The administration of Mayor Eric Adams is poised to grant $100 million in tax breaks Tuesday to upgrade two financially ailing office buildings, the first projects to surface under its new Manhattan Commercial Revitalization subsidy for real estate developers.
Spiffing up the offices at 850 Third Ave., near 51st Street, and 175 Water St. near the South Street Seaport would generate more than 2,113 jobs within three years and retain 365 more, according to resolutions that the board of the New York City Industrial Development Agency, a city authority, is set to vote on Tuesday morning.
City officials have not pointed to leases or other evidence that these mostly empty buildings would attract tenants while there is a record glut of space in the Manhattan office market. Nor does the tax-break program allow the city to recoup any of the 20-year property tax breaks if the developers fail to attract tenants to the office buildings, both of which have poor track records in recent years.
A spokesperson for the city Economic Development Corporation, which administers the industrial agency’s tax-incentive programs, said that the tax breaks are not tied to the number of jobs created but are based on such factors as whether the construction is completed on time and that the promised investment was made. The job count is based on a projection from a research team at EDC, the official said.
The two projects are the first of what city officials say will be many more to bring back office workers to older Manhattan buildings below 59th Street. Many companies are leasing less space as employees push to work more often from home. City officials are hoping that creating more “amenity-filled” — cooler, really — office space will lure them back to the office.
“Think the intersection of art and culture and food,” Andrew Kimball, president of the EDC, said in a telephone interview Monday. Newer buildings located amid ample cultural and dining options, such as those at Hudson Yards, have much higher rates of office occupancy, he added.
The M-CORE program, as it’s called, was created because “Cities are re-imagining what it means to have a downtown urban core,” Kimball said. It’s targeted at “underperforming” buildings that he said would likely remain vacant without a makeover.
‘Way Past Its Prime’
There’s no disputing that the first two candidates are underperforming.
One of the buildings, 850 Third Ave., has been derided as the “Blah Glass Tower,” a wedding-cake style, 21-story glass-and-aluminum structure that was chic and sleek when opened in 1960 but is now “way past its prime,” according to New York Magazine. It lost Discovery, Inc. as a major tenant: The company left the “Mad Men” era behind for trendier digs in the Flatiron District at 230 Park Ave. South, built in 1895 and upgraded for the Gilded Age of technology.
Real estate developer Jacob Chetrit sold the building last year to his lender, HPS Investment Partners, for $265.9 million, four years after purchasing it for $422 million, city records show. The building is 33% rented, according to HPS’s application for a city subsidy. It said that as leases expire over the next four years, occupancy is expected to fall to 14%.
City officials determined that the subsidy would cost city taxpayers $58.4 million over 20 years, mostly to reduce property taxes. HPS, an investment company that manages more than $100 billion in assets, would finance a $62.8 million renovation of the building. In its application, the company says that with the tax breaks, the renovation will be “more extensive.”
Kimball maintained that the investment would not have been made without the tax incentive and, he said, the long-term return for the city would far exceed the cost of the tax breaks.
A spokesman for HPS declined to comment.
The 31-story tower at 175 Water St., built in 1983, had been the global headquarters of insurance giant American International Group, which moved to Rockefeller Center. It’s 95% vacant, according to the application from a subsidiary of Brooklyn-based 99c LLC.
The developer would get a $41.3 million break in taxes over 20 years, and invest $150 million with the strategy of marketing the building as a “creative hub” for businesses employing fashion, arts and cultural professionals, generating 1,027 jobs within three years, according to city records.
The building’s previous owner had hoped to convert the real estate to housing, which is badly needed, instead of office space, which is overabundant, The New York Times reported in July that the contemplated conversion would have created 800 to 900 new apartments.
But it would have required an adjustment in state law, which in lower Manhattan permits such conversions only for buildings erected before 1977 — six years too early for 175 Water St. According to the Times, this “simple, no-cost reform” died with Gov. Kathy Hochul’s housing agenda in the State Legislature last year.
Asked whether it would be better to wait on the outcome, Kimball said that “the reality is, we don’t control that.”
A spokesperson for the developer did not respond to emails seeking comment.
Kimball said his agency no longer imposes job targets for developers to meet. “There haven’t been for many, many years,” he said. “Those kinds of job requirements are just not smart when you think of the change in requirements in the marketplace.”
The new Manhattan Commercial Revitalization program (M-CORE) somewhat resembles the Commercial Revitalization Program (CRP) that the State Legislature created in 1995 during the administration of former mayor Rudolph Giuliani. Both aimed to increase office occupancy rates in lower Manhattan.
A 2018 study by the city’s Independent Budget Office found that the earlier program “did not decrease vacancy rates and had little, if any, effect on employment.” City officials say that this program differs, however.
One difference is that M-CORE wasn’t created by specific state legislation, but through the general powers state law grants to public authorities. In practice, it means that the Industrial Development Agency creates tax breaks without legislative approval, and outside the city budget process, which includes public hearings before being approved by the City Council.
The average value of the tax break for the two buildings would be $5 million a year. An EDC spokesperson said the tax breaks weren’t calculated on an annual basis, but over a 20-year term.