How a Massive New York Industrial Redevelopment Lures Tenants and Curious Visitors

Erkan Emre remembers a call he received over five years ago to open a permanent Turkish-inspired sandwich spot in a forgotten part of Brooklyn, New York. Today, he considers the decision to take the risk one of the best he’s ever made.

Emre operates in Industry City, a massive mixed-use redevelopment that offers a novel rent formula to attract manufacturers and creative businesses to set up shop alongside traditional retail and office tenants.

It’s a model many are watching nationally, and an effort by private developers Jamestown, Belvedere Capital and Angelo Gordon & Co. to turn around a once-thriving international seaport with several large industrial buildings that have seen decades of decay.

“What struck me very much is the experience of seeing Industry City grow,” said Emre, who debuted his first Kotti Berliner Döner Kebab restaurant in March 2017, after he was previously selected as a food vendor at Brooklyn’s popular Smorgasburg outdoor food festival.

“I recalled how desolate it was before 2017. Today it’s a vibrant, fun-filled entertainment hub with courtyards that are curated throughout the year,” he said.

There’s a specific strategy behind Industry City’s growth that’s garnered attention among real estate professionals.

The 35-acre complex often offers cheap commissary space rent to manufacturers so long as they agree to do retail sales on-site. For instance, Li-Lac Chocolates, billed as Manhattan’s oldest chocolate house, sells its confectioneries next to where they are made, passing by on a conveyor belt behind a glass wall for consumers to see.

The same manufacturing-and-retail formula goes for a salumeria selling fresh deli meat; the space is connected to a butcher. There are businesses making and selling cookies and pastries, as well as breweries and distilleries. In the age of hands-on retail, Industry City visitors can also see a blacksmith at work and browse through stores that specialize in furniture restoration, wood carving or jewelry.

It’s a hopeful model, especially during the COVID-19 pandemic that has led to high office and retail vacancies across the country.

“What you do is you start with retailers,” said Jim Somoza, director of development at Industry City. “You got to make a place. People need space to make their stuff. They aren’t as picky about their locations. They want inexpensive rent. It’s the secret sauce of how you got some of these started. ... What happens is you start to get interest from office tenants. They start to say there’s a way for my employees to drink and eat and shop.”

Those food and retail options also begin to drive visitor traffic.

“An ecosystem starts,” Somoza said. “Those people who in the beginning said, ‘I’m not so crazy about doing retail here,’ now say, ‘Wait, I like doing retail here because now I’m making retail margins at a location that I only [pay] wholesale [rents].’ It snowballs from there. You reach a tipping point where you start to get pure retail.”

Emre, an architect-turned-real estate developer who has since become a full-time restaurateur with plans to open his fifth location in New York, credits the support he received from Industry City for a big part of his success. When the developers invited him as a vendor, they worked with him to design and build out his stall and charged him only $500 a month in rent for his 425-square-foot space over the first six months.

When he had to shut down at the start of the coronavirus pandemic, in March 2020, Industry City froze his rent for a year. During that time, Somoza would come to volunteer his time to help make meals that Kotti Berliner was donating to hospitals.

“This is really the time I’ll never forget,” Emre said. “That really bonded me with the place. The gesture is so human to the community. At one point, I couldn’t pay [rent]. They never asked for it. They said, ‘We want to be as supportive as we can.’ That helped us immensely. Not having the pressure of getting invoices and worrying about the rent really allowed me to focus on the restaurant.”

Emre now counts about a dozen food vendors in his section of Industry City, and he is paying what he called “normal rent.” Declining to specify the amount, he said it’s “still favorable” and the lowest among all the locations he leases in Brooklyn and Manhattan.

“When you drove along [the Brooklyn-Queens Expressway] for years … you looked in the windows, windows were usually broken,” said Andrew Kimball, Industry City’s outgoing CEO who was tapped on Wednesday to lead the New York City Economic Development Corp. “Inside it was either vacant or boxes. You didn’t see people. Now when you drive by, you see spaces that are alive. Before when you came here on the weekends, it’s a ghost town. Now on weekends, we have close to 20,000 people. … In the first two years, often conversation with potential tenants and brokers was, ‘What’s Industry City?’ We no longer have that conversation. We are on the map.”

Jamestown, Belvedere Capital and Angelo Gordon & Co. have invested $450 million to date in infrastructure improvements, from fixing broken windows and peeling paint to upgrading 150 mostly failed freight elevators, Kimball said.

The work is only about two-thirds done, according to Kimball, who said redevelopment costs could “easily” reach $1 billion by the time the entire overhaul is completed. The complex is “profitable,” he said, declining to be more specific.

“We were really not just redeveloping but reimagining what a massive industrial commercial complex can be,” Kimball said. “What’s so unique about this project is this is the first time the private sector with only private dollars has undertaken this kind of massive conversion and reimagined it without any public subsidy and without housing to drive the economics. This is probably the largest 100% private adaptive reuse of this scale anywhere in the country.”

In contrast, two nearby mega-redevelopments, Brooklyn Navy Yard and the Brooklyn Army Terminal, are both owned by the city of New York. Kimball had run Brooklyn Navy Yard for eight years before switching over to Industry City, where he’s been in charge since 2013.

During the COVID-19 pandemic, since March 2020, Industry City said it filled nearly 900,000 square feet involving more than 200 leases.

