district, which constitutes more than 50% of the Greenpoint Williamsburg IBZ, and leaving out the M3-1 and M1-1 districts.26 While the application is an area re-zoning dealing with a
specific community, the text amendment was written in a manner that also allows the creation and mapping of further areas with the same overlay. The Neighborhood and Housing Development (ANHD), which was in favor of the development as a pilot test, had reservations on the creation of a zoning text amendment that could have wider consequences for other M-districts from a city
2. The Required Ratio of Industrial Uses
While the Maximum allowable FAR was deemed reasonable as it did not exceed the already set in place density bonus special permit for community facility uses within M1-2 zoning districts. 26 However, during the ULURP public meetings, several testimonies
speaking in opposition questioned the basis of the proposed 0.8 ratio. Among which, was Adam Friedman, the Director of the Pratt Center for Community Development who presented a case study showing a 33% industrial ratio to be feasible as opposed to the proposed 17%. The case study was based in the Gowanus area, which is a strong market and is comparable to the Greenpoint Williamsburg area. 23
3. Affordability, Tenanting, and Enforcement of Uses
The affordability rate matter was posed by several entities during the public review process. Evergreen, the ISBP, has made several recommendations to assign a Non-For-Profit entity as a master lessee for the industrial spaces. This is to ensure the
assignment of lease rates that are compatible with the nature of manufacturing businesses in the Greenpoint IBZ and would work in favor of the retention of existing businesses. 32 However, the city planning commission and developer were not in favor of
creating restrictions on the rent rates as this was the first speculative ground-up mixed-use office and industrial development in the area, it would put the entire project at risk. 27
ii. 25 Kent Avenue on The Market
The project construction was complete by October of 2019 and during the lease-up period, more interest was shown in industrial space than in office space which was discouraging at the beginning considering that it is the first speculative office
development in the area in 40 years. During the permitting period of the project in 2015, the office market showed positive indicators especially that big deals were being made
36 including West Elm’s at Empire Stores in Dumbo, WeWork at the Brooklyn Navy Yard, and Inc. moving to Industry City. In an online article, Rich Bockmann from the Real Deal speculates that the big office space tenants are awaiting the relocation of a key
headquarter that would mark the Williamsburg-Greenpoint area as a destination for workspace especially that the amazon deal went to Long Island City. 33 By late
December of 2019, Rubenstein inked its first anchor tenant deal for more than 60% of the industrial space. Kith, an apparel retailer is moving its design, production, and front-office use from Manhattan along with 75 employees will occupy 58,000 square feet. 34
Figure 2.7
Exterior View of 25 Kent Avenue after Completion 35
In separate interviews, both Robert Andrews and Jeremiah Kane commented on
whether the ratio of industrial uses could have been increased when looking at its higher than expected market demand. Andrews, on one hand, highlighted that the extra
demand for industrial space will not justify the construction cost.36 While Jeremiah added
that the success of the project is the cross-subsidy model proposal because it enhanced the feasibility of a project in a market where land is very expensive. The model requires
37 a robust office market to support light industrial growth and while the ratio can always be adjusted to reflect the optimum feasible scenario as it relates to the current market trends, a minimum required ratio is a reasonable solution. Thus, it’s hard to evaluate the success of the 25 Kent avenue right now in a softening market. 26 It is also worth
mentioning that the IBIA model, while similar to the PDR model in San Francisco, the latter requires an anchor tenant signing before the rezoning approval which creates a better reflection of the market’s ability to create the cross-subsidy model efficiently. 37
iii. Other Projects within the IBIA
The IBIA zoning resolution was passed in 2016 and allowed any development within the 14 blocks to apply for the special permits through a ULURP. However, only 2 other projects have officially gone through the ULURP; 12 Franklin St and 13 North St.
