Cross-Subsidy Models for Urban Manufacturing: The North Brooklyn IBZ (MIT MSRED Thesis 2020)

Cross-Subsidy Models for Urban Manufacturing

By Salma Abdelgawad B.S., Architectural Engineering The American University in Cairo Cairo, Egypt (2014) Submitted to the Program in Real Estate Development in Conjunction with the Center for Real Estate in Partial Fulfillment of the Requirements for the Degree of MASTER OF SCIENCE IN REAL ESTATE DEVELOPMENT at the MASSACHUSETTS INSTITUTE OF TECHNOLOGY May, 2020 Š2020 Salma Abdelgawad. All rights reserved

The author hereby grants to MIT permission to reproduce and to distribute publicly paper and electronic copies of this thesis document in whole or in part in any medium now known or hereafter created.

Signature of Author_____________________________________________________________ Center for Real Estate May 12, 2020 Certified by___________________________________________________________________ Kairos Shen Lecturer, Department of Urban Studies and Planning Thesis Supervisor Accepted by__________________________________________________________________ Professor Dennis Frenchman Class of 1922 Professor of Urban Design and Planning Department or Urban Studies and Planning Director, MIT Center for Real Estate

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Cross-Subsidy Models for Urban Manufacturing

By Salma Abdelgawad Submitted to the Program in Real Estate Development in Conjunction with the Center for Real Estate on May 12, 2020 in Partial Fulfillment of the Requirements for the Degree of Master of Science in Real Estate Development

Abstract Much has been written concerning the positive socio-economic values of urban manufacturing and the need for cities to advocate for the protection of existing middle-income wage jobs in the industrial sector. However, there lie governing factors as to why a use, that has always been essential to communities, has become very hard to grow or even sustain in the present time.

Urban growth models were usually developed around the idea that industrial uses are a negative externality. Unlike numerous cities that witnessed complete deindustrialization after World War II, New York City has over the years transformed the identity of its Manufacturing districts. The revival of urban manufacturing in the heart of NYC, where the highest and best use is not in favor of industrial use, has pushed for re-visiting the outdated industrial zoning framework for the first time since the 1961 zoning resolution.

The North Brooklyn Industrial Business Zone, a protected manufacturing district spanning across 1,066 acres and the third-largest industrial hub in the city by employment, is set out to become the blueprint for a proposed rezoning framework by NYC’s Department of City Planning. The rezoning was initiated as part of the industrial action plan launched in 2015 and aims to create new models for innovative and diverse neighborhoods through mixed-use commercial and industrial uses. In 2018, The Department of City Planning released a draft rezoning framework outlining an additional density to support commercial investment in a growing of a mixed-use market. However, the plan does not define a clear strategy that aims to maintain net-zero losses in industrial jobs. In effect, a simple up-zoning applied to industrial land will not hold back competing uses from outbidding industrial tenants and creating further industrial displacement.

By shedding light on New York City’s industrial land use policies and the mechanisms that helped maintain and grow its manufacturing ecosystem thus far, this thesis will demonstrate the feasibility and challenges facing industrial space development within the newly proposed North Brooklyn Re-Zoning Framework and under current market conditions. As part of the feasibility study, several deal structures will be explored from private development, public-private partnership, and industrial community land trusts which improve both the feasibility as well as the retention of businesses.

Kairos Shen Lecturer, Center for Real Estate Thesis Supervisor

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Acknowledgments To my thesis advisor, Kairos Shen, for mentorship and guidance since setting foot at MIT and throughout this research process.

To all the interviewees who were willing to share their time and insights that helped construct my narrative of New York City.

To all the friends that this journey has brought, for being there through all the highs and lows.

To Mohamed, for bringing unexpected kindness, laughter, and love into my life.

To Ahmed and Aly, for their constant encouragement and support.

To Mom and Dad, who, while being thousands of miles away, have given me an abundance of love to face the world with strength and courage.

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Table of Contents

Introduction

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01

Industry in NYC: Land Use Policies and Shifting Markets

12

02

Unique Urban Manufacturing Development Models and lessons learned

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03

The North Brooklyn IBZ: A New Industrial Rezoning Framework

45

04

Financial Analysis: Frameworks for Deal Structures in The NBK IBZ

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Conclusion

66

Bibliography

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Introduction “The North Brooklyn Industry and Innovation Plan” was launched in 2015 as part of Mayor de Blasio’s Industrial Action Plan and in alignment with New York City’s goal of creating 100,000 well-paying jobs in 10 years. The plan, which focuses on the protected The North Brooklyn (NBK) Industrial Business Zone (IBZ) and some surrounding manufacturing zones, is currently being studied by New York City’s Department of City Planning (DCP) to create new zoning models for diverse neighborhoods. 1 The NBK plan “aims to reinforce an industrial core constituting two-thirds of the Study Area for essential, heavy industrial/manufacturing businesses, while also increasing job density in targeted areas near transit and residential areas by supporting the growth of a dynamic mix of creative and tech-driven office-based and industrial businesses.” 2 Before DCP initiated their work, Evergreen, the industrial service provider of North Brooklyn IBZ, had also begun a study for the same area under The Brownfield Opportunity Area (BOA) Program with the goal of “strategic sites identification for redevelopment, and a policy framework for supporting industrial employment growth”. 3 The NBK plan carried by DCP is considered the first comprehensive attempt to update the industrial zoning framework set as part of the zoning resolution in 1961. The zoning policy envisioned would preserve core industrial areas while allowing the growth of mixed-use office and industrial buildings through additional density. The plan would also “identify broad changes to use and bulk regulations, as well as parking and loading requirements, which have wider applicability to commercial and manufacturing districts throughout the city”. 2 If successful, the plan would be a blueprint for future use in other Industrial Business Zones around the city.

However, the department of city planning is facing a great challenge of balancing between creating an effective growth mechanism for these innovation models as well as maintaining the statewide mission of retaining and supporting the growth of manufacturing, industrial and other office-based jobs.

3 years after the initiation of the plan and before the release of a formal proposal, DCP was still facing pushback from the industrial community who could easily face displacement once a higher density is allowed in the study area. At the same time, several small-scale industrial neighborhood rezonings were occurring at an alarming rate in North Brooklyn and specifically in the Greenpoint-Williamsburg IBZ. For that reason, the city was criticized for the lack of a comprehensive direction from planning authorities on which rezoning models prove efficient to both new investors and the industrial community.4 In October of 2017, Evergreen released the NBK BOA study Nomination Report and in November of 2018, DCP released the NBK Industry & Innovation Plan Study report. Both provided insights about the needs of stakeholders, the existing conditions as well as proposed strategies for each defined subarea according to its goals. The DCP plan also provided an in-depth report called “Can Industrial Mixed-Use Buildings Work in NYC?”. The report demonstrated that financially and under certain favorable market conditions, new commercial buildings can introduce industrial space without public subsidy allowing for an efficient cross-subsidy model. This is especially effective where the 8

spread between land cost and the rental rate is substantial, however, it would require a higher building density than what is currently allowed in the Manufacturing (M) districts. Under the existing zoning, these districts allow most commercial uses and some community facility uses but restrict new residential development. However, unlike commercial districts, they are characterized by a lower and bulkier density which was slowing investment in mixed-use buildings.

Figure 0.1 North Brooklyn Study Area 2(iii)

The report also recommended “pro-development tools, such as lowering parking and loading requirements, increasing allowable FAR, or creating incentive mechanisms in targeted, appropriate areas to enable such developments�. Through this incentive mechanism, the city could create a leveraging point to negotiate for more industrial space and an effective crosssubsidy model. A draft rezoning framework was released in April of 2019, identifying two zones for potential up-zoning: a transit and a growth district. An as-of-right higher density would be allowed for the growth district as it demonstrated strong market indicators and required little intervention to encourage investment while an incentive-based additional density would be 9

created for the transit district. Unlike the BOA study which identified an opportunity for an incentive structure requiring a ratio of 1:2 industrial to commercial space non-for-profit management and master lessee structure, the DCP plan did not clarify any strategies for retention of industrial land. The ambiguity of the plan voiced concern about creating too many strings to the incentives as it would discourage developers from investing. But at the same time, it created little to no relief for the existing industrial community. Most industrial businesses would likely face displacement due to the redevelopment potential allowed by the additional density. If a higher density is applied, the highest and best use of the IBZ will not be in favor of industrial uses and will eventually outbid what industrial business can pay for rent.

Finally, the plan remains to be presented to the City Council for approval. However as it stands today, it is the first step that New York City is taking towards developing new tools addressing the pressing question of how to balance between preserving industrial space that support wellpaying low barrier jobs while encouraging new investment reflecting today’s office-based tech economy. This question is part of a larger narrative that creates today’s urban manufacturing eco-system which was shaped over time through other city policies that aim to better protect land dedicated to industrial uses. As such, mapping the progress of NYC’s policies on industrial zoning, the shifting market needs, as well as the existing players and development models, can help clarify the opportunities in cross-subsidy models and agreement structures for urban manufacturing as well as their applicability with the North Brooklyn IBZ. Methodology: Chapter 1 takes a close look at the framework that governs industrial land policies within New York City, starting with the zoning code which as time passed has become irrelevant to modernday businesses and a barrier to new development, followed by the available financing tools that currently subsidize industrial development and ending with the current market dynamics within NYC. Chapter 2 explores key players, of non-for-profit and for-profit nature, in a case-study approach to formulate a set of lessons learned from unique urban manufacturing development models and an understanding of the tools employed. The case studies include The Brooklyn Navy Yard, The Greenpoint Manufacturing and Design Center (GMDC) and two unique private development projects; 25 Kent Avenue which initiated the Enhanced Business Area overlay, the first crosssubsidy zoning tool, and ACME Fish expansion by Rubenstein Partners, a creative deal to expand an existing business owner’s production space in a mixed-use project.

Chapter 3 dissects the North Brooklyn Innovation Plan and the Brownfield Opportunity Area Study to illustrate the cross-subsidy effect across existing uses as per current market trends, the demonstrated mixed-use development scenarios by both studies, and the relevant identified restrictions as well as recommendations. The chapter ends by breaking down the challenges that face the proposed zoning framework.

Finally, chapter 4 puts together the lessons learned from the case-study approach in addition to the understanding of the North Brooklyn IBZ rezoning framework to analyze the feasibility of creating mixed-use buildings that cross-subsidize industrial space through commercial uses.

Three sites of different development potential are identified and analyzed from a financial standpoint with the criteria of (1) a net zero loss of industrial space at a minimum, (2) favorably providing affordable or market-rate rents and (3) defining the scale of subsidy required, if any, in 10

each case. Different agreement structures are explored depending on each site condition including private development, public-private partnership, and an industrial community land trust model.

This thesis concludes with several findings on the challenges that face long term retention of industrial land in the light of revisiting the existing industrial zoning rezoning and recommends a series of strategies the in respect to implementing an efficient cross-subsidy zoning tool for mixed-used industrial development

00 Endnotes 1. New York City Government. Mayor de Blasio Unveil Action Plan to Grow 21st Century Industrial and Manufacturing Jobs in NYC. Published November 16, 2019. Accessed November 16, 2019. https://www1.nyc.gov/office-of-the-mayor/news/780-15/mayor-deblasio-speaker-mark-viverito-action-plan-grow-21st-century-industrial-and#/0 2. NYC Department of City Planning. The North Brooklyn Industry and Innovation.; 2018.

3. Evergreen. The North Brooklyn Brownfield Opportunity Area Program.; 2017.

4. New Industrial Zoning Passes - Questions Remain | Association for Neighborhood and Housing Development. Published November 18, 2019. Accessed November 18, 2019. https://anhd.org/blog/new-industrial-zoning-passes-questions-remain

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01 Manufacturing Districts in NYC: Land Use Policies and Shifting Markets

Much has been written concerning the positive socio-economic values of urban manufacturing and the need for cities to advocate for the protection of existing middle-income wage jobs in the industrial sector. However, there lie governing factors as to why a use, that has always been essential to communities, has become very hard to grow or even sustain in the present time.

Urban growth models were usually developed around the idea that industrial uses are a negative externality. As a result, land use planning has deliberately pushed industrial land to either contained districts or the suburbs. This negative value was associated with the environmental nuisances of manufacturing and caused a gradual decline in the industrial sector over the years. However, urban manufacturing, which refers to industrial uses inside urban centers, brings a diverse economy to cities through low-barrier jobs and well-paying wages to middle-income households. To comprehend the challenges behind industrial land retention in the heart of a highly dense city like New York, it is beneficial to trace the relevant existing land use strategies and its relation to the real estate market.

This chapter will take a close look at the framework that governs industrial land use policies and real estate market within New York City, starting with the zoning code which as time passed has become irrelevant to modern-day businesses and a barrier to new development, followed by the available financing tools that currently subsidize industrial development and ending with the current market dynamics and trends. This chapter highlights the pressing need for cities to support industrial development through both direct and indirect subsidies as well as the issues around zoning tools that distort the market’s efficiency and create more controversy around the notion of preserving industrial land.

