'Transit Triangle' thriving

Real Estate Weekly, Oct 23, 2002 by David Levy

In this soft real estate market, there is one neighborhood that is showing surprising signs of life. The buildings in the tight triangular cluster of Midtown streets that are bordered by Grand Central Terminal, the Port Authority Bus Terminal and Pennsylvania Station, are outperforming properties in other parts of Midtown and the rest of Manhattan by large margins.

The area, which I call the "Transit Triangle," overlaps the Fashion Center, Midtown South and the Fifth Avenue corridor. A sampling of its buildings indicates tenants have a strong interest in the zone that shows no signs of waning. Tenants are increasingly drawn to non-trophy properties in the Transit Triangle. Six of the buildings that Adams & Company manages and leases in the area are fully occupied: 231 West 39th St., 42 West 39th St., 148 West 37th St., 1071 Avenue of the Americas, 463 Seventh Ave. and 10 West 33rd St. That is a remarkable statistic, especially when compared with a 10.10% vacancy rate in the rest of the city. The success of the buildings in this unofficial district is owed to a number of reasons.

First, most obviously, all offer remarkably easy access to transportation hubs. Employees are working longer hours and putting in extra time to make ends meet. With less and less free time, the commuters who account for a large portion of the city's work force covet a workplace that makes their daily trips by train, bus, car or subway as short and convenient as possible.

In the same vein, the mini-neighborhoods that spring up around these transit hubs provide the collateral amenities that other areas of Manhattan lack as a package: Business service outlets, affordable daytime dining options, and department stores and boutiques. The Transit Triangle strikes a perfect chord between the strict 9-to-5 world of Downtown, the pricey features of Midtown, and the incongruous residential qualities of the Flatiron District, Greenwich Village and SoHo.

Second, property owners and managers in this district have made significant capital investments in building upgrades and improvements. New windows, renovated lobbies/elevators and modernized power and wiring capabilities have driven a transformation for many of these buildings from manufacturing and distribution centers to legitimate office space for all types of media, technology and service firms.

And with the exodus of the labor-intensive industries from the Transit Triangle, the streets are cleaner and free of the delivery traffic that congested the area's streets for decades, making for an overall more attractive work environment.

Third, some savvy property owners have seized on an amazingly successful trend and converted all or most of the tenant roster in a particular property to specialty businesses. These so-called "destination buildings," which can be in Class B or C buildings, account for several million SF of space and in some cases are outperforming the market and their Class A counterparts.

At a number of properties, Adams & Company concentrates on attracting specialty tenants in the children's wear, men's wear, accessories, women's outerwear, toys and other industries. We believe that specialization gives them added value in any real estate market. Specialty tenants appreciate the accommodation, since their survival can depend on proximity to one other. They are visited by the same suppliers and buyers, and each benefits from the foot traffic the other neighbors bring in.

For example, Adams & Company has fully leased the Fashion Accessories Center at 10 West 33rd St. We also have completed more than 40,000 SF of leasing in the last six months at the Childrenswear Fashion Center. The building, at 34 West 33rd St., is nearing 100% occupancy. And other property managers are following suit, as evidenced by the building at 20 West 33rd St. Earlier this year, the building, immediately in between 10 West and 34 West 33rd St., had a 38.2% vacancy rate. However, since signing 30,000 SF of space to children's wear tenants (18,000 SF signed by Adams & Company) the building's vacancy rate has dramatically fallen to only 11%. This success is a clear indication that building specialization makes sense for owners and tenants alike.

Lastly, several of the buildings in the Transit Triangle offer smaller floor plates than other parts of the city, providing a much-needed platform for small business to thrive. While buildings that only offer large space are languishing with gluts of vacant direct and sublease space, those that cater to small-and mid-size tenants are consistently filling their space -- thanks to a larger field of prospective clients from which to choose. Adams & Company manages and leases the building at 110 West 40th St., where we have seen a remarkable rate of activity. Since the beginning of the year, we have signed 37 leases at the building, which offers space averaging 1,200 SF.

As an aside, it's important to note that the lessons gleaned from the midtown Transit Triangle are directly applicable to the rebuilding process in lower Manhattan. There are two imperatives in the Financial District's survival as a viable commercial zone. The first is the design and construction of a full-service transit hub that links the city transit services to commuter bus and rail lines. This will drive traffic into the area and will serve as the nexus of a neighborhood-wide rejuvenation.