projects. Both Projects combined under the enhanced business area should provide at a minimum an additional 32,370 square feet of industrial space to the Greenpoint IBZ. While the as-of-right FAR would have allowed the creation of 83,000 square feet of industrial space, ground-up manufacturing space is not feasible from a private development lens in strong markets such as this one. 27,28
Even though the ANHD states that the rezoning is a “decision to not use manufacturing-zoned land for manufacturing uses” 38(p4) it is arguable whether or not sites within the Enhanced
Business District could have been developed to their full as-of-right potential only as industrial spaces. However, the re-development potential is inevitably displacing existing businesses for added densities towards higher-yielding commercial uses. Thus, for this enhanced business area or future ones, policymakers should explore a mechanism through existing businesses which reflect the IBZ’s true manufacturing character can be retained. This could be through a rent rate subsidy or a creative partnership with existing business owners such as the one Rubenstein Partners were able to make with The Acme Smoked Fish Corporation.
ACME & Rubenstein Partners: The Partnership of a Private Developer with an
Industrial Business Owner
ACME Smoked Fish, the Brooklyn based lox maker, originated in 1905 and became a leading production and distribution facility of smoked and pickled fish in the country. 39 Their production
facility is located at 30 Gem Street in the Greenpoint-Williamsburg IBZ, a couple of blocks away from 25 Kent Avenue. However, it does not fall within the Enhanced Business Area overlay. 40 In
need of further enlargement to their facility within the same location, ACME cooperated with Rubenstein Partners to manage the development 39 The expansion is less expensive to the
business than moving out entirely outside of Brooklyn. Additionally, ACME is a type of business that the community and city want to preserve.36 However, the developer would have to put a
large investment cost to provide a new state-of-the-art facility while keeping the existing one operational. The cost of this expansion would be feasible only if cross-subsidized through commercial spaces and an increased FAR. 41
Figure 2.8
39
i. Site Assembly and Existing Ownership
Rubenstein Partners assembled a 116,800 square foot site, a block-sized lot, from 4 different owners including Acme which currently occupies 64,150 SF of land area and around 40% of the site. 41 The deal between ACME and Rubenstein is structured as a
sale and purchase agreement with a long term lease where the land was traded for 20% more production space. 33
The other lots contain an open storage lot owned by Corzo Contracting construction company, a 2-story facility owned by ABC Stone supplier which was already in the process of vacating the lot and a small vacant office. The breakdown of the existing ownership structure is detailed in the table below. Although the other businesses fall within the allowable industrial uses, the ACME space seems to be the only true manufacturing space that generates well-paying industrial jobs. The Assemblage was done under separate contracts with a purchase option based on the built-up area that will be negotiated during the ULURP. 33
Table 2.4
30 Gem Street Existing Ownership 41,42
ACME Corzo Contracting
Company
ABC Stone
Supplier Vacant Total Built Up Area
(SF) 76,950
-
(Open Storage Lot) 21,500 3,800 98,450
Lot Area (SF) 64,145 21,730 27,075 3,800 116,750
Lot #
1, 21, 25, and
50 125 6 19
ii. Proposed Zoning Amendment
Although the site was planned to be rezoned in 2005 similar to the 25 Kent avenue site from M3-1 to M1-2, which would have granted the development 4.8 FAR under the community facility option. However, the site was not included in the rezoning as per ACME Fish Co. recommendations to enable their growing operation. Thus, the
developers applied for a zoning amendment from M3-1 to M1-5 increasing the FAR from 2.0 to 5.0. This is among other requests such as increasing height limits as well as reconsidering setback, berth, parking, and loading requirements. The proposal consists of 105,600 GSF of industrial space dedicated to the ACME Smoked Fish processing facility in addition to 531,650 GSF of commercial space.30
iii. Net Variance in Industrial Space and Jobs
If the rezoning is approved, the ACME facility will be the only industrial space within the development and the rest of the lots would be converted to commercial uses, a shift that would be considered highly controversial within protected IBZ boundaries. 32 On the
other hand, it is arguable that the development potential will protect the displacement of the existing 77,000 SF ACME facility and will almost double their current associated employment of 170 jobs. This in addition to proposing a different future from the