A. Industrial zoning and Urban Planning Strategies i. From Cumulative to Exclusionary Zoning Ordinance Before 1961, residential uses in New York City were allowed within manufacturing zones following a “cumulative” or “inclusive” zoning ordinance. This ordinance followed a hierarchy of uses with the highest being single-family residential use and the lowest being heavy industrial use. Higher uses were permitted in lower use districts, but lower uses were not permitted in higher use districts. There existed no restrictions on industrial land conversions to either residential or commercial uses. This as-of-right conversion 12

allowed the market to dictate the highest and best use of land. 1 However, the city planning commission released a zoning resolution in 1961, that identified and designated districts according to their use as residential (R), commercial (C), or manufacturing (M). By that point, the zoning ordinance had turned into an exclusionary one. The separation voiced the environmental concerns that the public had about industrial uses spreading in the heart of cities and thus restricted the development of residential uses in industrial zones. The resolution also identified different manufacturing classifications from light to heavy as shown in the table below. This classification made it easier to identify districts with lesser nuisances where mixing of other uses could be possible such as offices, hotels, and retail with some exceptions in light industrial areas classified as M1. The envisioned manufacturing districts were of a low-rise scale with a floor area ratio (FAR) varying between 1.0 to 5.0, quite similar to an office park character with ample parking requirements. This is except for the M1-6 zoning which was purposefully set at a higher FAR of 10.0 for joint living-work quarters such as the artists' live-in districts in SoHo/NoHo. The table below shows the breakdown of each use and its relevant maximum permitted FAR.

Table 1.1 Manufacturing FAR allowances as per 1961 City Planning Commission Resolution

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M1 - Light Manufacturing

M2 - Medium Manufacturing

M3 - Heavy Manufacturing

M1-1 M1-2 M1-4 M1-3 M1-5 M1-6

M2-1 M2-3 M2-2 M2-4

M3-1 M3-2

Maximum Permitted Floor Area Ratio 1.0 2.0 5.0 10.0

Moreover, the resolution allowed an incentive based additional density for buildings in M1 districts including community facility uses. In some zones, the as-of-right floor area ratio can be increased from 1.0 to 2.4 in M1-1 and from 2.0 to 4.8 in M1-2 as detailed in the table below. 2 Table 1.2 FAR allowances for Buildings partly for Community Facility and partly for Industrial or Commercial uses as per 1961 City Planning Commission Resolution 2 M1 - Light Manufacturing

Allowable FAR For Industrial or Commercial Buildings Only

M1-1 M1-2 M1-4 M1-3 M1-5 M1-6

1.0 2.0 2.0 5.0 5.0 10.0

Allowable FAR For partly Community Facility and partly Industrial or Commercial Buildings 2.4 4.8 6.5 10.0

However, in a lot of cases, the incentive is misused and instead of leasing it to community facility tenants such as educational, religious, non-profits, and medical uses, 13

these are leased to office uses. This is because community facility uses typically cannot pay the high asking rent that matches the expensive construction cost while office spaces usually can. 3 Unfortunately, at the time of this comprehensive zoning overhaul, an overall decline in the industrial sector was occurring, where most businesses fitting within the mold of lowrise bulky factories moved to the suburbs seeking less costly and more transitaccessible lands. Even more, the growth in the service sector put pressure and questioned whether manufacturing uses in urban centers was the highest and best use of valuable industrial land in the heart of New York City. Nonetheless, M-districts remained protected from being driven out by natural real estate market forces mainly due to its low allowable density and prohibition of new residential development. 4 Figure 1.1 Employment by Major Sector in NYC 1950-20174(p2)

Valuable industrial land in most U.S. cities witnessed a severe loss in businesses and jobs and many sat vacantly for a long time after World War II. And while the exclusionary zoning allowed some businesses to survive the industrial decline era, it could not change their economic model to compete with other higher-yielding uses. Thus, without the proper supply of tools and incentives to complement an exclusionary zoning policy, a lot of pressure is exerted to re-introduce as-of-right conversion of industrial land to other competing uses. 5

ii. MX-Districts The conversions first started illegally but the residential encroachment on manufacturing uses manifested when the first Mixed Use districts (MX) in 1997 were permitted as a special zoning district. It re-allowed residential and industrial uses to be located side-byside or within the same building in manufacturing districts within certain areas in New York City. 6 However, it never tied unlocking such conversions or the extra density that comes along with residential and commercial uses as incentives to preserving existing businesses. This led to the industrial decline and gentrification of businesses along with 14

middle-income households who rely on industrial jobs. This is especially the case for The Greenpoint-Williamsburg MX district designation where the market naturally priced out industrial tenants once exclusionary zoning was no longer in effect.

Figure 1.2 Industrial Land Conversion Map in Brooklyn 2002-2012 8

The map above shows the number of land conversions that occurred in the Greenpoint area as a natural pricing out effect where for most industrial businesses, the economic 15

model which maintains their profitability does not allow them to compete in offering higher rents than residential or commercial uses. Thus, the redevelopment potential to other uses slowly drives up the rental rates, and lessees of industrial space are gradually priced out. 7

iii. Industrial Business Zones To prevent further losses of industrial land in NYC, in 2006, Industrial Business Zones (IBZ) were first originated to identify protected districts from conversions in several areas within the Bronx, Brooklyn, and Queens. The designation was a renewed promise from the Bloomberg administration to put a halt to conversions as well as provide industrial businesses certainty about their ability to stay and grow especially in core manufacturing districts designated as M3.2 However, the conversions to residential and office uses did not stop within IBZs, driving up rental rates and causing further industrial businesses gentrification. 9 Data published by New York City's Department of city planning show that the highest land conversion percentile on the overall stock of industrial land was 31% and it occurred in Brooklyn from 2002-2012, a period where IBZs were established.

Figure 1.3 Industrial Land Conversion in NYC Boroughs as percentile on overall 2002-2012 8

Furthermore, a report published by New York City's Council shows that commercial land conversions from 2005-2014 did not protect IBZs located in strong urban markets. The Greenpoint Williamsburg IBZ, which contained no commercial uses in 2005 witnessed a 10% loss of industrial land due to conversions. Thus, over time and in critical urban real estate markets, the IBZ designation appears to provide an inadequate level of support for industrial land. 10

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Figure 1.4 Commercial Land Use increase 2005-2014 in IBZs with the Greatest Rate of Commercial Conversion Land 10

The manufacturing advocacy groups argue that for a long time after their establishment, the IBZ boundaries were not written in the zoning code which has allowed for the relocation of non-industrial uses within these boundaries on an as-of-right basis. Even more, the lack of guidelines that mandate job-producing industrial uses and restrict gentrifying competing uses has always been a hurdle to industrial land retention.11 However, over time, a few measures were taken to strengthen the IBZ designation.13 The Department of City Planning produced a version of the text amendment to ban selfstorage in IBZs, which while allowed under manufacturing uses, does not contribute to 17

job creation and has very high-profit margins that compete with job-producing industrial businesses. In addition to that, restrictions on hotel permits were passed in 2018 where a public review process is required for each site. The City Council also led the effort in codifying the IBZ boundaries in zoning maps.12 On the other hand, there’s a disagreement on whether these policies should be part of a formal zoning code as it disables the market from naturally determining the highest and best use of land. Demand on land in dense urban centers has always driven its price up and created a mechanism that attracts higher yielding uses such as commercial and residential towers to central locations. As such, from a financial perspective, land use restrictions prohibit the conversion of land to better yielding uses, and superficially controls the supply of land creating market inefficiencies. 14

B. Financing Tools for Industrial Development Hills and Schleicher speak about the high cost that cities bear when following a noncumulative or an exclusionary zoning ordinance in the University of Chicago Law Review. Both argue that while this cost is immeasurable, it can be observed in the loss of non-industrial development potential, which could be of a greater benefit to residents living in the adjacent neighborhoods. Their proposal towards an efficient market is to use direct and measurable subsidies towards the retention of industrial land. 1 While this chapter has already illustrated the challenges facing IBZs that fall under an indirect type of subsidy according to Hills and Schleicher, it is also beneficial to trace the types of direct subsidy tools available in NYC today and their relevant restrictions. Direct sources of subsidies are typically financing resources made available to industrial developers and businesses.

Table 1.3 Financing Tools for Industrial Development Type of Subsidy Public Subsidy Grants Loans Tax incentives Business Support Bonds

i.

Example City Capital Regional Economic Development Corporation Grant (REDC) Industrial Development Fund (IDF) Relocation Tax Credit and Land/Property Tax Abatements Small Business Services and Industrial Business Service Providers (IBSP) Industrial Revenue Bond

Restrictions/Remarks Accessible through Non-profits only High interest rates Typically provided within IBZ boundaries Outdated restrictions on capital value

Public Subsidy City capital which is only accessible through Non-profits that fall under the 501(c)(3) is an essential source of funding for maintaining industrial city-owned assets. The De Blasio administration committed in 2015 a total investment of $115 million to develop 500,000 square feet of space in the Brooklyn Army Terminal and $140 million to develop 1 million square feet of space at the Brooklyn Navy Yard. 15 The following 18

chapter will provide more insights on this key funding mechanism as it related to the success of the Brooklyn Navy Yard today. ii.

Grants, Loans, and Bonds Most financing tools are catered towards the non-profit development market. Among which is The Regional Economic Development Council (REDC) which offers one key grant to nonprofits, local organizations as well as business owners with a local economic development mission.

The Industrial Developer Fund (IDF) by New York City Economic Development Corporation (NYCEDC) is another one that was launched in the Spring of 2016 to offer both grants and loans 12. Anisha Steephen, who was part of NYCEDC and worked on the IDF, clarifies that its goal was to replicate the financing model made available for affordable housing developers which uses a grant coupled with a lowinterest subordinate loan. 19 However, the IDF was restructured to only offer loans that are close to market rates defying its purpose. It faced a considerably slow start since its launch and awarded three NFPs only. However, in a progress report marking 3 years after the industrial action plan was announced, the Association for Neighborhood & Housing Development highlighted that "At a time when there are a few financing options available for the creation of below-market industrial space, the Fund has played a crucial role in making non-profit development of industrial space possible".12 The industrial revenue bond is another tool that was issued in 1984 but since it was never updated, it did not keep up with modern-day requirements of industrial development. The bond is accessible to both for-profit and non-for-profit developers.

However, two major constraints pose a problem, firstly, the capital expenditure is capped at $20 million, a number that is easily exceeded in today’s market and especially for development within urban markets where land prices are soaring.

Secondly, a limit of $10 million on the value of bonds per project is set which poses a difficulty for small to medium business owners. 21 Financing tools encouraging private development are very limited and typically have harder requirements. 16(p102) Acumen Capital Partners is a private development firm that successfully repurposed abandoned giant factories including the Pfizer building in Brooklyn and The Standard Motor Product building in Long Island City for small and medium scale industrial. Jeff Rosenblum, a co-founder of the firm commented that when the IDF grant was available, it required a previous track record of industrial development which generally limits the pool of applicants to existing players and does not expand the market 17. Other imposed restrictions include requiring 30 years holding periods that are a hard commitment for private developers.18 Alternatively, for-profit developers have better access to conventional commercial loans and are typically in a better position to leverage capital or attract larger amounts of capital.16(p102)

iii.

Business Support 19

Other direct sources of subsidy can be found under the IBZ Zone designation which carries support and incentives to industrial businesses. These include a relocation tax credit to businesses moving into IBZs. Property and land tax abatements are also made available through the New York City Industrial Development Agency (NYCIDA) up to 25 years and a full land tax abatement can be provided for sites within IBZ boundaries. 20 Each IBZ is assigned an industrial business services provider (IBSP). IBSPs are non-profits operating under NYC's Department of Small Business Services (SBS) to provide consultation individually to their local businesses as well as advise the city on area-wide plans to maintain and help the growth of industrial jobs. 8

C. Market Shifts and Redevelopment Opportunities The need for manufacturing space in NYC is unique as the demand is persisting and key non-profit developers such as the Greenpoint Manufacturing and Design Center (GMDC) and The Brooklyn Navy Yard Development Corporation (BNYDC) confirm having always had a waiting list for their industrial space in addition to a very tight vacancy rate. 22 The complexity is that most tenants who require that space also require a specific rent rate that falls between $20-25. This range allows them to maintain their profitability and still pay for the cost of being in the city, close to their target market and employees. 17 However, NYC's market is witnessing significant changes at the moment; vacancy rates are bumped to 5.2%, an all-time high since 2012, the land prices have been pushed to the mid-$480 range, and even higher in transit-oriented sites while cap rates approach the low 5 percent. Industrial tenants are outpriced in Brooklyn and Queens and thus are fleeing to Outer Borough locations in Staten Island and the Bronx, creating also additional price gains in these areas.

Figure 1.5 2019 NYC Market Asking Rent and Vacancy Rates

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20

This is speculated to be the result of current and planned city rezoning of major neighborhoods along with the eastern coast of the East River and in specific the North Brooklyn Area. In 2015, the De Blasio administration unveiled the industrial action plan as a 10-point proposal which puts forward different tools in advocacy of industrial development.

One key point was re-visiting the existing land use framework and proposing a new one that incentivized a mixed-use district allowing light industrial, commercial, and residential uses. 15 Shortly afterward, a re-zoning process was initiated to study the North Brooklyn IBZ which will be expanded upon in Chapter 3 of this thesis. A draft zoning framework was released in 2018 that proposed the upzoning of the peripheral districts in the area that buffers between the core manufacturing district, zoned as M3, and the residential neighborhood of North Brooklyn. However, the plan did not specify any strategies set for industrial land retention.

The plan still needs to be presented to the city council for the next approval step. But it has already received pushback from the community as they want to preserve the affordability rate of their spaces which is not a priority that seems to be addressed in the latest proposed draft framework.

