Crain’s New York
August 19, 2013
By Daniel Geiger
A partnership, including the owner of Manhattan’s Chelsea Market, is in contract to acquire a stake in a vast 30-acre, industrial and warehouse complex on the south Brooklyn waterfront in Sunset Park.
The likely buyers aim to convert a rundown and forgotton stretch of western Brooklyn into a hotbed of office, manufacturing and related uses, possibly including film production.
Jamestown Properties, real estate financiers Angelo Gordon and Belvedere Capital said they are in contract to buy an undisclosed interest in Industry City, a collection of 16 buildings with a total of 6 million square feet of space.
Jamestown, the landlord of Chelsea Market and several other properties in the city, including the Milk Studios Building, and the Falci Building in Long Island City, would manage the complex day-to-day, according to the company. Andrew Kimball, the former chief executive of the city-owned Brooklyn Navy Yard, who Jamestown hired in June, would become chief executive of the property.
The deal appears to be a bet that the emergence of Brooklyn as both a hip global brand for food, culture and merchandise, and the headquarters of a homegrown manufacturing movement in the city that has transformed spaces like the Brooklyn Navy Yard will continue to scale up. The city-owned Brooklyn Army terminal, just south of Industry City already boasts dozens of tenants in its 4 million square feet of space.
“There’s a variety of different uses, from food manufacturing to clothing to technology to media that all want to come together and be near each other where their creativity feeds off of one another in this kind of space,” said Michael Philips, the chief operating officer of Jamestown. “The definition of manufacturing has changed and there’s a broader base of tenants who can use these types of spaces.”
Mr. Philips pointed to Makerbot, the manufacturer of 3-D printers that opened a 50,000-square-foot factory at Industry City just last year, as an example of the kind of local manufacturers that are flourishing and looking for room to grow.
Jamestown, Angelo Gordon and Belvedere Capital would partner with Industry City’s current landlords, Ruby Schron and the Fruchthandler family to control the complex. The group is aiming to close a deal to buy an undisclosed stake by October, Mr. Philips said.
Mr. Schron and the Fruchthandlers defaulted on Industry City’s $300 million mortgage in 2011 but restructured those debts a year ago. The owners, however, were dealt a further setback when Superstorm Sandy hit the city in October and damaged several of the 16 buildings. Mr. Philips declined to disclose how much his group would pay to buy into the complex. He also declined to say how much it would invest to renovate the property, but described it as a project likely requiring hundreds of millions of dollars, if not more–funds that Mr. Schron and the Fruchthandlers don’t appear to have the wherewithal to lay out alone. He also stressed that it would be a long-term project.
“This will be a marathon, not a sprint,” Mr. Philips said. “We’re doing this as a generational investment.”
If a deal gets done, it would put Mr. Kimball, who worked for the city for eight years overseeing the reinvention of a fallow former military complex at the Navy Yard in northern Brooklyn, in charge of another large-scale manufacturing neighborhood in the city. During Mr. Kimball’s tenure, the Navy Yard became a major haven for manufacturing companies in the city, one that now has scores of companies on its waiting list. The Navy Yard also took in its first movie and television production tenant, the new Steiner Studios, which has subsequently become the property’s largest single tenant.
“There’s an innovation economy that’s taking hold here and in other urban areas,” Mr. Kimball said. “We want to give the local Brooklyn workforce a convenient new place to go to work.”
About 60% of the complex is occupied Messrs. Philips and Kimball said. But much of it is low-rent space used for storage. The current tenants are far from the vibrant collection of businesses that the pair imagine could populate the buildings and bring with them thousands of new jobs.
The company’s efforts could get a helping hand by recent efforts from the city to begin procuring goods from local manufacturers and designers. The Department of Design and Construction, for instance, just announced a pilot program to buy locally designed and manufactured furnishings for city capital construction projects it handles.
In addition to Industry City, Jamestown is tackling other like-minded projects nationally as it pursues Industry City. In July, the Atlanta-based company acquired the Boston Design Center for nearly $73 million with the hopes to execute a similar strategy of creating space for manufacturing tenants and hip industries like the tech sector, who gravitate to the industrial aesthetic of such space. Included in that plan is the possibility of creating a rooftop farm.
“Our partnership is in uniquely qualified to understand the drivers of the innovation-era workforce and its role in diversifying the city economy, and look forward to guiding the reuse of Industry City,” Glen Siegel, founder and chairman of Belvedere Capital, said in a statement.
There are others who see a bright future in Sunset Park. Two years ago Salmar Properties acquired Liberty View Industrial Plaza, a 1.2 million-square-foot building just north of Industry City. The company has invested $70 million renovating it, including installing new windows, central heating and air conditioning, electrical systems and a lobby. Salmar Properties hopes to start signing leases with tenants by the end of the year and can cater tenants who require huge floors. The building, on 31st Street and Third Avenue in Sunset Park, boasts 160,000-square-foot floors, among the largest contiguous spaces in the entire city.