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Brooklyn's Retail Boom


Photo by Julia Vitullo-Martin
The Ikea-bound Water Taxi shuttles between South Street Seaport and Red Hook.

How does a thriving, growing locality retain the attractive, small, independent businesses that helped make it distinctive while permitting - even encouraging - the entry of large, inexpensive, national chain stores to serve customers' everyday needs? That retail conundrum confronts otherwise prosperous urban communities throughout America - not to mention Manhattan. Now, across the East River, Brooklyn appears to have quietly solved the puzzle.

And can this be done without converting a unique area into Generica (the definitely pejorative term for "Generic America," meaning all those features, like strip malls, that are identical no matter where you go in the country)?

Brooklyn's answer seems to be yes, promoting a "my way" kind of thing with its retail sector - big stores and small, chains and independents, ordinary and idiosyncratic, garish and subtle, high end and low, traditional ethnic, cool retail, small handicrafts, hip entertainment, etc. Statistically Brooklyn still looks "under-retailed" compared to Manhattan, says The Real Deal, since Manhattan has 52.2 square feet of retail space per capita, and Brooklyn has only 10.8. But downtown Brooklyn and Williamsburg are starting to compete hard and successfully.

If Brooklyn were an independent city it would be the nation's fourth largest. Instead, it's been until recently a junior partner to Manhattan, which has always been far richer though smaller. But for the last few years Brooklyn has been going through a startling economic resurgence that included the addition of some 660,000 square feet in retail space last year alone -- versus 33,000 square feet in 2006, according to Marcus & Millichap Retail Research.

Destination Shopping

Photo by Julia Vitullo-Martin
Cafes and boutique stores are springing up in once-remote Red Hook.

So many Manhattanites head across the bridge that you could easily conclude that Brooklyn has become New York's destination shopping borough. It certainly looks that way from the crowded deck of the Water Taxi that carries passengers bound for Ikea from Pier 11 at the South Street Seaport to Red Hook. Once docked, shoppers keyed up by the stirring trip through the harbor, can head into Ikea - perhaps the most spectacularly situated big box store in America - or make the 10-minute walk to the Fairway supermarket, located on the waterfront in renovated 18th century warehouses.

But the startling part is that Brooklyn seems to have developed its industrial waterfront into a retail mecca while still nurturing its great ethnic heritage -- old and new. Its traditional neighborhoods have never lost their top rankings as foodie capitals -- Greenpoint for pierogi, Carroll Gardens for cannoli, Canarsie for fish, to name the obvious -- even as new ethnic immigrants have enlarged the feast. Thus, a few blocks south of Ikea, past the long-unused grain silo (soon supposedly to be a concrete factory), lies one of the culinary treasures of New York: the Red Hook food vendors, who in good weather serve horchatas, pupusas, huaraches and other Latin treats in the Red Hook Park ball fields at Bay and Clinton.

It’s true that the losses of beloved mom-and-pop stores vex many neighborhoods, as a photographic exhibit, “Counter/Culture: The Disappearing Face of Brooklyn’s Storefronts,” documents.

Yet an extraordinary number continue to thrive, particularly those that have “a real niche,” Jonathan Bowles, director of the Center for an Urban Future, told the Daily News. “The businesses that get hurt when chains move in are the ones that don't change with the times," said Bowles. "They don't update their inventory to appeal to the new constituency; sometimes they have signs that are decades old."

Many experts think that, in addition to providing diversity on the retail scene, smaller retailers provide tangible benefits. Civic Economics, a Chicago-based economic analysis and strategic planning firm, argues that local business owners keep more profits in the community offering better service.

Attracting Stores

Anther part of the story is the entire CoolTownStudios sensibility, which seeks to promote natural cultural centers and gathering places and finds its very epitome in Brooklyn's Dumbo (Down Under the Manhattan Bridge Overpass, the small area between the Manhattan and Brooklyn Bridges on the East River). Excellent restaurants, bookstores, bars, small manufacturers, and music and art venues are sprinkled through the former industrial area that was forlorn until the late 1980s. Dumbo reaped an average price per square foot in the second quarter of 2008 of $917, says the Real Estate Board of New York, making it Brooklyn's most expensive neighborhood. Second was Brooklyn Heights at $834. All those high-paying residents are good for retail.

Robert Walsh, a Brooklynite who is commissioner of the city's Department of Small Business Services regularly detours through Dumbo on his morning run. "Dumbo's developer," he says, speaking of David Walentas, "really knew how to get the retail he needed. When he saw a business proposition he liked, something that would improve the neighborhood, he'd offer the owner or entrepreneur a bargain rent. The result is that you're now you're looking at one of the most successful retail areas of New York."

