The Big Idea: Factory Town

Print More

“IT’S A REAL New York success story,” begins Eric Greenberg. In 1969, his father, Morris, after years as a commercial painter, decided to go into business for himself. He set up one engraving machine in a tiny shop on the Lower East Side and started manufacturing signs for commercial building owners. Morris made $800 that first year. By the time Eric joined the business in 1978, it was bursting out of its 4,000-square-foot space in midtown. It hit the million-dollar mark in annual sales a decade later.

Business fell during the recession of the early 1990s, however, and when his parents retired, Eric reconstituted the business under a new name in Long Island City, where the rent was one-fifth what he had paid in Manhattan. The neighborhood was rough, and he had to convince his Manhattan clientele to stick with him, but the firm soon flourished.

Now, although Green Mountain Graphics has consistently strong sales, loyal customers, a dozen permanent employees and 35 years of sign-manufacturing expertise, Greenberg could be going out of business.

The real estate market in New York’s major industrial areas, including Long Island City, Williamsburg, Red Hook, and Hunts Point, is making it increasingly tough for manufacturers like Greenberg to find affordable space. Because residential properties can yield at least three times more income than industrial space, owners are converting their holdings to housing in staggering numbers.

Greenberg is in his final year of a five-year lease, and his landlord won’t sign another long-term contract because, he told Greenberg, he hopes to build apartments someday. Even more discouraging to Greenberg is that after several months hunting for another space in Brooklyn or Queens convenient to Manhattan, he’s found neither a remotely affordable property to purchase nor a place to rent for longer than a year or two. “Real estate is the whole thing,” he says. “No real estate, no business.” Rubbing his forehead, Greenberg adds, “I’m at a juncture now. And, yeah, I’m a little worried.”

Greenberg is in good company. A lot of small manufacturing firms, many old enough to have witnessed the decades-long downsizing of manufacturing locally and nationally, say that the current real estate market is presenting an unprecedented threat. These surviving businesses are profitable, employ hundreds of thousands of workers, and generate nearly $2 billion in tax revenue–but most rent their property and will have no home when the leases expire.

City Councilmember David Yassky, whose district includes Greenpoint and Williamsburg, former Meccas of manufacturing, has watched the pace of residential conversions with growing alarm. According to the New York State Department of Labor, New York City has lost more than 750,000 manufacturing jobs over the last 50 years, roughly a third of them in the last decade. At the end of February, in an effort to stop manufacturing firms from being priced out of New York altogether, Yassky introduced a bill he calls the Conversion Fund Act.

The gist is that owners who convert property from manufacturing to housing pay into a fund that would be used to help displaced manufacturing tenants relocate within the city. Such a fund could also be used to help develop new, affordable space–sanctuaries like the Greenpoint Manufacturing and Design Center, which houses 95 firms in four Brooklyn buildings. “The economic development community is about 20 years behind the affordable housing community,” says Adam Friedman, whose New York Industrial Retention Network supports the bill. “Nonprofits build a lot of affordable housing in New York City, and a lot of it has to do with the funding streams they’ve created. This is an effort to replicate that kind of revenue stream.”

Yassky’s conversion fund has a second objective as well: to help make sure that city planners, rather than individual property owners, guide the wave of residential transformations–and leave some remaining industrial areas alone. For buildings that go from manufacturing to residential use as the result of a zoning change by the city Planning Department, owners would pay $20 per square foot. For buildings whose sites are legitimately converted by owners themselves, they’d pay $30 per square foot. And for buildings converted illegally, owners (when caught) would pay $40 per square foot. Had the policy been implemented 40 years ago, it would have already raised between $12 billion and $24 billion (in today’s dollars).

At the very least, such a law could help keep badly needed jobs in the city. (In February, unemployment was 8 percent, according to the City Comptroller’s office.) One reason industrial landowners can make so much more money by going residential is that manufacturing is not a megabucks industry–at least not by New York City standards. Cheap labor overseas and new technology are driving the shrinkage of manufacturing nationally, but New York manufacturers also toil, uniquely, in the shadows of Wall Street’s towers, where workers in finance generate income many times that of their counterparts in industry. New York’s status as a global financial capital helps keep housing prices high throughout the region, and makes residential property that much more valuable than manufacturing space.

The gap between finance and industry continues to grow. The current economic downturn cost roughly 13,000 manufacturing jobs in 2003, whereas the financial and insurance sectors, which employ more New Yorkers, lost only half that many, according to the state Department of Labor.