Similar to affordable housing, creating industrial space at reasonable rental rates, is not the highest and best land use. It does not create the required returns most private developers expect on their investments. For that reason, it has been undertaken by non-profit organizations and city-owned development corporations who get the various subsidies explained earlier such as cheap land cost, city capital, and grants. However, with the lack of incentives for private developers to create or at least preserve industrial space, conversions will keep chipping away at the city’s stock. However, the mixed-income housing model has proven to be an efficient tool to invite private developers into the creation of affordable housing, where market-rate units cross-subsidize for affordable rate units. Thus, by taking a closer look at unique industrial development case studies in NYC we can learn how industrial space can be cross subsidized through commercial space. This is especially beneficial in structuring a zoning tool which creates incentives for private developers to be part of the industrial market. The case studies included in the next chapter are BNYDC & Steiner’s Admirals Row; The Greenpoint Manufacturing and Design Center as well as 25 Kent Avenue, and ACME Fish by Rubenstein Partners.

01 Endnotes 1. Hills RM. The Steep Costs of Using Noncumulative Zoning to Preserve Land for Urban Manufacturing. The University of Chicago Law Review.:25.

2. New York City Department of City Planning and City Commission. Published December 15, 1961. Accessed November 16, 2019. https://www1.nyc.gov/assets/planning/download/pdf/about/city-planninghistory/zoning_maps_and_resolution_1961.pdf 3.

“How Do You Build New Offices in Williamsburg? Add Manufacturing!” Commercial Observer. Published February 26, 2019. Accessed December 29, 2019. https://commercialobserver.com/2019/02/how-do-you-build-new-offices-in-williamsburg-addmanufacturing/ 21

4. New York City Department of City Planning. The North Brooklyn Industry and Innovation.; 2018.

5. Heikkila E, Hutton TA. Toward an evaluative framework for land use policy in industrial districts of the urban core: A qualitative analysis of the exclusionary zoning approach.

1986;(23):47-60.

6. New York City Department of City Planning. Zoning Districts & Tools: Special Purpose District : Citywide - DCP. Accessed November 18, 2019. https://www1.nyc.gov/site/planning/zoning/districts-tools/special-purpose-districtscitywide.page 7. Wolf-Powers L. Up-Zoning New York City’s Mixed-Use Neighborhoods Property-Led Economic Development and the Anatomy of a Planning Dilemma. Journal of Planning Education and Research. Published online 2005:379-393.

8. New York City Department of City Planning. Zoning Districts & Tools Manufacturing Districts: January 1, 2002 to January 1, 2012 - DCP. Accessed November 15, 2019. https://www1.nyc.gov/site/planning/zoning/districts-tools/mfg-districts-2002-2012.page 9. McCormick L. The city and industry: Deurbanizing manufacturing in New York City? :474488.

10. Engines of Opportunity: Reinvigorating New York City’s Manufacturing Zones for the 21st Century. The New York City Council; 2014.

11. Savitch-Lew A. With de Blasio’s rezonings, city’s industrial land becomes scarcer. Published online April 3, 2018. https://citylimits. org/2018/04/03/with-de-blasio-rezonings-citys-scarceindustrial-landbecomes- scarcer/.

12. Industrial Jobs Coalition. NYC Industrial Action Plan - 3 Years Later - A Progress Report.

13. New York City Department of City Planning. M1 Hotel Text Amendment - DCP. Accessed January 2, 2020. https://www1.nyc.gov/site/planning/plans/m1-hotel-text/m1-hotel-text.page 14. Asabere PK, Huffman FE. Zoning and Industrial land values: The case of Philadelphia.

Journal of American Real Estate and Urban Economics Association. (19):154-160.

15. NYC Government. Mayor de Blasio Unveil Action Plan to Grow 21st Century Industrial and Manufacturing Jobs in NYC | City of New York. Published November 2015. Accessed November 18, 2019. https://www1.nyc.gov/office-of-the-mayor/news/780-15/mayor-deblasio-speaker-mark-viverito-action-plan-grow-21st-century-industrial-and#/0 16. Evergreen. The North Brooklyn Brownfield Opportunity Area Program.; 2017.

17. Fabian S. Brownfield Opportunity Area Program Manager, Evergreen. Published online November 14, 2019.

18. Rosenblum J. Co-founder Acumen Capital Partners. Published online November 4, 2019.

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19. Anisha S. Director of Real Estate, Spaceworks. Published online December 13, 2019.

20. New York City Indsutrial Development Authtority and New York City Economic Development Corporation. Accessed January 1, 2020. https://edc.nyc/nycida 21. Urban Manufacturing Alliance. Policy Brief: Industrial Revenue Bond Program. ; 2013.

22. Smith C. Senior Project Manager, Greenpoint Manufacturing and Design Center. Published online November 12, 2019.

23. Institutional Property Advisors. New York City 2019 Industrial Investment Forecast Report.; 2019.

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02 Unique Urban Manufacturing Development Models and lessons learned

In advocacy of preserving and growing the industrial sector in NYC, the city has over the years created several tools to strengthen its urban manufacturing ecosystem. Many of these tools have surfaced in reaction to the announced industrial action plan in 2015 and include new land use policies, financing tools in addition to investment commitments in city-owned industrial developments. 1 Participants in this ecosystem and especially its policymakers endorse a nonfor-profit development and management of industrial spaces as it provides the stewardship and knowledge that speaks to the needs of manufacturing businesses. 2 Additionally, NFP urban manufacturing developers have an advantage especially in hard markets here the highest and best land use does is not in favor of manufacturing space. This is because they have access to different capital resources and have lower required returns on investment in comparison to a for-profit developer. 3 However, privately-owned land in M-districts still constitutes a larger portion of NYC’s industrial stock, and thus formulating other tools that invite for-profit developers into this market becomes also essential to strengthening the urban manufacturing ecosystem.

For that reason, new land use policies have emerged to leverage mixed-use models in favor of industrial uses in privately developed projects.

This chapter explores key players, of non-for-profit and for-profit nature, to formulate a set of lessons learned from unique urban manufacturing development models and an understanding of the tools employed. This includes the case of city-owned assets operated by NFP corporations, The Greenpoint Manufacturing and Design Center (GMDC), and how they can selectively cater to businesses in need of affordable space. In addition to two unique private development projects; 25 Kent Avenue which initiated the Enhanced Business Area overlay, a cross-subsidy zoning tool, and ACME Fish expansion by Rubenstein Partners, a creative deal to expand an existing business owner’s production space in a mixed-use project.

City-Owned Industrial Assets and City Corporations: The Brooklyn Navy Yard Before the mid-1950s, Brooklyn’s waterfront was called “The Walled City” about the endless warehouses that lined its shores. It was a bustling industrial zone that powered its economy and trade until the post-war economic shift. This shift not only caused the industrial decline but was also met by a resurgence in construction that converted many of the industrial assets and infrastructure to commercial and residential buildings.4 24

Figure 2.1 Aerial View of Brooklyn Army Terminal before 1970 (Top) 6 Figure 2.2 Aerial View after decommissioning and redevelopment (Bottom)

7

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A couple of federal assets did not meet the same fate as the rest of the abandoned industrial infrastructure. Among which are The Brooklyn Army Terminal (BAT), which is a warehouse complex located in Sunset Park that served as a military supply base during WWII. It was rebought by the city in 1918 to be re-developed into an industrial hub and is now operated by NYCEDC.5 The Brooklyn Navy Yard (BNY), which was previously home to the leading naval shipbuilding facility follows suit as it was decommissioned in 1966 but was then also acquired by NYC for $23.5 million in 1969. 8 The yard struggled through its early years to regenerate the lost urban manufacturing businesses, but today the 300 Acre-site is now an active industrial park with over 400 businesses operated by the Brooklyn Navy Yard Development Corporation (BNYDC).9 The key to making this feasible is associated with several key factors that were also identified by The Pratt Center for Community Development as part of its study on the yard’s “Economic Impact and Opportunities for Replication”. These include public ownership of the asset, nonprofit management, city capital, and the ability to leverage rent roll and earnings. 10

i. Public Ownership of Asset: BNYDC works under a renewable lease agreement with the city which allows them to manage and develop the yard to maximize the number of jobs generated by projects within its premises. The agreement allows the annual base rent to be at zero cost if a minimum balance is retained in BNYDC’s reserve funds or The City Reserve Funds. The minimum balance was reduced from $5,000,000 to $500,000 in 2018. The corporation is required to also cover its operating expenses and maintain the yard’s assets and infrastructure. 11 Although NYC can invest in privately owned assets by nonprofits, the dual effect of public ownership and non-for-profit management by a mission-driven entity, is likely a reason why the capital influx to the yard’s development was as consistent. 10

ii. City Capital: City capital, which is raised from general obligations bond, can only be used to finance projects that benefit the public at large. And although industrial development, unlike affordable housing, is not narrowly defined as being for public benefits, non-profits qualify to receive this kind of capital because of their mission-driven purpose.2 During the Bloomberg administration, over $200 million in city capital investments were put into infrastructure needs which BNYDC leveraged to acquire $500 million in private funding to use for the development of more than 10 buildings within the yard. Most recently and as part of the industrial action plan, a commitment was placed to invest a total of $442 million in city capital for the re-development of 4.7 million square feet of space and infrastructure of cityowned assets, almost a third of which is dedicated to the BNY.12 Additionally, the city is expected to invest in the BNY’s new $2.1 billion masterplan which was announced in 2018 and envisions the creation of 5.1 million square feet of ground-up multi-story manufacturing spaces. 1

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Figure 2.3 Aerial View of New Brooklyn Navy Yard Masterplan

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iii. Leveraging rent roll and Earnings The lease agreement allows the management to put back their project earnings into further development opportunities, including re-development and ground up construction, instead of paying it back to its landlord in rent dues or investor earnings. 8 When large scale developments are run by one entity, they have an opportunity to cross-subsidize uses across their inventory as opposed to small scale projects where returns are either tied to one kind of asset or a smaller inventory in singular mixed-use projects. As explained earlier, the generated earning is not returned to the city and thus can be reinvested into the yard to support the creation of further industrial spaces in other buildings. Since 1997 and till 2015, the corporation has been able to reinvest the earning beyond their expenses with an average of $5 million. However, it is important to highlight that the sustained development progress in recent years would not have been possible without major city capital injections.

This is clearly illustrated in the graph below.

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Figure 2.4 Annual Capital Investment by BNYDC vs. City Capital 1996-2015 10

iv. Cross Subsidy Models Across the Yard: BNYDC has made several partnerships with private developers to incorporate new higheryielding uses into the yard. Their newest developments include Dock 72, a 675,000 square feet of market-rate commercial space co-developed by Boston Properties, Rudin Development, and WeWork.14 Furthermore, a deal between BNYDC and Steiner involves several mixed-use buildings including Building 212 and 303.

Both these buildings offer light industrial space and market-rate creative office.15 BNYDC typically offers light manufacturing spaces at rents which are roughly at the market rate10, which were estimated in 2017 at $25/SF in North Brooklyn. 16 While the commercial space is offered at Brooklyn’s office market rate where it is reported that the average asking rent is $39/SF.17 The spread between the rent rates can allow for the office to cross-subsidize the industrial space, similar to a mixed-income housing scheme where the market rate housing units can subsidize for the cost of rate units at what is now mandatory inclusionary housing ratios set by each city. However, the subsidized cost of the asset, combined with the mission-driven entity of the corporation and a lower required hurdle allows for not only the opportunity to create industrial space but to have the ratio of industrial space be higher than market-rate commercial space. Both projects with Steiner have a product mix of 3:1 and 4:1 industrial to commercial space. 18 15

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Figure 2.5 Mixed-Use Buildings co-developed in Partnership with Steiner

19

The above factors are considered key to the success of the Brooklyn Navy Yard today. From a singular development perspective, the cross-subsidy model is applicable especially from a private development point of view. On the other hand, the public ownership of assets seems applicable only in a down cycle where asset values are low similar to the case of the BNYDC or Sunset Park when decommissioned. However, the ownership structure could be further explored in a model similar to a community land trust or a partnership between existing asset owners, the city, and an NFP corporation. Finally, the capacity of corporations such as BNYDC to leverage their earnings and city capital can be put towards exporting their NFP stewardship to other M-districts either as master lessees or co-developers. This can be a very powerful tool in strengthening the manufacturing eco-system, especially that the tenancy and management of spaces within the yard is the secret behind its remarkable transformation.

NFP management of industrial spaces is vital to protecting businesses, particularly small scale ones at risk of displacement. Similar to the BNYDC, The Greenpoint Manufacturing and Design Center is a non-profit Corporation that has creatively found a unique way to create and manage spaces specifically for the growing small scale urban manufacturing businesses.

