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Subject: The Fourth Harlem: Commercial Development
The New York Sun
December 7, 2006 Edition > Section: Real Estate > Printer-Friendly Version
The Fourth Harlem: Commercial Development
BY MICHAEL STOLER
December 7, 2006
Call it the Fourth Harlem: the Harlem of commercial real estate. If you want to know how lively it is, ask Vornado Realty Trust, one of the largest owners, managers, and developers of commercial real estate and, The New York Sun has learned, the entity heading a joint venture scheduled to build Class A office space north of 96th Street.Earlier this week, I wrote about the Three Harlems east, west, and central and what is happening in residential real estate.
The story of the Fourth Harlem is also full of action.Construction on the joint venture project headed by Vornado Realty Trust is scheduled to begin in April. It involves a mixed-use Class A office and retail center in East Harlem. The Vornado real estate portfolio in New York City comprises 18.3 million square feet of office space in 42 office buildings.
The new tower in East Harlem will be on a parking lot owned by the New York College of Podiatric Medicine at 1800 Park Ave. between 124th and 125th streets. The site is directly across the street from the 125th Street Metro-North rail station and one block from the Lexington Avenue subway station.According to title records, the joint venture of Vornado Realty Trust, Integrated Holdings, and MacFarlane Partners paid $20 million to the leaseholder that had entered into an agreement with the college in 2003. The joint venture will pay an undisclosed sum to acquire the land before closing. Industry leaders estimate that the price will be approximately $40 million; therefore, the total cost of the land is $60 million.
In January 2003, the college entered into a 48-year land lease with 1800 Park Avenue LLC, an entity controlled by Michael Caridi that had planned to develop Harlem Park, a mixed-use complex that would have featured 250,000 square feet of office space, a 204-room Marriott Courtyard Hotel, a spa, restaurants, a 35,000-square-foot event facility, 62,000 square feet of retail space, 100 residential units, and a parking garage.
Speaking at my class at the New York University Real Estate Institute this week, the president of Vornado Office, David Greenbaum, said: "We are planning to build a mixed-use, 600,000 square building, comprised of approximately 500,000 square of Class A office, 100,000 square of retail, and underground parking." He added that "rents in the tower will be approximately 40% less expensive than any new office tower in Midtown Manhattan."
"This tower will provide a benefit package which is very attractive to our company and tenants, which will aid in the reduction of our costs and of the rents paid by our tenants. The net rent for a new tenant after credits and abatement of taxes is in the range of $43 per square foot as compared to $80 to $100 for similar property in Midtown," Mr. Greenbaum said.These credits and exemption programs include an Industrial and Commercial Incentive Program abatement of property taxes for up to 25 years, which reduces the cost of operation by about $25 a square foot for the first 16 years; a Relocation and Employment Assistance Program, a savings of about $10 to $12 a square foot for tenants, and a Brownfield redevelopment tax credit available for the cleanup and redevelopment of a qualified Brownfield site.
"The building would the tallest building in Harlem, and can offer a tenant a branding opportunity," Mr. Greenbaum said. "We have been talking to a number of tenants who are interested in branding the location as their corporate headquarters." Over the years, a number of companies have considered relocation to Harlem, including Black Entertainment Television. A number of government agencies and nonprofits have also expressed interest in relocating its offices to the tower.Major retailers are interested in the retail component of the building, which may include a Nike store, a Starbucks, and a food component to serve both office tenants and the community.
"We made a great mistake that we did not go to Harlem five years ago for commercial and residential development," the managing partner of Apollo Real Estate Advisors, Richard Mack, said. "It is a natural extension of the Upper West and Upper East Side."
"Harlem is an excellent alternative to a company relocating to Jersey City or Long Island City, excellent transportation and infrastructure," the president and chief executive of Cushman & Wakefield, Bruce Mosler, said.Investors and lenders are bullish on the office market in Central Harlem. A year ago, the City Investment Fund and Cogswell Realty Group closed on the recapitalization of two office buildings in Central Harlem. The Cogswell Realty Group had purchased both buildings several years earlier and is completing a physical upgrading and retenanting.
The 14-story, 232,314-square-foot office building at 55 W. 125th St. between Fifth and Lenox avenues, built in 1974, has no vacancies. Tenants in the building include the office of President Clinton, the New York City Administration for Children's Services, Louise Wise, the New York City Housing Authority, and the Social Security Administration.