Walentas laughs on being told of Walsh's theory. "There wasn't anything in this neighborhood when we bought in but a little tertiary manufacturing that was going out of business. We needed to make the streets attractive for condos. My wife went to a gym in the Heights, where she spotted Peas & Pickles Grocery, an excellent market. We offered them two years free rent to open here and a very low rent after that. We made them money and they made my neighborhood."

Walentas relates a series of anecdotes about daring, young entrepreneurs with a vision - Jacques Torres Chocolates, Mikey's Hookup - and his willingness to subsidize them, at least in the short run. ("It's not forever," he adds, just in case there's any misunderstanding.)

And while his company, Two Trees Management, hasn't rented to any Generica chain -- Dumbo's Starbucks is in someone else's building - Walentas regards Ikea as "great," asking why should families have to go to New Jersey, when Brooklyn had all that vacant industrial land sitting on the waterfront? "Middle-class families just want to stay in the city," he says. "They want to shop where they live."

City Help for Retail

The retail boom would never have happened without the city's aggressive rezoning, which simultaneously sparked the residential boom, bringing in all those customers, and allowed commercial development in former industrial areas along the waterfront. Walentas says it took 20 years to obtain the rezoning of One Main Street to allow residential "even though Jesus himself couldn't have saved shipping and manufacturing in this neighborhood."

Even if the current financial crisis holds rents down in the short run they will surely rise over the long run. Still, rents are likely to remain substantially below comparable space in Manhattan. Circuit City at Triangle at the Junction -- the intersection of Flatbush and Nostrand avenues -- recently signed a lease for $100 per square foot, about half that for comparable space on Manhattan's West Side. Urban Outfitters is paying $90 per square foot on Atlantic Avenue, and Duane Reade signed at $50 per square foot on Myrtle Avenue, which the New York Times recently called "a crossroads of the gentrified and the ungentrified.")

The Bloomberg administration did something else that has been far less heralded than the rezonings: It figured out how to link up the local workforce with new retailers. This had two effects. First, it provided a crucial service. Second, it undermined community resistance to development by delivering a formerly elusive benefit - jobs.

In mid-2003, the Bloomberg administration quietly transformed the Department of Small Business Services from an old-fashioned, do-nothing, so-called employment center to an aggressive, private-sector oriented, human resources-like division that finds, screens and interviews candidates for the new retail jobs. Retailers say the agency has saved them enormous amounts of time and money. Modell's Sporting Goods, for example, staffed its new store on Fulton Street mostly from applicants interviewed at small business serves' office down the road at 9 Bond Street.

"We're a hometown sporting goods store," says Thomas Tilley, senior vice president for human resources. "We try to hire to and from the community, to be as local as possible."

Modell's looks for applicants who will be able to "communicate with the customer - people who listen well, are respectful and responsive." Tilley notes that Modell's keeps close track of costs per hire - which were reduced by about a third by small business services.

When the Fairway Market was planning its Red Hook store it was determined to hire from the neighborhood, says Ruth McGonigle, head of human resources. "We couldn't have done it without the city's help, screening and supplying over 500 people for us to interview. We took our chances on people who had absolutely no experience, but they struck us as being dependable, as having good attitudes. We hired 85 cashiers, and bused them for two weeks to other stores for training. We're very pleased."

Photos by Julia Vitullo-Martin
The Fairway Market site

Many residents of Red Hook complain about the traffic resulting from the new commercial development, but Sam Schwartz, Ikea's traffic consultant, says, "The horrible predicted jams never materialized. People are biking, schlepping, ferrying, busing - and some are driving. But there's been no discernible changes in the quality of traffic a few blocks away." Will this change as Ikea reduces the Water Taxi schedule, making trips by water far less convenient and trips by land an obvious alternative? Possibly.

Alexander Lopez-Bey, an ex-Marine and a lifelong Red Hook resident who works for Ikea, says, "Ikea gave jobs to the community. A quarter of the people in my building work here. They see the bigger picture. They don't want a life of sitting at home doing nothing. Now they receive a paycheck and good benefits. They're self-sufficient. They get training for the future and the opportunity to move up in the company. Ikea helps the individual get to the next level."

He says he's proud to work for a good employer who promotes from within and develops employee loyalty: "I look at all the shoppers who come here who don't know Red Hook and who are so surprised by how nice it is. You know, Brooklyn is the New Manhattan."

