Even as millions of square feet of New York City office space sit vacant, a half-empty city-subsidized Brooklyn real estate project recently vacated by Bed Bath & Beyond is getting major new tenants — and they report to the mayor. 

New York City’s Human Resources Administration (HRA) is looking to move more than 700 tech support employees into the Sunset Park warehouse, initially designated for manufacturing businesses, city records show.

That project is receiving millions of dollars worth of tax breaks administered by the city’s quasi-governmental Economic Development Corporation.

HRA and two other city agencies, the Administration for Children’s Services and the Department of Finance, are seeking a total of 214,000 square feet of space inside Liberty Bklyn, a warehouse building at 850 Third Avenue, near Industry City. 

The proposed lease is set to be considered by the City Planning Commission at a public hearing Wednesday.

A spokesperson for the Department of Social Services, which includes HRA, didn’t respond to a request for comment. A spokesperson for DCAS didn’t immediately return a request for comment. 

“The proposed office lease with HRA would streamline operations consolidating multiple office floors elsewhere to 1-2 floors at 850 Third Ave. while saving tens of millions of dollars for NYC and maintaining hundreds of jobs in Brooklyn,” said Jonathan Ratner of Madison Capital, the building’s property manager. 

The lease at HRA’s headquarters located at 15 MetroTech Center expires in July of 2024 and the agency says it’s anticipating a sizable rent increase at that location. The agency plans to shift workers from there, and seven other offices in Downtown Brooklyn and lower Manhattan, to the new space on Third Avenue. 

Documents submitted to City Planning do not refer to any other possible locations considered, nor do they state what the city will pay Salmar Properties to lease the new space in Sunset Park.

The amount of vacant office space across the city continues to rise, with around 16% of offices empty through March, or about 76 million square feet, THE CITY reported.

‘Fire Sale’

The move toward city office space is the latest wrinkle in the long story of Liberty Bklyn. 

The warehouse was built in 1918 to supply ships during World War I. During World War II, it served as a factory for military uniforms, then was used as a naval warehouse.

Nearly a century later, in 2011, federal and city officials inked a deal to sell the building to Salmar Properties in for just $9.4 million — on the condition, spelled out in a deed restriction, that 85% of the 1.1 million-square-foot warehouse be reserved for industrial uses. 

The aim was to bring back 1,300 stable, blue-collar jobs and 400 construction jobs to the underutilized waterfront industrial park — a deal championed by local and federal elected officials at the time.

But by 2019, the building remained largely vacant, aside from retailers on the first two levels. 

Sal Rusi and Marvin Schein of Salmar Properties went back before the Economic Development Corporation, arguing the manufacturing requirement wasn’t feasible, and seeking permission to allow office tenants to occupy the warehouse. 

The EDC under then-Mayor Bill de Blasio eventually relented, despite uproar from manufacturing advocates and elected officials. Rusi had backed de Blasio’s re-election campaign by bundling around $55,000 in donations from his friends and associates, the New York Post previously reported. 

The new agreement signed in early 2020 with Salmar Properties reduced the square footage for manufacturing businesses, opening up about a third of the building’s floor area to office space, property records show, paving the way for the latest deal with the city. 

About 60% of the building’s square footage still has to serve industrial uses, and retail is still permitted in the first two floors, which make up a bit more than 10% of its square footage. 

Asked about the new deal, City Councilmember Alexa Avilés (D-BK) said she was on board with a large HRA office space coming to her district, but said she was frustrated by what she called “intensely reactionary” city planning that led first to sale of a property far below market value, only for office space to be leased back from a private developer a decade later.

“They’re trying to claw back assets now realizing they had maybe too much of a fire sale,” Avilés said. “It’s just a crazy-making scenario.”

Bye-Bye, Retail

Jesse Solomon, executive director of the Southwest Brooklyn Industrial Development Corporation, said that while the warehouse’s developers initially seemed to be stalling in their commitment to open the space up for manufacturers, she’d seen renewed efforts in the last three years. Solomon pointed to the Prose, a bespoke hair care company that doubled its footprint in the building in 2021.

The building’s retail offerings were also flagging, Solomon said, with the recent closure of Bed Bath & Beyond and companies it owns, buybuy Baby and Harmon Face Values. 

The now-empty space where Bed Bath & Beyond once bustled, inside 850 Third Ave. next to Industry City, May 23, 2023. Credit: Ben Fractenberg/THE CITY

“They really need a large tenant to anchor a floor like that, especially now that they lost all of their retail,” Solomon said. 

World Market, Saks Off Fifth and Micro Center are still operating from the first two floors of the warehouse. Brooklyn Grange, a 3.2-acre urban farm and event space, is on the roof. 

While Salmar Properties is on track to secure lucrative long-term contracts to house city offices, it has struggled to recruit manufacturing tenants, and the building currently has more than a half-million square feet of vacant space, according to its website.

Solomon said particulars of the property present unique challenges for recruiting industrial businesses, including ceiling heights lower than what many such businesses seek. Manufacturers also often prefer to have a ground-floor standalone warehouse space rather than having to rely on elevators.

“Any large, multi-floor industrial facility like that is challenging to subdivide for modern manufacturing and industrial tenants,” she said.

About one-third of the building’s square footage, or nearly 500,000 square feet, is currently occupied by manufacturing tenants, according to Adrien Lesser, a spokesperson for EDC.

Other tenants have been announced in recent years, including the offices of the tech company Prime Clerk, an Amazon distribution site, the offices and warehouse of second-hand luxury clothing reseller Vestiaire Collective, and the fulfillment center of Ship Essential. Lesser and Ratner declined to provide a list of active tenants. 

Instead of paying taxes, Salmar makes discounted payments directly to EDC. In 2022, it paid $887,190 instead of what would otherwise have been a tax bill of more than $3 million, city records show.