Hidden behind blue plywood fencing on 47th Street, the heart of the diamond district, is what is perhaps New York’s next modern office building: the International Gem Tower planned by mogul Gary Barnett and his Extell Development.
It also has the distinction of being the latest piece of New York City commercial real estate to receive a pledge of government assistance: Late last month, a state agency announced it would back $100 million in financing for diamond companies looking to buy commercial condos in the building.
And so it goes. If you want to build a big office building in a city that’s seen few this decade, the secret is to get the government to subsidize it.
While office towers would frequently sprout up on their own in decades past, lately it has become the norm for government to lend a helping hand by sprinkling—sometimes pouring—various tax breaks and other aid on developers (but only if they ask).
Now with the Gem Tower—should it actually be built—10 of the 11 new major office towers to be constructed since late 2001 will have gone up with substantial government assistance. These include: Goldman Sachs’ 200 West Street; Two Gotham Center in Long Island City (fully occupied by the city); the Hearst Tower on Eighth Avenue; the New York Times headquarters; the Douglas Durst—built Bank of America Tower; the government—built One World Trade Center; and three other heavily subsidized buildings being developed by Larry Silverstein at the Trade Center site. (Mr. Barnett’s Gem Tower is probably one of the less extreme examples, as the financing is not tax free-although the government is holding the bag if the buyers default.)
The argument given by any developer wanting to put up a new building generally sounds something like this: Construction costs and taxes are so high in New York that the project is not economically feasible on its own, but with a little nudge in the form of tax breaks-and voilà-it can start construction, showering the city with new jobs.
It is true that New York has been very slow to build new office buildings in the past decade, hurting the city’s competitiveness for tenants who demand such modern space.
But even if the subsidies are effective, it is the system of handing them out that is problematic. In a word, the structure is inconsistent, granting negotiated amounts of aid to those who request it, usually behind closed doors until a final approval is needed. It is also a system that is inherently vulnerable to political manipulation: It’s no coincidence that the city’s largest developers are invariably among New York’s largest campaign contributors.
Elizabeth Mitchell, a spokeswoman for the Empire State Development Corporation—the state agency that administered the incentives for many of these projects, including the Gem Tower—defended the existing structure, saying in a statement that “the State undertakes a rigorous cost benefit analysis that ensures that any benefits yield results in the form of economic return many times over.
“We have a finite set of tools at our discretion and we work diligently to evaluate and support important projects for the benefit of all New Yorkers.”
Still, in retrospect, it’s unlikely all of the subsidies granted by the state and city in recent years were absolutely necessary. Subsidies for the Bank of America Tower, for instance, were granted in 2003, as rents were too low to make the tower viable. But, by the market’s peak, well into the construction, Manhattan office rents had nearly doubled-quite the leap. Even today they are 20 percent higher.
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