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Non-for-Profit Management and Catering for the New Niche Industrial Economy: The Greenpoint Manufacturing and Design Center One of the advantages of running industrial spaces by non-profit entities is enabling the compromise on higher returns on investment for the benefit of lower rent rates that are within reach of businesses. 10(p87) This is critical at least in the beginning when tenants need smaller spaces till they grow enough to afford to move into bigger unsubsidized buildings. This is specific also to these types of small production tenants which are now a large portion of NYC’s urban manufacturing base. 20 Unlike numerous cities that witnessed complete deindustrialization after WWII, NYC has over the years transformed the identity of its M-districts, especially the bustling manufacturing scene in Brooklyn, and as Joseph Berger described it; “Instead of Industrial Giants, Brooklyn Has Niche Factories”. The North Brooklyn side around Newton Creek which hosts several old industrial building that usually gets converted to residential lofts has witnessed a different shift in character, where giants such as the former Pfizer pharmaceuticals on 630 Flushing Avenue or the massive Chelsea Fiber Mill Factory on 1205 Manhattan Avenue have been re-developed to serve several smaller-scale manufacturers by The Greenpoint Manufacturing and Design Center (GMDC) .21

i. Background The Chelsea Fiber Mill Factory ended up in the city’s possession by the mid-1980s and received no interest from private developers. The building was in distress and required a great cost to upgrade. Several years later, the building tenants and several community organizations came up with a redevelopment plan 22 where the North Brooklyn Economic Development Corporation purchased the building from the city for $1 to renovate and upgrade the building. The building was then acquired by GMDC and it became their pilot project. The corporation leveraged both public and private capital to redevelop the complex that now hosts 75 small businesses. 23 Looking to re-develop more buildings, they were able to acquire their first commercial loan secured on the 1205 Manhattan Avenue Building 20 and expand their portfolio through a blend of private equity, grants, and commercial loans to now include 5 buildings and 630,000 square feet. 24 Additionally, the corporation is committed to offering spaces at affordable rent rates and has become one of the leading non-profit industrial developers to cater to that market. When asked about the limitations on creating affordable industrial spaces, Cassandra Smith, project manager at GMDC identified the biggest hurdle as the lack of clear infrastructure to identify affordability rates and merit to properly create spaces that meet the needs of industrial tenants.

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ii. Identification of Affordability Rates The affordability rates of industrial uses are harder to identify and selecting the type of businesses in need of subsidy is even more difficult. This is as opposed to affordable housing, which has an entire infrastructure to identify and allocate affordability rates such as the Average Median Income (AMI), census tracts, and the common rule where housing expenses that are more than 30% are considered burdensome. While almost all BNY tenants identify the affordability of rental rates in the yard as a critical factor, the rents are offered at nearly market rates which is competitive from a location perspective in addition to other amenities served within the campus-wide facility. 10(p54) Meanwhile, GMDC identifies it as 20% below the surveyed market rates in comparison to each area location. In the Brownfield Opportunity Area Program study relevant to the North Brooklyn IBZ, which will be explored at depth in chapter 4, market rate light industrial spaces were identified at $25/SF while affordable rates were discounted by more than 45% and set at $16/SF.16 In addition to that, the affordability rates differ from one business to the other depending on their profit margins which make the selection criteria even harder.

iii. Small Businesses and In-risk Businesses Tenancy When asked how GMDC establishes that a specific business is meriting of affordable industrial space, Cassandra Smith, project manager at GMDC, clarified that the type of offering self-selects the kinds of businesses in need of subsidy. Over the years, they have established an informal selection process where they usually offer spaces ranging from 1,000-8,000 SF crafted for small businesses. They do allow tenants to combine spaces and grow their businesses but at a certain point, they outgrow the cap where they can grow more organically in a standalone building. They also utilize other measures to ensure local businesses that have been in the area have an advantage in finding spaces amidst being outpriced such as offering long-term leases in the range of 5-10 years and requiring financial records and 3 years of business tax returns. Finally, understanding the jobs created per SF sets industrial use tenants apart from other office-based uses that can benefit from the cheap rent offering where the typical woodwork space provides 1 job per 1,000 SF and other detailed crafts can go down to 1 job per 350 SF. 20 Finally, Considering the heavy up-front cost, expenditures, and low returns, the development, and management of urban manufacturing space, specially ground-up, has become a task wellsuited for non-for-profit (NFP) developers. Anisha Steephen, who previously worked at NYCEDC on launching the Industrial Developer Fund program, adds that “From a policy perspective, the only way to maintain NYC’s eco-system, which is a very mission-driven one, is to have it done by non-profits�. 2 Unsurprisingly, affordable rate manufacturing spaces are even a harder asset class to develop because it requires a greater capital subsidy. 3 And while corporations such as BNYDC, NYCEDC, and GMDC, are successfully leading the development effort on industrial space development through the utilization of city-owned assets, capital and subsidies, only a fragment of the existing M-districts in NYC fall within their ownership, where the remainder is privately owned lands in IBZs which have received limited support thus far. A large stock of these areas is located in Brooklyn right next to competing uses with soaring land prices. 25 For that reason, the remainder of this chapter will present for-profit development case studies.

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25 Kent Avenue: The creation of the Industrial Business Incentive Area Zoning Tool The site which was acquired by Rubenstein Partners and Heritage Equity Partners is located within The Greenpoint-Williamsburg IBZ. 26 The IBZ was previously rezoned in 2005 from heavy industrial uses under an M3-1 district and an allowable FAR of 5.0 to an M1-2 district which only allowed fully enclosed light manufacturing uses with a FAR of 2.0. This rezoning was created to increase compatibility between the growing neighborhood character of residential and mixed uses.27 This downzoning restricted feasible ground up developments especially with the high land values in the area. Developers of 25 Kent Avenue initiated a Uniform Land Use Review Procedure (ULURP), which is a public review process to request a change of zoning. The construct of the request was developed by Heritage Equity Partners to primarily ask for additional density that is unlocked with a proportional ratio to industrial use. This is in addition to waiving some of the parking and berth loading requirements that have become outdated to today’s light manufacturing tenants. Jeremiah Kane, who at the time was the senior advisor assigned to the project from Rubenstein Partners, recalls that “Once the idea of using additional office air rights as cross-subsidy for industrial space was proposed, the city planning applied for the special permit district alongside Rubenstein”.26

The application called for three requests; a zoning text amendment to identify the mechanism of the Industrial Business Incentive Area (IBIA) or Enhanced Business Area, the mapping of 14 blocks within the IBZ as an IBIA, two special permits including a density bonus and reduced parking requirements. 27 The first special permit allows an Incentive Use Area bonus of 3.5 square feet for every 1 square foot of Required Industrial Use with a maximum allowable FAR of 4.8. This is in addition to the as-of-right 2.0 FAR. The incentive uses were limited to office and light industrial uses only and excluded hotels, retail, entertainment, and self-storage which are competing uses that usually drive the rent rates and can easily displace industrial tenants in the area. 28

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Table 2.1 Floor Area Ratios Increase in Industrial Business Incentive Areas

Zoning District

As-of-right FAR

M1-2

2.0

28

Min. Required Industrial Uses FAR 0.8

Incentive Uses FAR

Maximum Allowable FAR

2.0

4.8

The city planning commission highlighted in the zoning resolution that the mechanism provides for not only the first of its kind speculative office space in the Greenpoint-Williamsburg area but also unsubsidized new industrial space which alternatively would have required city capital to make feasible. As a result, it allows for a feasible unsubsidized mechanism to employ efficient market solutions in protecting manufacturing spaces. 27 Table 2.2 25 Kent Avenue Permitted Uses

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Type of Use

Definition

As-of-right Uses Min. Required Industrial Uses Incentive Uses (Bonus)

Commercial, Light Industrial and Retail Light Industrial and Manufacturing Space Commercial Office and Light Industrial

Total

Area (SF)

FAR

%

159,848

2.0

42%

63,714

0.8

17%

156,533

2.0

41%

380,097

4.8

100%

Table 2.3 25 Kent Avenue As-Built Uses 30

Uses Office Space Light Manufacturing Retail Total

Area (SF) 210,501 84,000 85,000 379,501

FAR 2.6 1.1 1.1 4.7

% 55% 22% 22% 100%

The final permitted against the as-built uses are as shown in the tables above and although it shows slight variations, it is evident that the developer created the least allowable industrial ratio which was a point of controversy during the ULURP process among other points of concern.

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Figure 2.6 Enhanced Business Area Boundaries

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i. Controversies around Zoning Text Amendment section (74-96) and the IBIA Special Permits

1. The Zoning Text Amendment and its Mapping The city at first contemplated creating a zoning text amendment to a larger zone but withdrew the application and limited it to 14 blocks to include the entire M1-2 district, which constitutes more than 50% of the Greenpoint Williamsburg IBZ, and leaving out the M3-1 and M1-1 districts.26 While the application is an area re-zoning dealing with a specific community, the text amendment was written in a manner that also allows the creation and mapping of further areas with the same overlay. The Neighborhood and Housing Development (ANHD), which was in favor of the development as a pilot test, had reservations on the creation of a zoning text amendment that could have wider consequences for other M-districts from a city 2. The Required Ratio of Industrial Uses While the Maximum allowable FAR was deemed reasonable as it did not exceed the already set in place density bonus special permit for community facility uses within M1-2 zoning districts. 26 However, during the ULURP public meetings, several testimonies speaking in opposition questioned the basis of the proposed 0.8 ratio. Among which, was Adam Friedman, the Director of the Pratt Center for Community Development who presented a case study showing a 33% industrial ratio to be feasible as opposed to the proposed 17%. The case study was based in the Gowanus area, which is a strong market and is comparable to the Greenpoint Williamsburg area. 23 3. Affordability, Tenanting, and Enforcement of Uses The affordability rate matter was posed by several entities during the public review process. Evergreen, the ISBP, has made several recommendations to assign a Non-ForProfit entity as a master lessee for the industrial spaces. This is to ensure the assignment of lease rates that are compatible with the nature of manufacturing businesses in the Greenpoint IBZ and would work in favor of the retention of existing businesses. 32 However, the city planning commission and developer were not in favor of creating restrictions on the rent rates as this was the first speculative ground-up mixeduse office and industrial development in the area, it would put the entire project at risk. 27

ii. 25 Kent Avenue on The Market The project construction was complete by October of 2019 and during the lease-up period, more interest was shown in industrial space than in office space which was discouraging at the beginning considering that it is the first speculative office development in the area in 40 years. During the permitting period of the project in 2015, the office market showed positive indicators especially that big deals were being made 35

including West Elm’s at Empire Stores in Dumbo, WeWork at the Brooklyn Navy Yard, and Inc. moving to Industry City. In an online article, Rich Bockmann from the Real Deal speculates that the big office space tenants are awaiting the relocation of a key headquarter that would mark the Williamsburg-Greenpoint area as a destination for workspace especially that the amazon deal went to Long Island City. 33 By late December of 2019, Rubenstein inked its first anchor tenant deal for more than 60% of the industrial space. Kith, an apparel retailer is moving its design, production, and frontoffice use from Manhattan along with 75 employees will occupy 58,000 square feet. 34 Figure 2.7 Exterior View of 25 Kent Avenue after Completion 35

In separate interviews, both Robert Andrews and Jeremiah Kane commented on whether the ratio of industrial uses could have been increased when looking at its higher than expected market demand. Andrews, on one hand, highlighted that the extra demand for industrial space will not justify the construction cost.36 While Jeremiah added that the success of the project is the cross-subsidy model proposal because it enhanced the feasibility of a project in a market where land is very expensive. The model requires 36

a robust office market to support light industrial growth and while the ratio can always be adjusted to reflect the optimum feasible scenario as it relates to the current market trends, a minimum required ratio is a reasonable solution. Thus, it’s hard to evaluate the success of the 25 Kent avenue right now in a softening market. 26 It is also worth mentioning that the IBIA model, while similar to the PDR model in San Francisco, the latter requires an anchor tenant signing before the rezoning approval which creates a better reflection of the market’s ability to create the cross-subsidy model efficiently. 37

iii. Other Projects within the IBIA The IBIA zoning resolution was passed in 2016 and allowed any development within the 14 blocks to apply for the special permits through a ULURP. However, only 2 other projects have officially gone through the ULURP; 12 Franklin St and 13 North St. projects. Both Projects combined under the enhanced business area should provide at a minimum an additional 32,370 square feet of industrial space to the Greenpoint IBZ. While the as-of-right FAR would have allowed the creation of 83,000 square feet of industrial space, ground-up manufacturing space is not feasible from a private development lens in strong markets such as this one. 27,28 Even though the ANHD states that the rezoning is a “decision to not use manufacturing-zoned land for manufacturing uses” 38(p4) it is arguable whether or not sites within the Enhanced Business District could have been developed to their full as-of-right potential only as industrial spaces. However, the re-development potential is inevitably displacing existing businesses for added densities towards higher-yielding commercial uses. Thus, for this enhanced business area or future ones, policymakers should explore a mechanism through existing businesses which reflect the IBZ’s true manufacturing character can be retained. This could be through a rent rate subsidy or a creative partnership with existing business owners such as the one Rubenstein Partners were able to make with The Acme Smoked Fish Corporation.

