Creative destruction: New York City's key to growth

Real Estate Weekly, Jan 14, 2004 by John Maltzs

The Key to New York City's growth has been creative destruction, whether it goes under the nomenclature of revitalization, gentrification, urban rebirth, etc.

When industries or neighborhoods wither in Upstate New York or Midwestern Rustbelt towns, they generally back step to a lower economic level with land uses such as imported waste site, prison development, or best of all choices, farmland. Not so for New York City.

The biggest difference between the rustbelt scenario and the continued vibrancy of the New York City Commercial Markets: Strong, relatively healthy industries are destroyed for even stronger industries. Good examples of this would be:

The property at 196 Diamond Street in Brooklyn, a fully-operational tin foil manufacturing plant. Although employing over 50 skilled workers in over 100,000 sq. ft. it was closed down to make way for a television and movie studio production facility in 2000.

The sale, which my firm brokered for $1,400,000.00, resulted in the plant's reconstruction as four fully operational soundstages where hundreds are employed for TV productions such as "Third Watch."

For years along the East River in Long Island City, has been located a successful tennis and sports club complex on 2 acres: squeezed between a Board of Education, 5-story book depository building and a Consolidated Edison school and training site.

With its health club, restaurant, and tennis activities, numerous employment opportunities were offered on site as well as economic benefits to peripheral businesses. However, such low intensity land use was not good enough for New York City planners.

After a few years of architectural review this site was rezoned to allow for a million sq. ft. of residential development, and reasonably promptly thereafter we found a developer who paid $25M for the rezoned 2 acres.

One of the landmark transactions, which 1 like to point to as a high profile example of the creative destruction principal, is the recent conversion of the Sperry Rand 1,400,000 sq. ft. defense plant on the Nassau / Queens border to multi-tenanted industrial and office use by the talented people at iPark.

A resourceful team headed up by Lynn Ward and Joe Cotter took over this obsolete defense plant that produced gyroscopes during WWII and which later became the temporary headquarters for the United Nations, and gutted it for its eventual readaptation for use by Long Island Jewish Hospital, LA Sports Club, Equitable Life Insurance, as well as several others.

Unlike in many other areas of the country, the saying, "Create the space and it shall be filled" became a fairly rapid reality.

Our brokerage team satisfied a long standing requirement of The New York Times distribution division for 150,000 sq. ft. when, with the active participation of ownership, we showed them how the space could physically, locationally, and economically fill their needs.

This process not only is a long range positive for New York City, but also has a significant impact on relative property values.

By way of example, we recently were retained by a manufacturing company with industrial sales offices across the country, to dispose of one of their typical sales/service properties of 7,500 sq. ft. with accessory parking in Long Island City, Queens.

The Chairman of the Board was delighted with the attained sale price of $1,400,000.00 in light of the $138,000.00 received for a similar property in Syracuse, NY!

While this firm was repositioning their assets due to the heat felt from China, a rapidly expanding enterprise based in the burgeoning immigrant community of Flushing, Queens required the property for growth.

Whether it is the planned condemnation of several square blocks on the West Side for the construction of a new football stadium/exhibition hall annex; the condemnation on 8th Avenue for the construction of The New York Times World Headquarters; the proposed redevelopment of the Atlantic and Flatbush Avenue downtown Brooklyn site as a new home for the Nets basketball team; it appears that there continues to be unrelenting destruction of what, in other areas of the country would be strong, economically viable buildings and neighborhoods for a more economically intense land use.

It should, therefore, be no surprise that this process of creative destruction will continue to keep the New York City area as one of the country's fastest growing regions.