Brooklyn real estate is out of step with tech needs - Technical.ly Brooklyn

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Aug. 12, 2014 12:02 pm

Brooklyn real estate is out of step with tech needs

Office space in Brooklyn isn't keeping up with the demands of high-growth tech tenants, and high-growth tech tenants are leaving. Here's why.

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(Photo by Flickr user Roman Königshofer, used under a Creative Commons license)

Brooklyn real estate isn’t keeping up with the demands of its tech community, and the borough is losing good companies — particularly early- and mid-stage tenants, the ones who either aren’t ready to commit to long-term leases or can’t afford gigantic footprints.

That’s the message we have heard from several founders in Brooklyn, including one who has managed to stay here, but only after an extraordinary amount of work.

Technical.ly Brooklyn has already reported on the departure of CommonBond. This week, while reporting another story, we got word from CEO Chris Muscarella that Kitchensurfing is set to leave the borough for Manhattan as well, because it couldn’t find a space that made sense for the company as it grew.

One founder determined to stick around spent six months looking for a place, even getting told by high-level real estate brokers that there just isn’t any space like he wanted available.

Raul Gutierrez, CEO of Tinybop, the educational iOS toymaker behind “The Human Body” and “Plants,” finally did find a spot along Atlantic Avenue, and he described the process of getting into it as even harder than founding his company.

Brooklyn is falling behind on keeping up with the demand for tech-quality office space.

Gutierrez was determined to stay. But others won’t be.

Raul Gutierrez, CEO of Tinybop. (Photo by Brady Dale)

“Tech communities thrive when there are certain basic ecosystem elements in place,” Gutierrez said in a recent interview. “Companies at different stages have different real estate needs, and they need the institutions willing to take the different sort of risks built into the different sorts of companies at different stages.”

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Early-stage companies need cheap space that they don’t have to commit to forever. Companies with funding and revenue, like Tinybop, need a large, open space, so it can reconfigure as it grows.

That kind of space, in particular, turned out to be really hard to come by in Brooklyn.

In fact, Tinybop effectively had to make it themselves.

When Tinybop arrived at 540 Atlantic Ave., the space was a bunch of doctors’ offices. It was all cut up with walls, with drop ceilings. Lots of tiny spaces. It looked impossible.

What Gutierrez saw, however, were three big sets of windows and no structural walls. “That’s what being an entrepreneur is,” he said, “seeing possibility where others don’t.”

So the Tinybop team had to work with the landlord to negotiate a deal to share the cost of rehabbing the space into an open floor plan, clearing out unneeded walls and drop ceilings. Roof access was negotiated.

Still, six months in, they don’t have the kind of high-quality Internet connectivity companies can get in, say, Dumbo. As a workaround, Tinybop keeps ordering new DSL lines, but it’s not moving any faster.

“A lot of companies just don’t want to deal with this stuff,” Gutierrez explained. So they won’t — nor should they necessarily be expected to.

Gutierrez had some experience with construction so he thought he was ready to handle it, he recalled with a rueful chuckle.

Tinybop had the desire for a longer lease working in its favor. But different founders will have different attitudes about this, based on where their business is at.

(Photo by Flickr user Kai Brinker, used under a Creative Commons license)

All this squares with what Kitchensurfing’s Muscarella told us about his decision to relocate his company to Manhattan.

He listed four problems he saw with leases in Brooklyn:

  1. Ten- to 15-year commitments are too long.
  2. Move-in times, including necessary build-outs, take too long.
  3. Transit access can be limited.
  4. Internet connectivity is often less than ideal.

Muscarella says Kitchensurfing’s 25 New York full-timers will be working in SoHo in about a month.

Connectivity came up in our conversation again and again. It seems remarkable to think that many of the buildings in downtown Brooklyn don’t have modern, tech-sector friendly access to the Internet (an issue we’ve covered before).

Tinybop’s Gutierrez says that most of the buildings that do have space don’t have solid Internet access. When we talked to the developers at 1000 Dean St., they said they were going out of their way to boost connectivity there, knowing it’s a major draw. Not every landlord sees it that way, apparently.

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Gutierrez wants city government to help out.

“We know the city has an office to help improve connectivity,” he said. “We have contacted some people there, but we haven’t seen anything. When you’re talking about months, that’s a full product cycle for us.”

Gutierrez is referring to WiredNYC.

John Coghlan of the DUMBO Startup Lab has explored real estate around the area and agrees with Gutierrez that downtown has unrealized potential.

“In order to attract smaller tech and creative companies, local government and development organizations need to work with both landlords and tenants to create financial incentives for renovations to increase utilization of commercial spaces outside of the high rises on Court Street and at MetroTech,” he said.

The Tinybop team visited buildings around the borough, but they focused on downtown because it works well for their overwhelmingly Brooklyn-based staff. In Gutierrez’s opinion, efforts to ready those areas for the innovation economy have born little fruit. To him, the landlords controlling much of what he saw in Fulton Mall and Downtown Brooklyn fell into two groups:

  1. Old school landlords who mainly want tenants who pay rent and don’t ask for anything. So the fact that tech firms want to renovate, get connections or tear out drop ceilings all sounds like way too much bother.
  2. Giant real estate holding companies. “They seemed vaguely interested in housing us and letting us open up their spaces so that they work for tech, but really they’d much prefer a dental practice,” Gutierrez told us. They asked for information Tinybop couldn’t provide because it didn’t exist, such as five years of accounting. The company isn’t that old, but it is about to hit 5 million downloads of its first iOS app.

Gutierrez cited a few specific buildings he looked at, such as 50 Court Street and 16 Court Street, as well as the second floors of the Fulton Street Mall buildings.

He went on: “Those buildings would be great homes, but it takes somebody to organize and let them know this is good business not just for the building but for the entire area.”

Overlooking Fulton Street Mall. (Photo by Flickr user Payton Chung, used under a Creative Commons license)

Gutierrez was able to push his way into 540 Atlantic Ave., despite the fact that his landlord moved slowly.

Tinybop was able to negotiate for things like roof access and renovation support, which you often can’t get elsewhere. That said, Tinybop’s building sometimes has police incidents and the local business improvement district has advised the company to check its security system, Gutierrez said.

Meanwhile, the era of Dumbo as the place for scrappy new companies may be coming to a close.

“San Francisco, despite its high cost of living, still has a lot of recognized early stage spaces, places where people can easily set up shop,” Gutierrez told us, warehouse space in particular. “Dumbo was that. Until very recently.”

Now, most of the buildings there are owned by roughly three private companies, companies that know how to set up a building that works for tech, but are showing themselves to be more and more interested in bigger, more established tenants.

The last bastion of the wild west era in Dumbo may have been Tinybop’s old digs, at 10 Jay St.

Gutierrez says he’s heard that leases aren’t getting renewed there anymore, suggesting change may be in the air.

“Coworking spaces are filling the gaps opened up by the tight market for affordable starter office space: lofts and warehouse-type spaces,” he told us, “They’ve seen that there’s not just a market for freelancers but also for companies in the idea phase.”

This addendum: the day Technical.ly Brooklyn visited Tinybop last week, it still didn’t have good Internet access. Later that day, a technician from Time Warner Cable appeared and delivered a vastly better connection. It only took six months to get there.

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