ACME & Rubenstein Partners: The Partnership of a Private Developer with an Industrial Business Owner ACME Smoked Fish, the Brooklyn based lox maker, originated in 1905 and became a leading production and distribution facility of smoked and pickled fish in the country. 39 Their production facility is located at 30 Gem Street in the Greenpoint-Williamsburg IBZ, a couple of blocks away from 25 Kent Avenue. However, it does not fall within the Enhanced Business Area overlay. 40 In need of further enlargement to their facility within the same location, ACME cooperated with Rubenstein Partners to manage the development 39 The expansion is less expensive to the business than moving out entirely outside of Brooklyn. Additionally, ACME is a type of business that the community and city want to preserve.36 However, the developer would have to put a large investment cost to provide a new state-of-the-art facility while keeping the existing one operational. The cost of this expansion would be feasible only if cross-subsidized through commercial spaces and an increased FAR. 41 Figure 2.8 ACME Expansion Site Layout Map 41

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38

i. Site Assembly and Existing Ownership Rubenstein Partners assembled a 116,800 square foot site, a block-sized lot, from 4 different owners including Acme which currently occupies 64,150 SF of land area and around 40% of the site. 41 The deal between ACME and Rubenstein is structured as a sale and purchase agreement with a long term lease where the land was traded for 20% more production space. 33 The other lots contain an open storage lot owned by Corzo Contracting construction company, a 2-story facility owned by ABC Stone supplier which was already in the process of vacating the lot and a small vacant office. The breakdown of the existing ownership structure is detailed in the table below. Although the other businesses fall within the allowable industrial uses, the ACME space seems to be the only true manufacturing space that generates well-paying industrial jobs. The Assemblage was done under separate contracts with a purchase option based on the built-up area that will be negotiated during the ULURP. 33 Table 2.4 30 Gem Street Existing Ownership 41,42

ACME Built Up Area (SF) Lot Area (SF) Lot #

76,950 64,145 1, 21, 25, and 50

Corzo Contracting Company (Open Storage Lot) 21,730

ABC Stone Supplier

Vacant

Total

21,500

3,800

98,450

27,075

3,800

116,750

125

6

19

ii. Proposed Zoning Amendment Although the site was planned to be rezoned in 2005 similar to the 25 Kent avenue site from M3-1 to M1-2, which would have granted the development 4.8 FAR under the community facility option. However, the site was not included in the rezoning as per ACME Fish Co. recommendations to enable their growing operation. Thus, the developers applied for a zoning amendment from M3-1 to M1-5 increasing the FAR from 2.0 to 5.0. This is among other requests such as increasing height limits as well as reconsidering setback, berth, parking, and loading requirements. The proposal consists of 105,600 GSF of industrial space dedicated to the ACME Smoked Fish processing facility in addition to 531,650 GSF of commercial space.30

iii. Net Variance in Industrial Space and Jobs If the rezoning is approved, the ACME facility will be the only industrial space within the development and the rest of the lots would be converted to commercial uses, a shift that would be considered highly controversial within protected IBZ boundaries. 32 On the other hand, it is arguable that the development potential will protect the displacement of the existing 77,000 SF ACME facility and will almost double their current associated employment of 170 jobs. This in addition to proposing a different future from the 39

inevitable conversion of the rest of the lot to other competing uses such as creative office, warehouses, and food & beverage which are allowed on an as-of-right basis but do not generate well-paying industrial jobs. 41(p9) Table 2.5 Impact of Proposed and No-Development Scenarios per Use 31(P9)

Use

Existing Scenario (GSF)

Industrial/Manufacturing Office Retail Entertainment/F&B Warehouses/Open Storage Lots Total

No-Development Future (GSF)

94,650 21,730

Proposed Scenario (GSF) 105,600 480,400 36,850 -

116,380

622,850

148,085

17,500 66,750 35,225 28,610

Proposed Scenario: 28,650 GSF Net Gain in Manufacturing Space No Development Future: 59,450 GSF Net Loss in Manufacturing Space Figure 2.9 Rendering of redevelopment proposal into office and industrial use

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“Air rights have value and the city has the right to create them through re-zoning. Minting air rights is almost like printing money.� Says Jeremiah Kane 26. Both 25 Kent Avenue and 30 Gem Street projects are efforts where the city and private developers explored air rights as a tool that 40

responds to the limited office stock in North Williamsburg due to restrictive zoning. While the commercial observer branded the zoning tool as the way to build new office space in Williamsburg, with the right mechanisms, it can be the way to preserve and grow industrial space as well. 44 From an industrial business standpoint, the cost of building a new production facility is not feasible in NYC. Businesses have a very small room to grow within the city even though their presence there is what Acme co-CEO Adam Caslow calls “the heartbeat to our business”. 44 Thus it is key to create tools allowing partnerships between business owners and developers which not only help against their displacement but could also lower the initial investment in

Lessons Learned and Key Tools Finally, the purpose of this chapter was to analyze different development models and come up with the lessons learned to properly evaluate the North Brooklyn Rezoning Draft Framework proposed and how it can be further improved to both maximize the feasibility of industrial development and minimize the risk of industrial displacement. The four previous case studies can be summed up in the following key tools: • • • •

Financing: Leveraging City capital and city-owned assets in partnerships between Non-forProfits and private developers to create affordable industrial space.

Zoning: Air rights incentives for Cross Subsidy Models that create or preserve industrial space.

Management: A NFP master lessee structure to allocate manufacturing space with reasonable rent rates to small businesses in danger of displacement.

Subsidy: Partnerships with existing business/asset owners resulting in net-zero losses of industrial space and in lowering initial acquisition costs.

These key tools will then be further explored and implemented within the North Brooklyn new rezoning framework in Chapter 5 of this thesis to assess different development models and agreement structures that can strengthen the development potential of industrial space.

02 Endnotes 1. Industrial Jobs Coalition. NYC Industrial Action Plan - 3 Years Later - A Progress Report.

2. Anisha S. Director of Real Estate, Spaceworks. Published online December 13, 2019.

3. Weismiller S. Program Manager, SecondMuse.

4. The Evolution of the Urban Warehouse. GlobeSt. Accessed December 11, 2019. https://www.globest.com/2019/06/26/the-evolution-of-the-urban-warehouse/ 5. The Brooklyn Army Terminal: New York’s Next Manufacturing Hub? - The New York Times.

Accessed December 18, 2019. https://www.nytimes.com/2018/11/23/nyregion/the-brooklynarmy-terminal-new-yorks-next-manufacturing-hub.html

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6. A Look Back: Sunset Park of the past. The Brooklyn Home Reporter. Published February 20, 2017. Accessed December 29, 2019. https://brooklynreporter.com/2017/02/look-backsunset-park-past/ 7. Brooklyn Army Terminal. NYCgo.com. Accessed December 29, 2019. https://www.nycgo.com/attractions/brooklyn-army-terminal 8. Clark C. Defence Sites: Heritage and Future. WIT Press; 2012.

9. About The Brooklyn Navy Yard Mission. Accessed December 11, 2019. https://brooklynnavyyard.org/about/mission 10. The Brooklyn Navy Yard: An Analysis of Its Economic Impact and Opportunities for Replication. Pratt Center for Community Development 11. The Brooklyn Navy Yard Development Corporation Financial Statement 2017-2018. Dean’s Archer & Co; 2018. https://www.abo.ny.gov/annualreports/PARISAuditReports/FYE2018/LDC/BrooklynNavyYar dDevelopmentCorporation2018.pdf 12. NYC Government. Mayor de Blasio Unveil Action Plan to Grow 21st Century Industrial and Manufacturing Jobs in NYC | City of New York. Published November 2015. Accessed November 18, 2019. https://www1.nyc.gov/office-of-the-mayor/news/780-15/mayor-deblasio-speaker-mark-viverito-action-plan-grow-21st-century-industrial-and#/0 13. Budds D. The Brooklyn Navy Yard is reinventing architecture and itself. Curbed NY. Published September 27, 2018. Accessed December 29, 2019. https://ny.curbed.com/2018/9/27/17906392/brooklyn-navy-yard-master-plan-wxy-verticalmanufacrturing 14. Ricciulli V. Brooklyn Navy Yard debuts 16-story office building at Dock 72. Curbed NY. Published October 15, 2019. Accessed December 24, 2019. https://ny.curbed.com/2019/10/15/20915769/brooklyn-navy-yard-dock-72-wework-nyc 15. Plitt A. New looks at Admiral’s Row-replacing office building at the Brooklyn Navy Yard.

Curbed NY. Published April 30, 2019. Accessed December 24, 2019. https://ny.curbed.com/2019/4/30/18523945/brooklyn-navy-yard-admirals-row-wegmansrenderings 16. Evergreen. The North Brooklyn Brownfield Opportunity Area Program.; 2017.

17. New York City Office Market Report, Second Quarter 2019. Accessed December 8, 2019. https://www.institutionalpropertyadvisors.com:443/research/market-report/office-andindustrial/new-york-city/new-york-office-market-report 18. Andrew Nelson. Rendering Revealed, Permits Filed for 399 Sands Street, Brooklyn Navy Yard Industrial Park. New York YIMBY. Published December 21, 2017. Accessed December 24, 2019. https://newyorkyimby.com/2017/12/rendering-revealed-permits-filedfor-399-sands-street-brooklyn-navy-yard-industrial-park.html 42

19. Andrew Nelson. New Rendering Revealed Showing Massive Changes in Brooklyn Navy Yard’s Near Future. New York YIMBY. Published February 1, 2018. Accessed December 29, 2019. https://newyorkyimby.com/2018/02/new-rendering-revealed-showing-massivechanges-in-brooklyn-navy-yards-near-future.html 20. Smith C. Senior Project Manager, Greenpoint Manufacturing and Design Center. Published online November 12, 2019.

21. Berger J. Small Factories Thrive in Brooklyn, Replacing Industrial Giants. The New York Times. https://www.nytimes.com/2012/08/08/nyregion/small-factories-thrive-in-brooklynreplacing-industrial-giants.html. Published August 7, 2012. Accessed December 8, 2019.

22. 1155-1205 Manhattan Avenue. Greenpoint Manufacturing and Design Center. Accessed December 25, 2019. https://gmdconline.org/gmdc_buildings/1155-1205-manhattan-avenue/ 23. Greenpoint Manufacturing and Design Center. Atlas Obscura. Accessed December 18, 2019. http://www.atlasobscura.com/places/gmdc 24. Greenpoint Manufacturing and Design Center. Accessed December 25, 2019. https://gmdconline.org/buildings/ 25. Engines of Opportunity: Reinvigorating New York City’s Manufacturing Zones for the 21st Century. The New York City Council; 2014.

26. Kane J. Senior Vice President for Value Added Investment , Prologis. Published online November 19, 2019.

27. City Planning Commission. Zoning Resolution 74-96 Special Permit to Increase Floor Area in Enhanced Business Areas: 25 Kent Avenue.; 2016.

28. New York City Department of City Planning. Chapter 4 | Zoning Resolution. Accessed December 29, 2019. https://zr.planning.nyc.gov/article-vii/chapter-4#74-962 29. New York City Department of City Planning. 25 Kent Avenue Amended Zoning Diagram.

Published online 19 2017.

30. 25 Kent Avenue Marketing Booklet. Lee Associates http://leeassociatesnyc.com/wpcontent/uploads/2018/02/25-Kent-retail-version36-Digitalemail-VersionLR.pdf 31. How the City is Encouraging Office Development and Manufacturing in North Williamsburg New York YIMBY. Accessed December 29, 2019. https://newyorkyimby.com/2016/01/1810218.html 32. Fabian S. Brownfield Opportunity Area Program Manager, Evergreen. Published online November 14, 2019.

33. Acme Smoked Fish in Greenpoint and Rubenstein Partners. The Real Deal New York.

Published February 8, 2019. Accessed December 10, 2019.

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https://therealdeal.com/2019/02/08/brooklyn-smoked-fish-company-plans-to-build-500k-sfin-office-space-above-new-factory/ 34. Kith Signs at 25 Kent as Anchor Tenant. Commercial Observer. Published December 18, 2019. Accessed December 29, 2019. https://commercialobserver.com/2019/12/kith-lease25-kent/ 35. Behold photos of Williamsburg’s new commercial office development 25 Kent, now complete | 6sqft. Accessed November 13, 2019. https://www.6sqft.com/behold-photos-ofwilliamsburgs-new-commercial-office-development-25-kent-now-complete/ 36. Andrews R. Robert Andrews, Vice President & Regional Direcor, Rubenstien Partners.

37. Creating an Innovative Mix: What We Can Learn from San Francisco. Pratt Center for Community Development 38. Chapelliquen A. Enhanced Business Areas & 25 Kent: NYC’s Commercial / Industrial Zoning Proposal. Association for Neighborhood and Housing Development; 2016.

39. Morris S. Gensler and Rubenstein Partners to Build Expansion of the Acme Smoked Fish Factory at 30 Gem Street in Greenpoint, Brooklyn. New York YIMBY. Published July 30, 2019. Accessed December 29, 2019. https://newyorkyimby.com/2019/07/gensler-architectsand-rubenstein-partners-to-construct-major-expansion-of-the-acme-smoked-fish-factory-ingreenpoint-brooklyn.html 40. Rubenstein Partners | Brooklyn Office Development | ACME. The Real Deal New York.

Published January 14, 2019. Accessed December 29, 2019. https://therealdeal.com/2019/01/14/rubenstein-partners-putting-together-full-blockassemblage-in-williamsburg/ 41. New York City Department of City Planning. ACME Fish Expansion Draft Scope of Work for a Draft Environmental Impact Statement.; 2019. https://www1.nyc.gov/assets/planning/download/pdf/applicants/env-review/acme-fish/acmedraft-scope-work.pdf 42. NYC Planning ZoLa. Accessed December 29, 2019.