Among some of the notable signings, Union Square Events, the catering arm of restaurateur Danny Meyer’s Union Square Hospitality Group, took 70,000 square feet last year to combine its office and commissary kitchens. Car labels Porsche and Volvo inked leases for showrooms and service centers.

Home furnishings brand West Elm opened its first lower-priced outlet store while keeping its Makers Studio workspace for artists, designers and craftsmen. Video content studio The Garage, which makes commercials for brands including Heinz ketchup and Domino’s Pizza, also moved to Industry City. Whole Foods in 2020 signed on to open a so-called dark store that takes online-only orders.

The Brooklyn Chamber of Commerce, after more than 100 years in downtown Brooklyn, also moved to the campus.

“Industry City is truly an economic engine for Brooklyn,” Randy Peers, Brooklyn Chamber of Commerce president and CEO, said at the time, adding the complex’s “diverse tenant mix” spanning sectors from manufacturing and tech to retail and hospitality reflects the chamber’s business community.

Brooklyn Sports & Entertainment, the parent company of the Barclays Center performance venue and Brooklyn Nets basketball team, is the anchor tenant with 200,000 square feet, which includes the basketball courts where the Nets practice and train, according to Kimball.

Industry City has leased over 4 million square feet since 2013, including both new and renewal leases, and is now 85% occupied, Kimball said. Over 550 businesses supporting nearly 9,000 jobs count the place home, including more than 450 that are small businesses, up from about 150 businesses with 1,900 jobs in 2013, he said.

Somoza helped run Manhattan’s famous Chelsea Market food marketplace where a similar leasing strategy helped turn the former Nabisco cookie factory into a vibrant mixed food, retail and office complex. In 2018, tech powerhouse Google bought the building from Jamestown, which besides Industry City is also behind other mixed-use adaptive reuse projects including Ponce City Market in Atlanta and the Innovation and Design Building along the Boston waterfront.

When we started, Chelsea Market “was almost in the middle of nowhere,” Somoza said. “No one was going there. Now it’s a meat pod. Back then it was meat packing.”

Industry City’s so-called experiential retail play also includes designing concepts that aim to transport visitors to places, such as the Japan Village food market, Sahadi’s Middle Eastern gourmet grocer and the Bangkok Bar food hall. The complex’s in-house design and architecture team often works closely with merchants.

We are “active with the design component,” Somoza said. “I spend a lot of time meeting with every single one. They have to be community minded. We like a lot of collaboration and a cohesive community. We turn away a lot [of prospective tenants]. … We’ve got our fingerprint on everything.”

Industry City has a specific way of handling the presence of national retailers in an effort to preserve the sense of a cohesive community with local and independent-minded flair. Coffee chain Starbucks, for instance, isn’t allowed to have an entrance or its brand visible facing an internal courtyard. Starbucks’ windows are all frosted, and the company is forbidden from providing seats in the courtyard, according to Somoza.

Starbucks did some “kicking and screaming,” Somoza said, adding the location still turned out to be one of the coffee giant’s top performing in New York.

Industry City “is a super interesting concept in that scale,” Bobby Lawrence, director of investment sales at B6 Real Estate Advisors said, adding he has personally visited on weekends with friends, stopping by the record store, patronizing the barber and having food and drinks to pass the time. “It kind of stands alone. There are some very interesting stores that you can just peruse. ... [Seeing] chocolate on the conveyor belt, it’s an experience you remember. What they’ve done is they provide a lot of options. It’s kind of a one-stop shop. … Some of the stores aren’t your normal stores. It’s part of the lure. It’s fun.”

Still, there’s room for improvement. As someone who brokers property sales in Brooklyn with a focus on neighborhoods including nearby Greenwood Heights, Lawrence said he hasn’t yet seen the premium Industry City may offer when investors eye real estate opportunities.

“When I speak to investors, they don’t really mention Industry City,” Lawrence said. “It just hasn’t moved the needle. I’m selling a building two blocks away from the Barclays Center. Everyone knows the Barclays Center. People have interest because of the proximity [to Barclays Center]. … Over time, as Industry City continues to evolve, I hope it creates a destination for people. If you can get more businesses there, retailers will pay up to capture that market. As you get more desirable retail, it becomes its own mall. People will start to visit.”

That, in turn, will drive demand for properties in the area, Lawrence said. “It’s kind of a rising tide lifts all boats,” he said.

Industry City also suffered a setback in 2020 upon withdrawing a proposal to rezone the area to add retail shops, academic space and hotels after opposition from some local politicians and community activists.

An Industry City spokesperson told CoStar News it’s “looking forward, not backward” and said the current zoning allows the complex to attract a mix of office, retail and light manufacturing tenants, which it said is “aligned with the project’s goals.”

“The existing zoning is flexible enough to accommodate the tenants we’re attracting, and we’ve done some of our best leasing periods to date in the past two years,” the spokesperson said.

In the meantime, for Brooklyn residents such as Lawrence and Emre, Industry City, with its three courtyards totaling 85,000 square feet hosting year-round events from ice skating to summer concerts, is already a destination.

“We are dedicated ice skaters at Industry City,” Emre said, explaining how he and his wife often spend weekends there with their 11-year-old daughter and 7-year-old son. “We also celebrate our kids’ birthday parties there. There’s so much to do. The first thing when I think of Industry City is it feels open and welcoming. As you pass through each building, you have a different set of experiences. It’s just astonishing … to see how they manage to bring life and infuse life to this vibrant community. It feels honest. It’s truly for locals. It also became a destination for people from other boroughs.”