THE BLOG

Rationalizing the Approach to Municipal Real Estate Assets

11/11/2013 12:49 pm ET | Updated Jan 23, 2014

According to the City of New York, we can expect 1,000,000 additional New Yorkers by 2030. We face a significant challenge to provide enough space, both for employment and housing, in time to facilitate this growth. Though few residents recognize this looming space crisis, our current constraints can already be felt by everyday New Yorkers in the form of seemingly ever-increasing rents and real estate prices, as housing and office development failed to keep up with current demand during the economic downturn. This trend may soon become more acute as we physically run out of places for our residents to live and employees to work (particularly in the outer boroughs), causing drastic price escalations as demand increases and supply remains relatively flat.

The City of New York holds countless assets in the form of real property and leases throughout the five boroughs. They are in various forms: parking lots and office buildings, storage spaces and open land. They accommodate varying uses, many essential but some in the form of relics from different times. These ownership and leasehold interests underpin the City's credit and wealth, but at the same time include massively underutilized opportunities that can be re-imagined to support sound public policy. Physical space is a difficult commodity to create more of in the five boroughs, as such underutilized space can provide a powerful economic development tool that supports neighborhood revitalization, housing and job creation.

The DeBlasio Administration has an opportunity to take stock of the City's real estate assets and rationalize their use for the City we encounter today. Take for example the municipal-owned buildings in Downtown Brooklyn. One of the biggest opportunities for new office space to accommodate the growth of job creating tech and creative firms in the area is government-owned buildings.

With a footprint of over 1.2 million square feet of commercial space surrounding Cadman Plaza, municipal-owned and occupied buildings such as the Brooklyn Municipal building at 210 Joralemon Street, 65 Court Street and the U.S. Post Office and Courthouse at 271 Cadman Plaza East could be repurposed to create a new urban campus for entrepreneurs and start-ups as well as new retail opportunities to activate the ground level experience. By reactivating these assets, government could avoid having to spend additional money to renovate these aging facilities, while modernizing its footprint in newer, more efficient buildings built by partners in the private sector.

Public employees working in these buildings could be relocated to neighborhoods in desperate need of economic development. In commercial districts with transit hubs in the outer boroughs like Brooklyn, Queens and the South Bronx, introducing the significant daily buying power these government office tenants represent would support local small businesses. Further, given today's cost of construction and market office rents, the construction of any new commercial building will require one or more anchor tenants to secure construction financing. By relocating the identified anchor tenants from older government buildings to new construction, the spaces left behind could be leased to innovation economy tenants that value old buildings with distinct character. For example, existing government agencies in Downtown Brooklyn occupy close to three million square feet of owned and leased property. Using government tenants to anchor new commercial space and reposition existing space is a tried and true method successfully used throughout the city including World Trade Center I (1970-1973) and World Trade Center II (2010-2013).

A serious review of City-owned and leased property should be undertaken with an eye towards: (1) reconciling the municipal footprint with 21st century uses; (2) generating revenue streams to support the City's operating and capital budgets not simply through sale and disposition but perhaps new joint ventures with private developers that produce ongoing returns, and/or realized cost savings through the removal of buildings that require costly upkeep on government maintenance rolls; and (3) using City land to generate high impact economic development projects that support housing and increase job growth and tax revenue.

City land is not thought of enough as a means to generate what the City needs most: jobs and housing. The exploration of new approaches to public-private partnerships that allow the City to keep its real estate assets while putting them to work in revenue generating ventures is worthy of a fresh look.