Getting through the Financial Crisis

The pace of "the ongoing transformation of the market" in Brooklyn may slow in the months ahead, warns Marcus & Millichap, due to "credit market difficulties" and the softening of the residential market. Total employment in Brooklyn is forecast to contract 0.2 percent, or about 1,000 jobs, versus last year when 1,000 jobs were added.

According to The Real Deal, brokers say that retail in Park Slope's Fourth Avenue, Williamsburg, Dumbo, and downtown Brooklyn remain strong, mainly because the surrounding residential market is strong. Ultimately, the most successful neighborhoods will be those that follow the Dumbo model of integrating commerce and residences.

Julia Vitullo-Martin is a senior fellow at the Manhattan Institute. 

Looking at the Record: Taxes and Homelessness


Three recent reports from the New York City Independent Budget Office cast light on the Bloomberg administration's record in two important areas: tax policy and homeless services. The studies find some modest administration success in cutting back on unnecessary city business tax breaks; a growing loss of city sales tax revenues from sales on the Internet; and administration failure in one of its top goals - reducing family homelessness.

With the Bloomberg administration giving short shrift to accountability measures called for in the City Charter, the IBO has, in effect, become the default choice for measuring mayoral performance. The mayor does issue accountability documents such as the Mayor's Management Report released earlier this month and the Annual Report on Tax Expenditures, but they tend to take a minimalist approach.

Curbing Commercial Tax Breaks

In its August Fiscal Brief, "With Changes to Commercial Property Tax Program, Breaks Will Not be as Costly for the City," the IBO looks at a little-known, but very costly commercial tax break, the Prog/ Industrial and Commercial Incentive Program, begun in 1984. As its title implies, it seeks to encourage business expansion by exempting the value of new construction from property taxes for several years. But the expense of the program has tripled over the past decade, and in 2008 it will cost the city $512 million in lost revenues, according to the IBO.

The Bloomberg administration successfully pushed for a state law (see bill S6366A) that took effect July 1 -- creating the new Industrial and Commercial Abatement Program -- intended to reduce the costs of the original program. It will tighten the eligibility rules for participation and reduce the benefits in the program, to counter the argument that much of the business expansion subsidized by the old Industrial and Commercial Incentive Program would have taken place without the tax break. City Council approved the state's action last week. (See related story.)

The city will not see the full savings from this change for quite some time, since businesses already in Industrial and Commercial Incentive Program get to keep their benefits for as long as 15 or 25 years, depending on their type of business. (Industrial development gets a longer break than, say, retail expansion.)

In addition, the program goes on with no clear evidence that it actually works. The mayor's own economic agency, the Economic Development Corp. did a study of the incentives in 2007 and estimated that more than three quarters of the projects that received the tax break would have gone forward without it.

The IBO, responding to program supporters who say the Economic Development Corp.'s estimate is too low, said its own study, "provides strong evidence that the incentive program benefited a far broader group with more generous benefits than might have been necessary to meet the policy goal of promoting industrial and commercial development."

The Internet and Lost Sales Tax Revenues

The IBO's August Fiscal Brief, "E-Commerce: Eroding City's Sales Tax Revenues," throws light on an emerging tax policy problem: the difficulty states and localities face capturing sales tax revenues from goods and services sold on the Internet. Under current federal law, the report said, "a state may not require an out-of-state retailer to collect sales tax on sales to its residents, unless the retailer also has some physical presence or nexus in the state."

But even with this limitation, the actual and potential revenues for the city from online sales are substantial. The IBO estimates that in fiscal year 2007 about $2.2 billion of $4.4 billion in e-commerce generated by city residents was taxable. That would produce about $82 million in sales tax revenues for the city, but $29 million of that was not collected in 2007.

In an effort to capture more of that money, a new state law that went into effect in June, according to the IBO, "attempts to force collection of sales taxes on certain electronic purchases." The law already has been challenged in the courts. If it survives the litigation, the state projects the city could generate more than $27 million in new sales tax revenues in the current fiscal year, and more than $60 million in new revenues in 2012.

The IBO report includes an interesting discussion of the arguments surrounding Internet commerce. There is a fairness argument on the side of conventional retailers since such merchants -- "brick and mortar" retailers -- must collect the sales tax. There is a fairness argument on the buyers' side, since lower-income groups, are less likely to have access to e-commerce and so more likely to pay the sales tax, further increasing the regressivity of this tax.

