Brooklyn Loses 'Stepchild' Status

By YAFFI SPODEK

Buying Brooklyn's tallest office building wasn't a well-timed move by SL Green Realty Corp.
The company, Manhattan's largest office building owner, bought 16 Court St. in 2007 at the peak of the market paying a pricey $107 million for the mostly vacant tower. Since then the landlord has had to deal with the global financial downturn and a plunge in the building's value.

 

16 Court St. in downtown Brooklyn. 

But lately the 38-story building's fortunes have been improving. Its occupancy has increased to 85% from 19.4% in 2007 with a mix of new tenants in businesses, some not ordinarily attracted to downtown Brooklyn.

In its most recent deal, 16 Court achieved the ultimate in success for Brooklyn office buildings: attracting a tenant from Manhattan. After more than a century in lower Manhattan, BlumbergExcelsior Inc., a nationwide supplier of specialized legal software, signed a lease for 12,420 square feet. It plans to move its 50 or so employees to 16 Court by the spring.

"Brooklyn no longer has the stepchild status to Manhattan," says Robert Hebron, of Ingram & Hebron Realty, the exclusive leasing agent for 16 Court. "It's become a different place."

A view of the street level.

The downtown Brooklyn office market, an accumulation of stodgy second-class buildings near Brooklyn Borough Hall, is beginning to see the benefit of the borough's renaissance as a place to live, visit and find world-class entertainment. In recent years thousands of new apartments have been developed, and national retailers and hotel companies have added locations in the surrounding neighborhoods.

The Barclays Center made headlines recently when it opened nearby with a Jay-Z concert. The 18,000-seat arena is the new home of the Brooklyn Nets basketball team.

Owners and brokers say that, thanks to these improvements, many Manhattan-based companies no longer see Brooklyn as a second-class address. Meanwhile, rents in Brooklyn remain a lot lower than those in Manhattan, a powerful incentive during tough economic times.

"We would have stayed in TriBeCa for under $30 a foot, but it was impossible to find a space for that price," says Bob Blumberg, chief executive of BlumbergExcelsior.

According to Cushman & Wakefield, average Brooklyn rents were $28.83 in the third quarter, compared with $39.83 in downtown Manhattan and $66.42 in Midtown. Meanwhile, the Brooklyn vacancy rate declined to 8% as of the end of September, down from 11% at the end of 2011. The Brooklyn statistics includes Dumbo and the MetroTech Center, as well as the downtown markets, which total about 15 million square feet.

To be sure, the real-estate industry has heralded the turnaround of the downtown Brooklyn office market in the past, only to see it fizzle. The area is still being hurt by the overall weak economy that has slowed leasing citywide, as well as the decrepit condition of some of its buildings.

But brokers and owners say there are reasons to be bullish about Brooklyn other than the new arena, hotels, stores and condos. The Dumbo market has become so hip among start-ups and technology companies that there is practically no vacant space there.

Some of that demand is beginning to spill over into downtown Brooklyn, brokers and landlords say. "We're seeing some signs of different businesses and tech businesses looking at space," says Steven Durels, SL Green's director of leasing.

Also, a game-changing deal in downtown Brooklyn was sealed earlier this year when New York University agreed to rent 370 Jay St. for a school of applied science. The 61-year-old building was the former headquarters of the Metropolitan Transportation Authority and is mostly vacant.

The deal will result in a major upgrade to the unused property in the heart of downtown Brooklyn. It will also bring students and faculty and possibly spinoff businesses to the area. "That creates a buzz," says Glenn Markman, executive vice president at Cushman & Wakefield.

Downtown Brooklyn has benefited by a wave of economic development initiatives that stretch back to the development of MetroTech starting in the 1980s. The city also has made zoning changes and offered tax breaks and other incentives to encourage development.

"Brooklyn is going to have people looking at it as a first choice, rather than as an alternative, less expensive choice," says Steven Spinola, president of the Real Estate Board of New York. "If the Nets can do well in the season, that will also help speed along the process."

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