44. How Do You Build New Offices in Williamsburg? Add Manufacturing! Commercial Observer. Published February 26, 2019. Accessed December 29, 2019. https://commercialobserver.com/2019/02/how-do-you-build-new-offices-in-williamsburg-addmanufacturing/

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03 The North Brooklyn IBZ Rezoning Framework

The North Brooklyn (NBK) Industry and Innovation Plan was announced in 2015 as part of The Industrial Action Plan (IAP). It is the first in-depth look at the industrial zoning framework since the 1961 zoning resolution, a long-awaited step to reassess how zoning can be a tool that serves modern-day industrial businesses. It is intended to become a blueprint for a new land use policy in other IBZs. The Department of City Planning is the lead entity conducting the study along with representation from local stakeholders such as Brooklyn Community Board 1 and 4 in addition to Evergreen, the NBK IBZ’s industrial service provider. However, before the announcement of the intended study, Evergreen had already initiated the NBK Brownfield Opportunity Area (BOA) Study. In 2017, key findings and recommendations of the BOA were unveiled followed by the Draft Rezoning Framework by DCP in 2018. The initiative to create a new zoning framework stems from the need to first protect the M3 core district which provides more than 10,000 industrial jobs and 52% of jobs in the study area, improve zoning policies to encourage the growth of M1 districts and finally allow for innovative development models feasible without city capital. Both studies present development scenarios studying the integration of mixed-use industrial buildings, the restrictions that arise, and propose policy level recommendations.

This chapter will build on both studies’ findings by first understanding; the types of businesses succeeding in the area and the cross-subsidy effect across uses, the demonstrated mixed-use development scenarios by both studies and the relevant identified restrictions as well as recommendations then finally break down the challenges that face the proposed zoning framework.

Context and Findings: A potential for Mixed-Use neighborhood development The North Brooklyn IBZ is bounded by Newton Creek to the north and east and falls in the Greenpoint, Williamsburg and East Williamsburg neighborhoods. The study area for the NBK rezoning framework includes both the IBZ boundaries and additional light manufacturing district to the south. The area closer to the creek is predominantly characterized and identified as a Core industrial zone with 90% of land area used as industrial. It is mainly zoned as M3-1, or high-intensity manufacturing.1(pp77-79)

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Figure 3.1 Newton Creek in 1939 from Meeker Avenue with Brooklyn on the left and Queens on the right (Top) 2 Figure 3.2 Newton Creek in 2010 (Bottom)2

46

Figure 3.3 North Brooklyn IBZ Existing Zoning Map 1(p32)

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The DCP study has identified the peripheral land to the lower south and west of the study area as a Growth and Transition District. Both areas are zoned as light manufacturing and have over the years reflected the market interest to shift more towards a mixed-use or commercial development with only 50 % of the land uses as industrial. 1(p35) The Growth district and Transition district, also identified as Subarea D by the BOA Study, encompass 392 properties and 6.4mi SF of built-up area 3(p45) and provides more than 7,400 industrial and non-industrial jobs. 1(p93) It is located to the south of the study area and is bounded by medium density residential districts along with Flushing and Bushwick Avenue.

Figure 3.4 North Brooklyn IBZ Rezoning Framework Subareas

1(p77)

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The urban character of this subarea is showing the development of several commercial corridors aided by its transit accessibility and the subway stop along Morgan avenue that runs through the district.1(p94) Both the BOA and DCP study recognized the potential for a mixed-use development especially when it’s showing comparative growth in specialized industries in comparison to NYC as an overall.

Growth District Market Analysis Although as-of-right mixed-use commercial development is allowed in M-zoning and can be integrated with low-intensity manufacturing uses, the limitations on height and density have impeded the development of ground up mixed-use projects. Thus, the area is predominantly witnessing only building conversions from industrial to office.

Figure 3.5 Growth District Land Use Map 1(p95)

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From 2002-2015, changes in the built environment show market interest in primarily commercial/office space with higher densities where the built area increased at 300%. Industrial square footage witnessed a minor loss of -3% but remains the dominant land use at 56% as well as the dominant built environment at 74% of the total built area. This is in comparison to office space which consists of 2% of the total inventory and shows a gain of 300%. The annual rent growth rate from 2005-2015 can further explain the losses in industrial space where it is at 13% for industrial uses in comparison to 8% in offices.3(p67) This is consistent with the overall market analysis mentioned in Chapter 2 where the redevelopment potential to commercial uses is causing the spike in the rental rates for industrial tenants. While there’s great potential for mixed-use development in the NBK IBZ and significant growth in non-industrial jobs, studies also show that industrial jobs have steadied after turbulent declines for several decades. 1(p3) Consequently this poses a need to also stop the losses in industrial space while creating this innovative mixed-use model. Even though the natural rapid growth of commercial uses and conversions that the area is witnessing is causing the losses in industrial uses it could also be an opportunity to create an efficient cross-subsidy model.

i.

Cross-Subsidy Effect across Uses: Office, Retail and Residential Office-based firms, including technology, advertising, and media information (TAMI) businesses, have significantly grown in the study area in comparison to the rest of Brooklyn and NYC. The interest in NBK is due to the cheap rent offering in comparison to other markets 1(p7) as well as the industrial character of the buildings that lend it easy to use as a creative office space. This is confirmed by MediaWorks, a video production company that decided to relocate from East Williamsburg to the area which also relies on the area’s local workforce and talent. 1(p68) The growth district market data findings show that the spread between asking rental rates for office and industrial in this area has the greatest cross-subsidy effect. Especially for new buildings where the rent rates fall between$50-60. However, most of these buildings were acquired before land prices spiked up in the area.1(p65) On the other hand, While the spread between rent rates of retail to industrial is close to the subsidy effect between restored offices, the more prominent type of retail businesses in the area are food and beverage, which are typically too small in a mixed-use building to become the only cross-subsidy component.

Finally, there are several non-conforming residential buildings to the edge close to the existing medium-density residential districts along flushing avenue. While 90% have existed there before the M-zoning overlay and are grandfathered or protected under loft law provisions, some illegal residential units are also part of the 7% inventory existing within the entire study area. The study area possesses the qualifications of a residential neighborhood character in terms of the subway access and mix of retail including cafes, restaurants, and entertainment. 3(p70) However, being close to the Core Industrial district could be regarded as an externality. In addition to that, the existing rent rates reflect the existing medium-density residential product, which has a low cross-subsidy effect. But on the other hand, offering a luxurious residential product can be offered to increase the rent rates which does not necessarily meet the neighborhood character plus mixing such high end uses with light industrial could pose a problem for residents. 4

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Table 3.1: Cross-Subsidy Gradient Across Uses as per Current Market Data Findings from NBK BOA study 3(p45)

Use

Rent Rate Cross-Subsidy Effect

ii.

Industrial

$27 Subsidized Use

Residential (MultiFamily) $31 Low

Retail

Office (Re-use)

Office (Ground-up)

$35 Medium

$38 Medium

$50-60 High

Cross-subsidy effect within the most prevailing type of industrials business clusters 1. Industrial Services & Logistics The site location is convenient for transit-oriented industrial uses such as logistics services. Jeremiah Kane, senior vice president for value add investment at Prologis, highlights that some industrial space can subsidize manufacturing space such as logistics services where the asking rent rate falls very high among industrial tenants at $35/SF range which creates a strong cross-subsidy effect to other lower-paying manufacturing uses. These kinds of uses also include warehouses and distribution facilities that do not necessarily contribute to job creation and are highly criticized in IBZ boundaries5

2. Traditional Manufacturing & Wholesale Trade These businesses have the longest history in the area and most of them operate on a medium scale type of facility, usually the size of 85,000 SF. They typically own their sites and thus have been able to withstand the market pressures.6 36% of these businesses specialize in food and beverages creating the largest job-producing subsector. In addition to that, “the location quotient”, which indicates the strength of a specific industry, shows that compared to NYC as an overall, primary metal and furniture manufacturing in NBK have a higher concentration and comparative advantage.3(p52) On the other hand, the rent rate for these spaces falls high compared to other industrial tenants which makes small businesses who are lessees of spaces very vulnerable to being outpriced and most in need of support to stay within the NBK IBZ. 3. Creative Production & Small-Batch Manufacturing The DCP has identified these businesses as “Innovation Firms” which are growing in light of the added interest in local high-quality products. Tenants with a specialty food & beverages production or custom welding and woodwork production with an accessory retail or entertainment point on-site for events can offer a business to consumer model. This lends them more resilient to gentrification because their diversified offering can offset the high asking rental rates and increasing land prices.

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Examples of these kinds of tenants include art and food production, distilleries, and roof farming. 3(p56)

Development Scenarios: Residual Land Value (RLV) Analysis shows Gap in Land Value The BOA study identified 3 sites to demonstrate the feasibility of development projects focusing on the growth and preservation of industrial uses at an affordable rate. The site selected from the growth district to study the mixed-use cross-subsidy model is 74 Bogart Street. The Site can be considered unique within its subarea as it’s one of the few with more than 50,000 square feet in area and is currently underbuilt with a FAR of 1 only as opposed to its surroundings which show greater densities and a smaller lot scale.

Figure 3.6 74 Bogart St. Existing condition (google maps)

The table below shows the general assumptions under which the BOA study conducted the financial analysis for this development site. The study then proposed two scenarios to further analyze different development schemes for ground up vs. adaptive reuse as well as incentivebased FAR vs. as-of-right.

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Table 3.2 Assumptions for 74 Bogart St. as per NBK Brownfield Opportunity Area study

Use Type of Tenant Ownership Structure Existing Zoning/FAR Current Market Land Value Required Rate of Return Equity/Debt Ratio Subsidies and Tax Credits

3

Mixed-Use industrial and office Light manufacturing uses, offices and accessory retail Lead private developer and Non-for-profit (NFP) Master Lessee M1-2 /2.0 $160/BSF $26 Mi 16% 35% Not taken into consideration

Table 3.3 Development Scenarios Assumptions for 74 Bogart St. as per NBK Brownfield Opportunity Area study

Development Scheme Incentive-Based FAR Built up Area (SF) Industrial to Commercial Ratio Residual Land Value (RLV) Gap in Land Value

3

Scenario 1 Ground-up construction

Scenario 2 Partial retention and ground up construction

4.8 (following IBIA) 395,500 1:2 $43/BSF $17 Mi $117/BSF $9 Mi

N/A (as-of-right) 164,800 1:1 $80/BSF $13 Mi $80/BSF $13 Mi

Figure 3.7 Bogart St. Scenario 1 (left) and Scenario 2 (right) 3

The analysis showed that although retention of businesses through an adaptive re-use scenario could lower the overall construction cost, the volume of the as-of-right built-up area makes the scenario not feasible with a high gap in land value. On the other hand, the density bonus raised the Residual Land Value (RLV) by $4 Mi in Scenario 1. Even more, despite scenario (2) rents assumed at market rate, the low cross-subsidy effect due to the 1:1 ratio coupled with the low 53

density lends it unfeasible without large subsidies. Finally, further analyses showed that the gap in Land value is eliminated in scenario (1) if industrial rent rates are switched from affordable at $12/SF to market rate at $25/SF. 2(pp108-111) Use Integration Restrictions from 3 key perspectives: finance, policy, and design.

In the report released by DCP titled “Can Industrial Mixed-Use Buildings Work in NYC?”, which was published as part of the rezoning draft framework, they have highlighted the implications of this kind of development through multiple scenarios assumed in different markets as shown below.

Table 3.4 Development Scenarios and findings for Mixed-Use Buildings as per DCP Study 4(pp17-18)

Location Market Strength Industrial FAR Retail Subsidizing Use FAR Total FAR Feasibility

Scenario 1 East Williamsburg Very Strong

Scenario 2 Gowanus

Scenario 3 Crown Heights

Scenario 4 Port Morris

Strong

Moderate

Weak

1.2 0.3 3.7 Office 5.2 Not Feasible even with aggressive assumptions due to very high land cost

0.4 0.3 4.3 Residential 5.0 Feasible only for high end residential and low-end land cost. Mandatory inclusionary housing would reduce feasibility.

0.6 0.1 4.2 Residential 4.9 Not Feasible even with aggressive assumptions due to low existing marketrate rents.

0.8 4.0 Self-Storage 4.8 Feasible even with conservative assumptions due to high rents and low land cost

The findings can be categorized into three perspectives as follows: i. Financial Only rent rates in strong markets can make the scenarios feasible in the case of office and residential subsidizing uses. However, this can be outweighed by soaring land prices, and thus a land price that reflects the expected RLV is critical to the project feasibility.

Additionally, self-storage use is a unique real estate class that produces the highest rent rates per square foot which makes it the most feasible even in strong markets. 4(p16) However, it is highly regarded as a competing use which the city council led the text amendment to restrict from IBZs. 7 Another similar use which would produce actual industrial jobs is logistics. It is witnessing a lot of demand because efficient last-mile logistics has become a key selling point to today’s businesses.8 A hindrance to office developments in rising work districts such as NBK is the fact that speculative projects cannot easily access traditional commercial loans. 4(p16) 54

ii. Design Buildings end up with more wasted space in a mixed-use scenario, but fewer conflicts are found when mixing light industrial uses such as artists spaces, tech-oriented manufacturing as well as food & beverage production. Plus, these kinds of uses have a lower impact and environmental nuisance to pair with residential uses. In addition to that, sites with a land area exceeding 20,000 square feet with a large frontage and an average depth were found more practical and functional. This is especially useful to place industrial uses on the ground floor and for a minimum office floorplate that is developed on a speculative basis. 4(pp10-14) iii. Policy and Zoning Several constraints pose themselves such as the high requirements of loading berths and off-street parking. This is in addition to the restricting density as per zoning requirements.

