LIC rising as new "Silicon City'

Real Estate Weekly, March 1, 2000 by Lois Weiss

While Manhattan is fattening new media and technology tenants, Long Island City is opening its pastures to receive them. The business development district has proposed obtaining the next round of funding from the city's Economic Development Corp to help promote the area, and building owners are getting prepared for the influex of new tenants.

Already, the former IDCNY, which failed as a destination for the snooty, contract furniture industry, has been renamed "The Atrium" and cut a deal for 300,000 square feet with MCI, which joins city agencies already at the complex.

The 200,000 square-foot Case Paper Building on Borden Avenue was sold last fall to Freshdirect, an on-line grocer created by a former Fairway market partner.

Now, area real estate sources say PSInet is about to land at a former Thypin Steel location on Review Avenue across from the new Silvercup East Studios. The small structure will be built out to 300,000 square feet, and the company will make a $250 million investment that will include $50 million in city incentives.

Additionally, the Museum of Modern Art purchased a 140,000 square-foot former Acco Swingline property at 45-20 33rd Street, prompted in large part by its venture with the P.S. 1 art gallery. An earlier Swingline building of 280,000 square feet was sold to Stellar Management, which has rented it ti printers driven out by high rents from the Hudson Square neighborhood in the TriBeca section of Manhattan.

As the Ice-T firms in the arts and entertainment, Internet, communications and telecom fields find themselves out-priced and under-spaced in Manhattan's core, they have turned to neighborhoods in the fringes.

As areas such as the Flatiron District, Downtown Lower Manhattan, the Garment Center and Chelsea have become trendy and empty spaces scarce, rental prices have also trended upwards.

"I have been getting so many phone calls because such traditional alternatives like Park Avenue south are going for the mid to upper-$30's," said Franklin Zuckerbrot, a broker with Sholom & Zuckerbrot, which concentrates in outer-borough industrial areas including Long Island City and portions of Brooklyn and The Bronx.

He gets calls because Long Island City, a fast subway ride from Midtown, has rents in the single digits, while and buildings can be purchased for less than $100 a foot.

That's why, after discussions with real estate and Silicon Alley leaders, the city asked for proposals from districts in the outer-boroughs, and expects to award promotional dollars to one in each, hoping the dot-coms and other expanding businesses will find homes within New York City and not turn to Hoboken or Houston.

It still means Long Island City will be competing with Jamaica, Queens for the money, which could amount to roughly $500,000 for advertising and promotion of the neighborhood - money that was used by the Alliance for Downtown Lower Manhattan to turn empty Wall Street into Silicon Alley, and launch the Plug 'N Go program of pre-wired pre-builts with under-market rents. Queens' other transportation hub in Flushing was not nominated by its community leaders for the EDC award.

"The Internet companies are not ready to go deep into the boroughs," advised Marjorie Seaman, managing director in charge of the outer-boroughs for Insignia/ESG. "If you are trying to have the company make the psychic leap, you want to make it easy and stress the 10-minute advantage, where the prices would be similar but the area more accessible."

Long Island City is closer to Manhattan, has fast subway access, and contains acres of empty and cheaply-priced large loft and former industrial buildings that have good bones and elbow room for quickly expanding employee pools. "There is some space that's been warehoused as owners have been trying to decide what to use it for," said Gayle Baron, executive director of the Long Island City Business Development Corporation (LICBDC).

Where blue collar has long toiled in industrial warehouses, making staples, baking bread or shipping paper for companies that have since found cheaper labor elsewhere in America, and sturdy lofts were abandoned by garment makers for Asian soil, the nerdy geeks are now daring to operate their 24/7 connections in this space.

"We have a ripe stream of Internet companies looking at various, buildings out here," said Seaman, who handled the MCI and Freshdirect deals. "Just a handful are willing to come this way, but with this MCI deal, we've made the market, and now it's about telling the story."

She says an EDC designation would be "fantastic" because it would focus promotional advertising on the Long Island City market. "Each brokerage does its part, but a city-wide campaign would be a boost to everyone's efforts," Seaman said.

Zuckerbrot says tenants are spending a lot of time in Long Island City and typically take the deals to a high level before cutting them from the short list.

"But we are still making our deals," he said.

A former Macy's at 30-00 47th Avenue has been re-dubbed "The Factory" by its ownership, that includes Irwin Cohen, who turned a former industrial warehouse in Chelsea into the area anchor Chelsea Market Center. Sholom & Zuckerbrot rented 118,200 square feet of The Factory to three tenants with rents aggregating over $12 million. The top floor of 35,000 square feet is currently being offered to back office and Internet companies.