As Yassky and others point out, major zoning reforms now being considered by New York’s Department of City Planning are adding significantly to the hardships facing successful manufacturers who want to stay. He says it’s no surprise that global firms producing standardized products, including Domino Sugar, Farberware and Swingline, have left New York–some for cheaper pastures in the U.S., others for international opportunities. But there remains a vital population of firms that depend on being close to New York City–for their customers, a specialized labor pool or an urban niche marketplace.

If all of the zoning changes on the table are ultimately adopted, the cityscape will be transformed. And the mere discussion of such changes has helped send the real estate market into a frenzy of speculation, say observers. “Most manufacturers can’t pay the rents asked for in this speculative environment,” says Sara Garretson, president of the Industrial & Technical Assistance Corporation, a New York economic development organization. “They can’t find expansion space, and are getting kicked out of the spaces they are in. There is no refuge.”

AT FIRST BLUSH, Yassky’s conversion fund sounds a lot like a program that was tried once before–in the late 1970s, when illegal loft conversions were starting to push industrial firms out of Chelsea. Sandy Hornick, director of strategic planning at the Department of City Planning, was its chief architect. “It was a miserable failure,” Hornick now says. “We dreamt up this conversion fee to give relocation assistance, but most of the money just sat in the city’s bank account.”

The original Relocation Incentive Program ran from 1981 to 1997, and it’s true that the program was better at collecting payments than disbursing them. A 2003 City Comptroller’s audit showed that in 2003, $1.6 million was still left in the bank. The money is being slowly doled out in $30,000 increments.

Hornick says that not enough manufacturers chose to relocate within the city to make the conversion fund viable. But other officials familiar with the inner workings of the program, including the state and city comptroller’s offices, assert that the structure, not the concept, of the program was to blame.

Don Giampietro managed the fund in the 1980s out of the Department of Business Services. He says that because the program was implemented through the zoning code, it was severely limited in scope. For instance, the fees owners paid into the fund could be used only to reimburse the moving costs of the tenants they displaced. If displaced tenants retired, left the city, went under, or took a long time to move, their portions of the conversion fund simply stayed in the bank. “The mechanisms were burdensome and limited the ability of the program to respond to changing market conditions,” says Giampietro, “which is why so much money accrued.”

But Giampietro says the program nonetheless did provide a real financial boost to hundreds of manufacturers who otherwise might have been forced to fold or flee the city.

Oliver Lednicer was one of them. Now chairman of the Manufacturers Association of New York City, Lednicer and his envelope-manufacturing firm occupied a warehouse on Hudson Street in the 1980s. When the first wave of residential conversions swept Soho, it very nearly drove him out of the city. “If I hadn’t gotten [the relocation subsidy],” Lednicer recalls, “I would have gone to New Jersey.” The $35,000 he got from the conversion fund was just enough to make a move to Long Island City feasible.

Hornick says it’s reasonable for the city to try to preserve manufacturing jobs. But he’s not convinced that government intervention in the real estate market can effectively counteract the economic forces driving manufacturers out of New York City. “People believe that zoning policies can do more than they can,” he says. “Manufacturing employment is on a decline, and it declines faster in the bad years, not because of space pressures, but because the economy overall is bad.”

He’s not the only critic of Yassky’s plan. The real estate community also takes a dim view, considering it a tax on landowners seeking to develop new residential property. “It’s just bad public policy,” says Michael Slattery, senior vice president of research for the Real Estate Board of New York. He thinks conversion funds will simply encourage illegal conversions and thwart much-needed housing development.

Some researchers also broadly question the usefulness of efforts to preserve manufacturing. “Industrial retention efforts have been failures categorically,” says Frank Braconi, head of the Citizens Housing and Planning Council. “You only need to look at the employment figures to see that.” In the long run, he argues, city residents who have tended to do blue-collar work in the past, such as new immigrants, would be better served by policies that create more decently compensated, low-skill jobs in the professional and service sectors, since those are areas of economic growth.

The Bloomberg administration has yet to present an industrial retention policy of its own. The Economic Development Corporation recently commissioned a study of the sector, with results expected soon. So far, however, development incentives have focused on encouraging new housing construction, particularly in industrial waterfront areas.

Yassky argues that there is no conflict between encouraging residential development and retaining some manufacturing space. But it is still unclear whether the Bloomberg administration shares that view, and this mayor tends not to favor programs that explicitly interfere in the marketplace.

In the end, Yassky says, he hopes simply to ensure that manufacturers get some protection during the new rezoning. “I hope we get to the point of talking about specific policies,” Yassky says, “but the first step is getting somebody in the mayor’s office to take seriously the idea of keeping blue-collar jobs in this city.”