However, incentive-based densities and zoning amendments to reduce outdated requirements can be applied similarly to the IBIA. 3(p19) Finally, the analysis from both studies, while indicative to the overall feasibility of such developments, real estate markets are very dynamic, especially in the studied districts, and the indicators can thus vary from positive to negative depending on the cycle and on the timeline for rezoning as development potential typically is the reason for rising land values. 9 Thus, every site condition can give different indicators at different times. 4(p15)

Key Recommendations from NBK DCP Proposal and BOA Study and challenges facing this rezoning i. Density and Preferential Uses in favor of industrial development While the overall goal of the DCP study and proposed framework is to effectively reflect a modern understanding of urban manufacturing needs and its impact on how zoning can become a tool of empowering the growth of modern industrial jobs, the underlying goal is to also alleviate city capital towards subsidizing industrial development. The DCP recommended a general increased FAR density from 2.0 to 5.0 in their official draft proposal. However, in an update released in April of 2019 and after meetings with several stakeholders, they released an update showing in detail the proposed zoning changes. This entailed changes in the core district to limit nightlife uses and large commercial uses. The zoning was changed from M3-1 to M3-Core and M3-Core* where the latter allowed additional FAR, the limit to which was not specified, for industrial use growth. Peripheral Core district uses set no limitations to commercial uses, but limited community facility uses as it was as an outdated preference that does not serve the current job growth in the NBK IBZ. The zoning was changed from M3-1, M1-1 and M1-2 to M1-Core and M1-Core* with additional FAR to industrial uses in the latter one. Both the Transit District and Growth District have proposed a change in FAR ranging from 3.0, 4.0, and 5.0 with the highest being the nearest to the transit stops at the Growth District as shown in the map below. The industrial FAR incentives were only allocated to the transit district as the growth district was perceived as a strong market area which does not need intervention or incentives to naturally grow.

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Figure 3.8 Proposed Rezoning Framework Map of North Brooklyn Industrial Business Zone.11

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On the other hand, the BOA study proposed a density bonus with a preferential use that recommends a ratio of 1:2 industrial to commercial space to cross-subsidize light industrial uses through office space. However, a specific floor area ratio increase was not determined.

In an interview with Stephen Fabian, the project manager at Evergreen for the BOA program, he affirmed that “There is agreement from all stakeholders that the zoning needs to change to grow industrial jobs”. However, the point of contention between NYCDCP’s proposal and Evergreen’s BOA plan is the incentive-based density and whether it is granted without any use restriction or recommendation similar to the one negotiated in 25 Kent Avenue or the one proposed for the 75 Bogart St. Scenario (1) scheme. ii. Management and Tenancy in the benefit of the NBK community The BOA study proposed a Non-for-profit (NFP) management of space through a master lessee structure to ensure affordability of rent rates and local tenants’ retention is met.

However, the proposed rezoning draft framework by DCP did not deal with any affordability or tenancy measures to ensure the proposed zoning does not cause industrial displacement. This could potentially cause a lot of community resistance when going forward and presenting the proposed amendments through a public review. There is a lack of accordance with existing businesses especially that loss of industrial land is inevitable without a preferential use structure or at least a net zero loss of industrial space requirement. iii.

High Land Prices impeding Industrial Private Development As highlighted by both studies, there is a substantial gap when conducting a residual land value analysis based on current market trends. Jeff Rosenblum, the co-founder of Acumen Capital Partners, highlights that the biggest hurdle when acquiring a new piece of land within a rezoning plan is that the selling prices jump quickly based on the re-development potential and then the potential for acquisition and value capture becomes smaller. In addition to that, the market condition and the property condition can either spike up the rents because it required greater revenues to create the required returns or become a lucky deal like the SMP property which was bought in 2008 right after the financial crisis with equity. Finally, his recommendations to overcome this barrier was to either to study the timeline of the plan or a similar one which could entail when the prices can momentarily drop or finding a partnership model with landowners similar to a land trust ownership model. 9

Shortly after the release of the detailed re-zoning map proposal, City Council Member for the 34th District, Antonio Reynoso, who represents a long stretch of the study area came out against the plan where he stated that “long term, this plan does more damage than good” as he sees it lacking restrictions on competing uses that would put industrial businesses in danger of displacement. In addition to that, City Council’s legislative and land use director added: “We have a fundamental philosophical disagreement with DCP” where the DCP is framing the zoning plan to meet the market needs which is a direct conflict with the existing industrial community needs. The DCP is yet to formally present its proposal to a full public review under ULURP and the City Environmental Quality Review (CEQR) where community representatives and advocates would also present their perspective in open public hearings. This includes the city 57

council, and community boards 1&4. Lastly, the pressure to convert the study area into a mixeduse development is even greater now that the Bushwick Community Plan, exactly a street away from the growth district, is moving ahead with an upzoning to encourage mixed-use development and additional housing for the community.

While there seems to be disagreement on the effectiveness of the proposed NBK zoning framework on protecting industrial jobs, there is enough evidence to believe that with the appropriate management structure, incentives, and correct market timing, a cross-subsidy model for industrial uses can grow or preserve existing jobs. In the following Chapter, a financial analysis will be conducted to study multiple development scenarios under different deal structures including private development deals, public-private partnerships, and community land trust structures aimed for business retention.

03 Endnotes 1. NYC Department of City Planning. The North Brooklyn Industry and Innovation.; 2018.

2. How Will Rezoning Change North Brooklyn Industrial Business Zone? | Brownstoner.

Accessed January 21, 2020. https://www.brownstoner.com/development/north-brooklynindustrial-business-zone-manufacturing-bushwick-greenpoint-williamsburg/ 3. Evergreen. The North Brooklyn Brownfield Opportunity Area Program.; 2017.

4. New York City Department of City Planning. Can Industrial Mixed-Use Buildings Work in NYC? 2018.

5. Kane J. Senior Vice President for Value Added Investment , Prologis. Published online November 19, 2019.

6. Smith C. Senior Project Manager, Greenpoint Manufacturing and Design Center. Published online November 12, 2019.

7. Association for Neighborhood and Housing Development. NYC Industrial Action Plan, 3 Years Later, a Progress Report.; 2018.

8. Weismiller S. Program Manager, SecondMuse.

9. Rosenblum J. Co-founder Acumen Capital Partners. Published online November 4, 2019.

10. Engel WV, Sommer A, Platkin S, et al. Bushwick Neighbborhood Plan Update. https://www1.nyc.gov/assets/planning/download/pdf/plans-studies/bushwick-neighborhoodplan/plan/bushwick-neighborhood-plan-low-res.pdf?r=1 11. New York City Department of City Planning. The North Brooklyn Plan Draft Zoning Framework Community Board 4 - April 17, 2019. :24.

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04 Financial Analysis: Frameworks for Deal Structures in The NBK IBZ

The purpose of this chapter is to put together the lessons learned from the case studies from chapter (3) in addition to the understanding of the North Brooklyn IBZ rezoning framework to further study the feasibility of creating mixed-use buildings that cross-subsidize industrial space through commercial uses.

3 sites of different typologies are selected including a vacant plot of land, a leased multi-tenant building with underbuilt development, and a site assembly potential of several one-story factories and warehouses. The sites will be analyzed from a financial standpoint with the criteria of (1) a net zero loss of industrial space at a minimum, (2) favorably providing affordable or market rate rents and (3) defining the scale of subsidy required, if any, in each case (4) the likely structure that can be proposed of different management structures. i.

Private Development The analysis will first be conducted from a private development lens to understand the feasibility of ground up industrial space and the ratio of commercial to industrial spaces which create a feasible cross-subsidy model. This scenario may challenge the proposed FAR by the rezoning framework for increased feasibility and propose an aggressive vs. conservative rent rate or land cost. The purpose is to shed light on the feasibility of unsubsidized ground up industrial space and if affordable industrial space can be developed by private developers.

ii.

Public-Private Partnership This structure involves a partnership with a non-profit, like BNYDC or GMDC, who can either acquire city capital to put as an investment outside city-owned assets or leverage their returns into investing in new developments. This scenario will show the total and per square foot investment required from the non-profit side to subsidize the creation of the proposed amount of industrial space. Returns on investment will also be studied on private and public equity to provide an understanding of the profitability of the project.

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iii.

Industrial Community Land Trust (ICLT) This agreement structure is like the commonly known model run by non-profit organizations “as a mechanism to remove land from the speculative marketplace to have communities decide what to do with the land�. The community land trust usually acquires the land by either buying it or through foreclosures or donations from a private entity.

The ownership of land and property is separated where the corporation can lease the land to be privately developed and the lessees own the property. The benefit of this model is that restrictions come with the ground lease such as affordability commitments.

Finally, the purpose of this deal structure is to come up with the feasible ratio of industrial to commercial uses that can support industrial development like the Steiner and BNYDC model.

The ratio of industrial to commercial space proposed in each space was based on the existing square footage and their retention. Since all projects showed a gap either in the capital stack or in the difference between the residual and market land value, the ratio of industrial space was not varied during the studies.

Site Selection Figure 4.1 Sites selected within the NBK Rezoning Framework (Source: google image & NBK draft)

Three sites were selected to demonstrate different typologies of existing site conditions and analyze how it affects the development feasibility. The first site builds upon 74 Bogart Street site previously explored in Evergreen’s BOA proposal and Chapter (4) and builds upon the feasibility of ground up development only. This is followed by 338 Johnson Avenue, similar to the ACME 60

project, it presents a case of an existing medium scale landlord and business owner, Midland Meat Trade NY. Then the last site, 538 Johnson Avenue, is a multi-tenanted building with a potential of both adaptive re-use and ground up development as well as a possibility of small scale business retention. Both 74 Bogart Street and 338 Johnson Avenue are located within the Growth District while 538 Johnson Avenue falls in the Transit District.

1. 74 Bogart Street – Private Development Figure 4.2 74 Bogart Street Existing Site Condition

The existing site is a large vacant lot within the Growth District, it is unique in the study area in terms of its size. Building upon the analysis presented by the BOA study about 74 Bogart Street, which findings were discussed in chapter 4 and by updating the financial model with the most recent construction costs and the IBIA proposed industrial to commercial ratio of 1:6, the ground-up development model not only shows a 100% gap between the residual and market land value, it also shows a gap of $8 million in the capital stack.

Table 4.1 74 Bogart Street Proposed Development Program

Type of Use Light Manufacturing Office Retail

Gross Area in SQF 81,600 369,600 28,800 480,000

Product Mix 17% 77% 6% 100%

When putting more aggressive assumptions of office rent rates, close to the reported on the 25 Kent Avenue project at $70 per NSF, the gap in the capital stack is eliminated however there remains a gap on nearly the entire land cost at market value. Increasing the FAR does slightly improve the feasibility but the spread between the construction cost and rent rate makes it impractical to build more. The light manufacturing rents are assumed at the market rate which eliminates the possibility of public-private partnership and with a gap this large, it is questionable if subsidizing the industrial space is efficient. The subsidy required to lend 61

this project feasible is nearly $300/Net SQF of industrial space. The absence of current industrial tenants also eliminates the possibility of an industrial community land trust model.

2. 338 Johnson Avenue – Industrial Community Land Trust Model (ICLT) Figure 4.3 338 Johnson Avenue Existing Site Condition

The development is a site assembly composed of 3 different sites also within the Growth District. The unique opportunity of this site is that the landlords are the existing industrial business owners. The objective of selecting this site is to study the feasibility of an industrial community land trust model based on new construction only.

Table 4.1 338 Johnson Avenue Proposed Development Program

Type of Use Light Manufacturing Office Retail

Gross Area in SQF 53,510 184,907 15,218 253,635

Product Mix 21% 73% 6% 100%

The construct is built around the retention of all the existing industrial spaces where the land is donated by the business owners to a non-profit organization and in return for the land, the owners get free rent in perpetuity. Meaning that the assumptions eliminate the land cost as it will be given to the non-profit entity and in return, it also eliminates revenue from the industrial space. A ground lease is then made between the non-profit entity and a private developer to develop the underbuilt FAR and add office space while maintaining a minimum of the existing industrial space. Seeing that the entire site is underbuilt with an existing FAR of 1.0, the new development will be built upon new construction only. The Proposed FAR by DCP is 5.0 which was set as the base case. At this level, the project showed a minor gap in the capital stack of 5% and $6.7 million. A second iteration was made with a FAR of 6.0 which made slight improvements but still showed a gap of less than 4% and $6.5 million.

The Internal Rate of Return (IRR) on equity was set at 16% which showed the below 62

possible revenue share percentage for the ICLT and it increased as shown in the table below with the higher density.

FAR

Gap in Capital Stack

IRR on Equity

5.0 6.0

$6.7 mi $6.5 mi

16% 16%

ICLT Revenue Share on Net Profit 8.8% 14.3%

Finally, the gap can be covered by several grants if the non-profit entity becomes the master lessees of the industrial space. The benefit of this model is that the revenue can be reinvested in subsidizing other small business owners who are lessees of spaces and can’t afford to own properties.

3. 538 Johnson Avenue – Public-Private Partnership

Type of Use Light Manufacturing (Adaptive Reuse & New Construction) Office (New Construction) Retail (New Construction)

Gross Area in SQF

Product Mix

56,762

29%

129,984

65%

11,920

6%

198,668

100%

The site is composed of a four-story building leased to several small industrial businesses in addition to a one-story building. The average FAR on the entire plot is 2.0. The site presents an adaptive reuse opportunity in addition to ground up development on the underbuilt part of the site. The project shows a $16.8mi gap which constitutes 10% of the total development cost. The construct of the partnership involves a non-profit covering this gap and becoming partners with 10% of the value of the development. The non-profit entity becomes the master lessee of industrial spaces with the benefit of providing a mission driven tenancy 63

plan at affordable rates set at 20% below market rent rates. The cost of subsidizing this project is $150/Net SQF of industrial space.