The office building at 215 W. 125th St., situated between Adam Clayton Powell and Frederick Douglass boulevards, built in 1970, has 170,841 square feet. The building has a 260-spot outdoor parking lot, and its tenants include the local community board and the Department of Labor. The land is owned by the Trustees of Columbia University.
About 128,900 square feet of additional space can be built on the site based upon zoning. Bear Stearns Commercial Mortgage provided securitized financing for these two buildings."Our office tenants are primarily governmental entities or organizations which are funded through federal, state or city programs," the president of the City Investment Fund, Thomas Lydon Jr., said.
"We purchased the properties because we see office rents in these buildings averaging around $30 per square foot, being very cheap relative to other alternatives in the city. The purchase price was at a significant discount to sales in Midtown, even before the recent big run-up in the past year. Additionally the retail space is very successful on 125th Street."New York City is under-retailed, especially in Harlem. It took more than 50 years for the first shopping center to open in Harlem.
At the intersection of 125th Street and Frederick Douglass Boulevard in the heart of Central Harlem, the 285,000-squarefoot retail complex, Harlem USA, opened in April 2000. It was developed by Grid Properties and the Gotham Organization in conjunction with Commonwealth Local Development Corp., an affiliate of Harlem Commonwealth Council, a community-based not-for-profit economic development corporation.Another mixed-use complex is in the planning stages in East Harlem.
This development, to include retail, will be built on a six-acre site on 125th Street in East Harlem. In October, the New York City Economic Development Corporation issued a request for proposals for the sale and development of the site. The development is expected to be a dynamic retail, residential, entertainment, and media destination.
The site consists of three parcels between Second and Third avenues and 125th and 127th streets.The project is expected to include up to 300,000 square feet of national retail space, including 120,000 square feet of specialty retail, restaurants, cinemas, and nightclubs, as well as 50,000 square feet of local retail. Up to 1,000 units of mixed-income housing are recommended, along with about 300,000 square feet of media space and up to 30,000 square feet of space for not-for-profit performing, visual, and media arts. There is also the potential for a hotel.
The project site is at the eastern end of the 125th Street corridor in the Upper Manhattan Empowerment Zone and the East Harlem Empire Zone.
The city owns about 81% of the land that the project site comprises and is seeking to acquire the noncity-owned parcels. Proposals must include an underground replacement facility for the MTA bus storage depot that exists at grade on Parcel A. More than 12 prominent development organizations have expressed interest in the project, including the developers of Harlem USA, a joint venture of Blumenfeld Development and Forest City Ratner, the Related Companies, and Vornado Realty Trust.
The Bloomberg administration has been a great supporter of development all over Manhattan and plans to push for the renovation of La Marqueta, a city-owned property built under the auspices of Mayor La Guardia in 1935 as a public market under the Metro-North viaduct in East Harlem along the Park Avenue Corridor between 111th and 119th streets.
The East Harlem Business Capital Corporation was designated by the administration as developer of La Marqueta Internatiocional, a project to restore fully the historic La Marqueta.
The redevelopment of La Marqueta will include construction of six structures totaling 86,000 square feet over the eight block area. Tenants will range from smaller wholesale and retail fresh foods and food-related businesses to small cafes, anchor restaurants, and a variety of small kiosks.
The project will create more than 500 jobs.Residents of Harlem will have the opportunity to shop at Home Depot, Target, and Best Buy in 2008, when the joint venture of Blumenfeld Development Group and its joint venture partner, Forest City Ratner, complete East River Plaza, a new shopping center located on the site of the Washburn Wire factory. The site consists of 6 acres adjacent to the FDR Drive and the river between 116th and 119th streets.
East River Plaza is a multi-level, 500,000-square-foot retail project with an attached 1,248-space parking facility spanning three city blocks.Other developments planned for Harlem include a possible Macy's department store to anchor a retail development at Lennox Avenue and 125th Street. An 80-room hotel may be in the development stage at the site of an Associated supermarket and Lucy's bar at 124th Street and Frederick Douglass Boulevard.
Commercial and retail developments are taking place all over the city, and, finally, they are reaching the Upper East and West Side in Harlem.
Mr. Stoler, a contributing editor to The New York Sun, is a television broadcaster and senior principal at a real estate investment fund. He can be reached at email@example.com.
December 7, 2006 Edition > Section: Real Estate > Printer-Friendly Version