Bruce Brodoff Communications
Bruce Brodoff Communications
Many still support Digital NYC; dot-com tax incentives
By Elaine Misonzhnik (Real Estate Weekly; December 20, 2000)

It was created to help move an army of new dot-coms out of space-challenged Manhattan. But today, with the visible signs of an economic slowdown and trouble in the high-tech world, does the Digital NYC program still make sense? Surprisingly, most people say yes.

Under the Digital NYC, established dot-coms which move out of Manhattan into the outer boroughs, become eligible for substantial tax benefits, including such perks as a $ 3,000 tax credit for each relocated employee and lowered rates for utility bills. In addition, the rent rates in Digital NYC neighborhoods, such as DUMBO, Harlem, Long Island City, and Red Hook are significantly lower than those in Manhattan, ranging from $10 to $25 per SF.

In spite of its obvious advantages, however, the Digital NYC program hasn't yet become as popular as one would have expected.

Phaedra Thomas, the program manager for the Red Hook office of the South Brooklyn Local Development Corporation will be the first one to tell you that Digital NYC is not for everyone. "Although this is a beautiful waterfront neighborhood and we have rents one-fifth of those in the City, this is not Manhattan by any means," she said. "One of our issues is that we don't have direct subway transportation. By car, we are about five minutes from Manhattan, and we plan to organize a bus or van service, but at this point, transportation is definitely a concern."

At the same time, Thomas is enthusiastic about the program's future. According to her, enough dot-com tenants have expressed serious interest in the property to completely fill out the soon-to-be-completed space. "I think with the current economic shift, Digital NYC may take longer to take off than anticipated, but it is a great program that will make sense both to the businesses and to the community. It is not meant for everyone, and different districts under the program have different amenities, but it makes a lot of sense."

Robert Eisenberg, a broker for Julien J. Studley, holds a similar point of view. "While many dot-com companies are in trouble, there is still a tremendous need for space, so the timing of the program is still relevant." He conceded, however, that none of the clients he showed the Digital NYC spaces to agreed to leave Manhattan. "The economics were extremely compelling," he said, "but these particular companies didn't want to leave. Their employees want to be in Manhattan, the amenities and the transportation are much better in Manhattan. There are clearly some significant differences, needless to say."

Eisenberg, however, is certain that with time Digital NYC is going to flourish. "We certainly need more publicity, the word isn't really out yet among many tenants," he said. "There are some companies already there, but we still need a big headline firm to move out there."

On the other hand, Eisenberg's colleague at Insignia/ESG, Andrew Perez, is rather skeptical about the program's potential. "I think that the program is a great idea, but unfortunately, timing is everything," he said. "And it is going to take time to attract people to the outer boroughs. The bottom line is that the program is going to face significant challenges because there are units of space coming back to the Manhattan market right now."

Among the reasons Perez lists for his clients' reluctance to move to the outer boroughs are transportation and lack of supporting infrastructure. "That's certainly something that you present to tenants because the financial benefits are terrific," he said. "But there is still a perception that those areas are miles and miles away from Manhattan, both physically and culturally. That might not be the case, but it is the perception."

Regardless of what the industry experts say, however, the New York City Economic Development Corporation is not ready to throw in the towel yet. "We are certainly signing quite a number of leases right now, and the program still seems to be successful," said Bruce Brodoff. "The fact that some of these companies are experiencing difficulties, doesn't mean that our program can't be successful. The industry is still here to stay."

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