RAPAPORT... For the better part of the new millennium, U.S. diamond industry veterans have worried, whined and warned of the U.S. industry’s impending demise. Now, with plans moving ahead for not one, but two, new major real estate developments — the New York International Diamond and Jewelry Center and the World Jewelry Center in Las Vegas — it appears that U.S. companies may get a new lease on life.
The New York International Diamond and Jewelry Center
In mid-November, Extell Diamond Tower, LLC, a subsidiary of former diamond dealer Gary Barnett’s Extell Development Company, received preliminary approval from the New York City Industrial Development Agency (IDA) in its bid to obtain assistance to help finance its New York International Diamond and Jewelry Center (NYIDJC) project. The tower is intended to be a first-class, highly visible center with its own vaults and state-of-the-art security. Extell hopes it will help the New York industry compete internationally, attracting overseas companies and, primarily, new jobs.
If, or when, the project successfully passes through the last two steps of the IDA process — a final authorizing vote could likely be taken early next year — Extell will be granted sliding-scale tax incentives that will be linked to the level of occupancy of both diamond and jewelry businesses in total and those that are either new to the city or expanding.
According to IDA, Extell earns city and state tax benefits equaling $49.6 million only if 85 percent of the NYIDJC is occupied by diamond and jewelry industry-related companies and 50 percent by businesses that are either new to, or expanding in, New York City. Should those percentages fall below 65 percent and 20 percent, respectively, Extell would lose all real estate tax benefits and be required to repay in full the sales tax and mortgage recording tax (MRT) benefits that it had received in connection with construction. An Extell spokesman would not comment on whether or not the tax incentives are essential to the project, only saying that “they help.”
The Class A NYIDJC will be located mid-block on 47th Street and is expected to be more than 50 stories high, totaling 750,000 square feet. More than half of that space will be dedicated to production, processing and trading companies, including space for the Diamond Dealers Club (DDC), as well as for the Gemological Institute of America (GIA). The rest will be allotted to specialized banking, travel, accounting and insurance companies, in addition to retail, parking, an interactive industry museum and a training facility. Construction is due to begin in March 2007 and finish three years later in March 2010 and the total cost of the project is estimated at $434 million.
Turf BattleThe project has seen its share of opposition. Kenneth Kahn, executive manager of 580 Fifth Avenue, helped organize The Coalition to Save the Diamond District, which hired lobbyist Fran Reiter, a former deputy mayor in the Giuliani administration, to lead the charge against Extell.
Held the week before the preliminary IDA vote, the public hearing on the tax break was packed and full of acrimony. Kahn and Reiter say they are not against competition, but believe that taxpayer money should not be used to give one building owner an advantage over another. They also allege that Barnett has been poaching tenants from 580 Fifth Avenue, offering submarket leases that he can afford because of the expected city subsidies.
“This project is wholly the ‘field of dreams’ of Extell Development and its principal, Gary Barnett, who insists, with no credible supporting evidence, that if you build it, they will come,” Reiter testified. “The truth is, there is no critical mass of new jobs to be attracted to New York in the diamond and jewelry industries.” She went on to say that the loss of manufacturing jobs in New York was “due almost exclusively to labor costs, not the cost or availability of real estate.”
Meanwhile, supporters of the project argued that the NYIDJC would enhance all businesses throughout the district, which would all be able to access the facilities and services of the tower. Also, they insisted that the project would not affect the other buildings because a significant component of the tenant base is anticipated to be firms not currently on 47th Street.
Ultimately, the IDA board voted in favor of Extell. “Our goal is to preserve and expand the [Diamond] District, which faces increasing national and international competition,” said Interim IDA Chairman Joshua J. Sirefman. The IDA also cited possible competition from the Las Vegas tower project as a reason to try to help Extell “revitalize” the New York diamond industry. With regard to Las Vegas, an Extell spokesman said, “Clearly, there is competition from other localities to which we think this building responds. But, it’s not just Vegas. It’s Dubai, Israel, etc.”
The World Jewelry CenterWhile Barnett and Extell were busy in New York City, in Las Vegas, Bill Boyajian, the managing director of the World Jewelry Center (WJC), was about ready to unveil plans for a similarly themed office tower — also intended to be an international industry marketplace.
Construction is planned to begin in 2008 and the WJC will open for business in 2010. Boyajian says that the project will cost in the hundreds of millions of dollars and that while real estate firm Probity International, which is developing the project, will be one of the main financiers, WJC needs commitments for at least 25 percent of the salable or leasable space in order to pursue other financing options. WJC officials have announced that so far they have ten commitments from firms to become occupants, including the American Gem Society, which is considering moving its headquarters there.
Located in downtown Las Vegas, within the planned community of Union Park, this Class A tower is expected to be more than 50 stories high. It will total approximately 875,000 square feet, with 800,000 square feet earmarked for office space that will be designed specifically for those in the gem and jewelry industries. Tenants will be able to own their own subdivided space in the WJC, which will also include meeting and exhibition facilities, state-of-the-art security, secure shipping and receiving, gem grading labs and education facilities and trade associations. Plans also call for a dedicated Foreign Trade Zone, as well as several restaurants, a private club and a fitness center.
The tower’s remaining space will be devoted to residential condominiums. There will also be a freestanding, three-story retail jewelry center covering approximately 125,000 square feet that will be located adjacent to the tower. The space will mostly contain jewelry retail outlets, as well as a gem and jewelry museum, exhibition center and a café.
Boyajian is adamant in his belief that the WJC is not competition to the NYIDJC. “There is this misconception that we are trying to hurt New York,” he says. “We are not. We are trying to create a new market, but I don’t believe that we will be attracting that many New York firms. New York is a well-entrenched market and I think that it can use a new, beautiful building.”
Article from the Rapaport Magazine - December 2006. To subscribe click here.