Based on the residual land value analysis conducted for the three sites, ground up development proves to be the least feasible within existing market conditions even for private development only. This is due to very high construction costs north of the $400/SQF mark in addition to the relatively lower rent rates in comparison to the booming Greenpoint Williamsburg area. The Industrial Community land trust model proves the least costly in terms of subsidy but the number of industrial tenants in the area who own the land as opposed to lease space proves to be limited. Finally, the public-private partnership model presented here showed better feasibility and a smaller gap than the private development model because of the adaptive reuse opportunity. While the Evergreen BOA study stated that the adaptive re-use model is not efficient, it was conducted on a one story building only. However, when applied to 4 or 5 story buildings which are conforming to newly proposed FAR, the project becomes more feasible.

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Financial Analysis: Model Assumptions*

Hard Costs New Construction (All) Adaptive Re-use Parking - at grade Parking - structured Parking - underground

$ $ $ $ $

per GSF 441 200 27 222 248

Annual Income Office - Adaptive Reuse New Office Light Manufacturing - Market Rate Light Manufacturing - Affordable Retail

$ $ $ $ $

per NSF 40-50 50-60 27 22 38

Key Inputs Loss Factor (All Uses) Vacancy at Maturity Exit Cap Rate Discount Rate Rent Growth Rate Equity/Debt Ratio Construction Loan Interest Rate Min DSCR Max LTC Origination Fees Permanent Loan Interest Rate Min DSCR Max LTV Amortization (years) Refinancing Costs

7% 5% 7% 6.25% 3.50% 30%

4.50% 1.20 x 70.00% 2.5%

3.50% 1.20 x 70% 30 2.50%

*Financial assumptions are based on the Brownfield Opportunity Area Study Stage 2 Nomination Report conducted on the North Brooklyn IBZ. Some values were updated to reflect inflation rates since conducting the study in 2017 and some values were revisited after crossexamination with the market data acquired through local brokers and developers.

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Conclusion

The economic value of land dedicated to industrial uses has always been associated with a critical mass of middle-income well-paying jobs and a matching mass of production. However, in recent times and in cities such as New York, where urban density is constantly growing, a new layer of economic value is now found within existing industrial districts: a high-value potential for added development and density. A potential that would provide the answer to the pressing demand for office space in boroughs outside of Manhattan and a strategy that fits perfectly in transit-accessible light manufacturing districts which can be mixed with other complementary uses. Industrial mixed-use development is certainly an innovative model to accommodate for an urban growth strategy that is centrally located urban industrial land. However, planners are faced with a great challenge to create a balanced model that encourages new investment in its growing and changing economy but also preserves well-paying low barrier jobs in industrial space. This thesis reveals the likely compromises which would occur in implementing the industrial mixed-use model without a defined strategy towards the industrial community, the challenges for implementation from a development and a financial standpoint as well as the potential partnership structures that could lead to a minimum loss in existing industrial space.

It is particularly useful to trace the emerging need for this new mixed-use model in New York City and how it called for the North Brooklyn IBZ Innovation Plan. The growth pattern and very high density of the city have left industrial land in decentralized locations across Brooklyn. The market pressure has led to the conversions of key industrial locations, especially in Greenpoint Williamsburg while the remaining industrial land, protected by IBZ boundaries, became primary hubs of production and jobs. Brooklyn has redefined the urban manufacturing character of the leftover giants’ factory to a unique type of niche manufacturing businesses that fits better with the modern day’s economy. But with the growing need to decentralize Manhattan and offload new office demand in other boroughs, the dispersed and protected patches of IBZ land are now under risk of re-development to non-industrial uses. The compromise that will take place in North Brooklyn during the process of accommodating for new commercial and residential needs while holding the remaining stock of industrial land protected is key to evaluating the efficacy of this new mixed-use zoning model. The economics that has left industrial businesses alive till now will not remain the same once a zoning amendment is in place. While one of the key goals of this plan is to alleviate public subsidy, this thesis demonstrates that it will lead to a great loss in industrial space. For that reason, it is important to first understand this new zoning tool through a cross-subsidy lens and then structure creative agreements that involve public, private and community stakeholders to make the economics work for industrial uses. The fact that NYC is now opting for a mixed-use industrial development model for the North Brooklyn IBZ over a full conversion to other uses confirms that the city is ready to weave back industrial uses with other competing uses and will maintain its stronghold to the industrial community.

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Through a demonstration of the findings below which are a result of an exploration of New York City’s policies towards industrial land, an understanding of the key players and industrial development models and the dissection of two study plans on the North Brooklyn IBZ, this thesis aims to provide new strategies to support the use of a mixed-use development tool in preserving industrial businesses.

Findings: 1. Light manufacturing districts, on one hand, hold great potential for a mixed-use development model and on the other hand are the most vulnerable to displacement.

The North Brooklyn Innovation Plan is an output of the Industrial Action Plan. However, it is not connected to preserving light manufacturing districts which constitute 40% of the study area. The industrial action plan goals were directed towards updating the current land use policies in various directions. One is to maintain and provide further support in core industrial areas found in heavy manufacturing districts, the M3 district. Another is to develop a mixed-use zoning tool that would encourage new models for flexible workspace and innovation districts which would be in the light manufacturing districts, the M1, and M2 districts. As a result, the latter districts do not have a comprehensive strategy toward industrial job retention. These districts are considered the opportunity to absorb the overflowing demand on office space from Manhattan.

Recommendation: Establish a Minimum Industrial Retention Requirement New Developments in M1 and M2 districts should include a minimum required industrial use ratio. While the 25 Kent Avenue project used a 1:6 ratio in the Greenpoint Williamsburg IBZ and the BOA plan recommended a 1:2 ratio in the NBK IBZ, these ratios are highly dependent on the market robustness and thus constitute a challenge to define a fixed recommended ratio for all manufacturing districts. However, to maintain the existing stock of industrial space, the ratio should be set with the goal of maintaining a net zero loss in industrial space. Table 2.5 showed an impact study of the ACME expansion project and proved a net gain in manufacturing space. Similarly, each new development should provide an impact study proving at least a net zero loss in industrial space. The city should consider creating an industrial linkage mechanism and formula that would require a developer to provide a monetary payment to an Industrial Preservation Trust Fund as a substitute for fulfilling the minimum industrial retention requirement. The fund would be used to recreate any displaced jobs and businesses within the same IBZ. 2. A zero-subsidy solution means a great loss in industrial space and its affordability.

Public subsidy has long been the main source for preserving industrial land and while one of the NBK goals is to alleviate public subsidy, the financial analysis shows that private development will work only in a very strong office market that does not match the NBK current market state. Looking closer at the typologies and development strategies, groundup development proves to be the least feasible with the existing market conditions even for private development only. This is due to very high construction costs to the relatively lower rent rates in comparison to other booming markets like the Greenpoint Williamsburg area.

The Industrial Community land trust model proves the least costly in terms of subsidy, but 67

the model’s replicability is very limited. In addition to that, the number of industrial tenants in the area who own land or buildings compared to those who lease space is very small. Thus, a slim portion of businesses like the ACME fish facility can be part of an industrial community land trust model or negotiate a deal like the one held with Rubenstein Partners.

Furthermore, the analysis for the 538 Johnson Avenue site showed that with a subsidy of $150/net SQF constituting only 10% of the total development cost, the project maintained a 2:5 industrial ratio, net zero loss in existing industrial space and 100% affordable rent rates for manufacturing space.

Recommendation: Establish Equity Resources to encourage Public-Private partnerships Establish several equity resources to encourage public-private partnerships like the one proposed in chapter 4 for the site on 538 Johnson Avenue. Non-for-profit Development corporations such as BNYDC, who have better access to city capital, several grants, and can also leverage their existing rent roll are equipped to form these partnerships successfully and expand their development scope beyond city-owned assets. The Industrial Preservation Trust Fund proposed in the previous recommendation can also become a part of these equity resources. The involvement of nonprofit organizations as partners and as master lessees with the private developer will contribute towards providing an industrial tenancy plan, a clear definition of the type of industrial uses, and their requirements to effectively operate a space. This includes design and spatial guidelines that do not prevent any type of operational industrial logistics.

3. High potential in the existing industrial building stock.

It is made clear through several of the existing old factories restoration, such as the one carried by GMDC or the Pfizer building by Acumen, that the redevelopment potential is much higher than the new construction opportunity for industrial development. In addition to that, the industrial building aesthetics create an appealing environment when re-branded for creative office space. The financial analysis in Chapter 4 shows that new construction on the 74 Bogart site required a $300/net SQF subsidy compared to the adaptive reuse on the 538 Johnson Avenue site which required a $150/net SQF in subsidy. This proves that maintaining the existing industrial building stock improves new development potential, requires half the subsidy to maintain the existing stock and their affordability and prevents resorting to very high FAR incentives in these low-density districts. However, the NBK initiative does not seem to create different pro-development incentive strategies or envelope preservation policies based on the existing typologies.

Recommendation: Create an Industrial Building Preservation Committee The role of this committee would be to identify and preserve the existing stock of industrial buildings which unlock higher redevelopment potential in each IBZ and designate them as protected resources like a historical building overlay district. Additionally, since the feasibility to develop and maintain affordable industrial space can be assessed depending on the urban typology of the study area, the zoning incentives and additional density should vary based on existing site conditions.

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4. Local neighborhood rezoning can negatively affect the retention of industrial space in the long term.

The 25 Kent Avenue project which caused an entire neighborhood rezoning, was criticized as it fails to implement a comprehensive growth strategy. The industrial Business Incentive Area, which started as a single project public review process, turned into a neighborhood rezoning affecting a large portion of the Greenpoint Williamsburg IBZ. Through the tracing of the process and the different stakeholders’ perspectives, it is evident that the course of the zoning amendment process was not guided by the industrial stakeholder perspective. This is shown in the lack of clear guidelines on interpreting the use requirements of industrial tenants allowed in the incentive uses. The lack of guidelines on spatial requirements such as clear height, accessibility, and preference of location on the ground floor due to the heavy machinery can make the space hardly usable by any industrial tenant. In addition to that, industrial tenants' rent rates are highly different than creative office uses but the negotiation process did not consider requiring an affordability rate for the industrial space.

Recommendation: Require an Open and Disclosed Rezoning Process The City should require as part of any rezoning process the disclosure of a tenancy plan, the rental rates dedicated to the industrial incentive use, and design requirements. This open negotiation process would ensure the industrial tenant benefit, the community buy-in, and the project feasibility from the private developer lens. The findings of the analysis can inform the negotiable parts of the zoning amendments for each project including the minimum required industrial space ratio in comparison to the commercial uses, the density incentive provided as well as the required subsidy from non-profit partnerships if any.

5. The lack of a comprehensive initiative towards the industrial community while structuring the NBK mixed-use model.

As opposed to other ongoing plans in the city with an existing industrial community like the neighboring Bushwick plan or the M-crown plan in Crown Heights, The NBK plan lacks the industrial stakeholder perspective. Although NYCDCP held several community outreach meetings as part of the process, it still received pushback from community advocates stating that the plan does more harm than good in the long term. In addition to that, the fundamental difference between what Evergreen proposed is working towards a required percentage of industrial space. The Brownfield Opportunity Area study also proposed a Non-for-profit (NFP) management of space through a master lessee structure to ensure affordability of rent rates and local tenants’ retention is met. However, the proposed rezoning draft framework by DCP did not deal with any affordability or tenancy measures to ensure the proposed zoning does not cause industrial displacement. Going forward, this could potentially cause a lot of community resistance when presenting the proposed amendments through a public review, which explains why the plan has taken so long without proceeding with the public review. There is a lack of accordance with existing businesses especially that loss of industrial land is inevitable without a preferential use structure or at least a net zero loss of industrial space requirement. The DCP is framing the zoning plan to meet the market needs which is a direct conflict with the existing industrial community 69

needs. The NBK Plan is a reactive measure to promote private investment and it needs an industrial community plan reflecting each IBZ's needs for future long-term growth.

Recommendation: Follow a Community Planning Process that Strengthens IBZs and establishes affordability rates.

The industrial stakeholder perspective is essential in revisiting the industrial zoning and this is what the BOA plan presented by Evergreen, The NBK Industrial Service Business Provider has proven. The IBZ designation is not only essential in defining a protected boundary for industrial land but also in framing a comprehensive image of the community needs including the type of business and what constitutes as affordable rates for their economics. The definition of affordable rates in industrial development is highly variable and is dependent on each non-profit organization's mission-driven goals. For that reason, industrial development needs a mechanism that helps identify the structure of affordability rates like affordable housing. The industrial service provider of an IBZ can be assigned to work on defining affordable rent rates relevant to the location of the IBZ and the economics of the existing industrial businesses. A second step to follow is developing a process to recommend businesses for affordable space in new developments. This will help private developers fulfill their tenancy plans quicker and have less doubt in providing the minimum required industrial space.

The opportunities and challenges traced in this thesis present an important guide to consider when attempting the not so easy task of revisiting the existing industrial zoning. As the value of industrial land will continue to become an increasingly interesting endeavor for rezoning purposes to create new growth mechanisms, the lessons learned from the North Brooklyn Plan can guide further planning efforts in strengthening New York City’s industrial community.

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