Although a national resolution of the e-commerce sales tax issue would make sense, federal action is unlikely, according to the IBO, given the fights among states over the issue and the reluctance of Congress to tackle it. In the meantime, several states have developed a Streamlined Sales Tax Project that is attempting, on a voluntary basis, to bring some conformity to each member state's policies on such sales. New York State is not a member of the project, but is active in its discussions.

Homeless Services Reform?

In another August IBO report, "Has the Rise in Homelessness Prevention Spending Decreased the Shelter Population?" the IBO's answer for families is, no or, more precisely, "So far it has not worked as planned." "So far" is four years after the mayor introduced a five-year plan to reduce homelessness in 2004.

City spending on homelessness prevention increased from $160.6 million in 2004 to $191.2 million, spread among several city agencies, in 2007. The city upped its expenditures on homeless shelters from $563.4 million in 2004 to $603.5 million in 2007.

Yet the number of families in shelters on June 30, 2007 was 9,162, according to the IBO, up from 8,712 on June 30, 2004. After an initial drop, the number of families grew by 15 percent over the past two years. The number of single adults in shelters did fall from 8,432 in 2004 to 6,813 in 2007, down 17 percent from a peak during that time.

The IBO report notes some evidence that one Department of Homeless Services prevention initiative may be working. The HomeBase program, now budgeted at $12.4 million, uses seven nonprofit groups that now serve 12 catchment areas in the city. Citing figures from the Department of Homeless Services, the IBO report stated, "Family shelter entrants from the original six community districts with HomeBase rose 6.3 percent between 2004 and 2007 compared with increases of 13.7 percent in demographically similar districts without HomeBase and 17.5 percent in all other districts.""

Not Measuring Performance

Beyond the numbers, though, the IBO's Homeless Services report noted the administration has not produced an annual report on the mayor's five-year plan since July 2005. "Without regular information," the IBO said, "it is unclear which programs the Bloomberg administration believes have been successful, what have been the major challenges, and whether current efforts and funding are adequate in order to make progress toward their goals."

Similarly, important tax policy issues like those explored by the IBO -- the e-commerce sales tax issue and the incentive program changes -- are not discussed in the charter-mandated annual Tax Expenditures Report published by the city's Department of Finance. The most recent city report, for fiscal year 2007 (updated in December 2007), makes no mention of the efforts to change the Industrial Commercial Incentive Program. It simply describes the requirements it and notes that in 2007 there were 5,771 property tax exemptions on the books, costing the city $409.5 million in lost revenues.

Yet Section 240 of the city charter says the tax expenditure report should include, among other things, "such data and supporting documentation as are available and meaningful regarding the economic and social impact and other consequences of such tax benefit." (Interestingly, the introduction to the 2007 report edits this requirement down to "data, as available, on the economic and social impact of city tax expenditure programs." The word "meaningful" is excised.) It includes no such impact data and documentation about the incentive program.

In fact, Part V of the 2007 tax expenditure report, which Section 240 says should include (for each tax benefit) "a listing and summary of all evaluations and audits of such tax benefit issued during the previous two years," has only one entry, a one-page summary of an Economic Development Corp. report required by Local Law 48 of 2005, on 631 EDC "Investment Projects," i.e., business tax breaks individually negotiated with corporations.

The pattern here, as with the semi-annual Mayor's Management Report, is to provide a lot of statistics, but little or no analysis. For instance, the homeless services section of the Mayor's Management Report for fiscal year 2008, said simply, "The average number of families with children in shelter each day rose slightly. While the number of families with children entering shelter has declined, length of stay for these families increased."

Citing the expansion of HomeBase, the report said, "Over 90 percent of the families and adults receiving DHS homelessness prevention services did not enter the DHS shelter system, demonstrating the success of the city's efforts to offer at-risk families and individuals alternatives to shelter." The report, though, made no effort to explain why, in light of this, so many people still find their way into the shelter system.

Glenn Pasanen, who teaches political science at Lehman College, has been in charge of Gotham Gazette's finance topic page since 2001. 

For Homelessness, Prevention is the Best Medicine


Mayor Michael Bloomberg publicly set a laudable and ambitious goal in 2004 to reduce homelessness in New York City by two-thirds by 2009. Four years later, with only one more to go in his term, homelessness continues to be a major problem facing New York City, with no end in sight. According to a report released by the Independent Budget Office, which I commissioned, this spring saw more homeless families living in shelters than when the mayor originally announced his plan's target numbers.

Achieving the mayor's goal, or even making significant progress toward it, requires a major reprogramming of the way we approach homelessness in New York City. The Independent Budget Office's recent numbers demonstrate that the efforts made to combat homelessness over the past four years have been largely ineffective. Something must change.

gotham gazette commentary: the views expressed here are the views of the author and do not necessarily reflect the opinions of Gotham Gazette or its publisher.

The mayor should use his remaining time in office to bolster proven, cost-effective prevention methods, correct punitive city policies that disadvantage homeless New Yorkers and, most importantly, treat our city's homeless crisis like what it really is: a housing problem.

Saving Families From Shelters

First, we should focus on the fiscally responsible ways the city can stem the tide of families entering shelter. Sheltering a family that has already lost its home isn't cheap. According to the Mayor's Management Report, in 2007 the average cost per day for each family in a shelter was $94.97. This same report cites that through 2007, the average homeless family remained in the shelter for 325 days, adding up to $31,000 for the family and to hundreds of millions of dollars a year total.

This massive sum could go a long way toward keeping families in their own homes from the start. Given our nation's financial troubles, we must now, more than ever, incorporate fiscal responsibility into all of our decision-making. On homelessness, this means putting money into proven prevention efforts and working to keep families in their homes, rather than hemorrhaging funds on expensive temporary shelter.

Just this year, the Department of Housing Preservation and Development lost $750,000 in funding for its anti-eviction legal services, and the Department of Homeless Services faced a $1.5 million cut to its anti-eviction services. These cuts represent poor fiscal decision making. A 1990 report by the New York State Department of Social Services demonstrated that every dollar spent on preventing a family from losing housing and avoiding shelter can save taxpayers $4 in the long run. The only way we can truly make progress on ending homelessness -- and fiscally sound progress at that -- is to simultaneously dedicate real resources to help families avoid the costly and disruptive need for shelter, and provide real solutions for families leaving shelters so they can find stable, long-term housing.

Making Housing Affordable

At its core, New York City's homeless problem is a housing problem. This spring, the New York City Rent Guidelines Board issued its 2008 Income and Affordability Study, which detailed that in 2007 evictions and possession orders rose more than 4 percent, and the proportion of cases awaiting trial that resulted in eviction rose to the highest level in 10 years.

We have seen this reflected in the number of families moving in and out of shelter in recent years. According to the Mayor's Management Report, the number of families with children entering shelter over the past three years has steadily increased: 8,027 families in fiscal year 2005, 9,167 families in fiscal year 2006, and 10,733 families in fiscal year 2007. Meanwhile, the number of families with children moving out of shelter and into permanent housing remains far lower and has steadily decreased: 6,447 families in fiscal year 2005, 6,193 families in fiscal year 2006, and 5,658 families in fiscal year 2007.

We must make the most of every available opportunity to create more affordable housing in New York City. If we are going to keep New Yorkers from being priced out of the city -- and from cycling through the shelter system -- we must compliment the mayor's homelessness reduction goals with an ambitious housing plan that ends giveaways for developers, requires on-site affordable housing wherever practical, and establishes tiered rental and homeownership opportunities that meet the real needs of an economically diverse New York.

Flawed City Policies

Over the years, I have praised the initiative this administration has taken in creating New York City's own housing subsidy programs for homeless New Yorkers. The mayor has correctly recognized that the cavalry is not coming from Washington, and we cannot rely entirely on federal subsidy programs to house the city's homeless population. But the deeply flawed housing subsidy programs the city administration has created have disproportionately steered shelter clients into dangerous apartments managed by slumlords. Additionally, the Work Advantage program only lasts for two years, leaving many families high and dry before they can afford their full rent. At the same time, the city has refused to open up public housing and federal Section 8 housing vouchers to the homeless. This is an irrational approach to federal programs that could be incredibly effective as part of a multi-faceted approach to preventing and addressing homelessness.

The city's under-investment in prevention, combined with its misguided approach to federal assistance and the unrealistic inflexibility built into the city subsidy programs, has caused homelessness to skyrocket in recent years, drawing us further from the mayor's ambitious goals.

Many of the tools to address this crisis are already at our disposal; it is simply a matter of being open to breaking with the past, and learning from programs and policies that have not been successful over the last four years. On Sept. 23, I will chair an oversight hearing to examine the city's past and current approach to achieving the target of reducing homelessness by two-thirds by 2009. I look forward to a serious discussion in the coming months on how we can work together to prevent homelessness and permanently house homeless families in New York City.

Bill de Blasio is a member of the City Council from Brooklyn and chair of the General Welfare Committee. He also is a candidate for Brooklyn borough president.

 



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