Innovo's Big Bet On Queens Warehouse And Studio Space Waiting For The Payoff
Opening a new 1M SF industrial and film studio space could have come at a better time for Innovo Property Group.
When the Manhattan-based developer broke ground on The Borden Complex in Long Island City in 2022, warehouses were the hottest property type in real estate and the streaming wars were driving up demand for soundstages.
Today, the markets for industrial and studio space have done a 180, with tariffs and oversupply hampering warehouse demand and labor cost spikes following protracted strikes pushing productions overseas.
Nonetheless, Innovo principal Graham Stephens isn’t backing down from the company’s bet, despite the building’s lack of any signed leases to date.
“Real estate cycles. From five, six years ago to today, there's a lot that's changed, both good and bad,” he told Bisnow this week in the sun-splashed lobby of the newly delivered building. “You roll with the bad and benefit from the good.”
Innovo Property Group bought the industrial site at 23-30 Borden Ave., then a single-story warehouse that had served as FreshDirect’s headquarters, for $75M in 2019.
The investment firm, led by Andrew Chung, saw a potential gold mine in the site — which runs alongside the Newtown Creek near the confluence of the Long Island Expressway, the Brooklyn-Queens Expressway and the Queens-Midtown Tunnel — if it could build a bigger building.
So did its original lenders. A Pimco subsidiary lent $84M to Innovo for the purchase in 2019. In 2021, Starwood replaced PCRED Mortgage REIT as lender, then JPMorgan Chase and Starwood provided three mortgages for a combined $222M in 2022 to start construction, according to city records.
Innovo received a certification of completion for the six-story building from the state in January. With wide concrete ramps to let trucks drive all the way to its roof, it towers above its low-slung neighbors.
The bottom three floors total around 680K SF of industrial space, including interior warehouse space and external space for trucks to park, load and unload on each floor.
The top three include 233K SF of purpose-built film and TV studios, with around 70K SF of dedicated parking. Its rooftop, with power to charge electric vehicles, will soon be covered by solar panels and leased out to a solar tenant.
A spokesperson for Innovo declined to provide total construction costs, citing confidentiality. But even as recently as last summer, Starwood and JPMorgan expressed confidence in The Borden Complex with a $435M refinancing, New York YIMBY reported.
Innovo went through a roster of different options for the top three floors: more industrial, event space, self-storage. But after talking to The MBS Group, a studio operating and production services company, Innovo came up with an answer.
“It was supply and demand,” Stephens said. “Studios, at that point in time, were operating at over 100% occupancy. And there had not been a purpose-built studio in New York, maybe ever.”
New York was the film and television production industry’s second-largest market in 2019, with 126 soundstages spanning 1.7M SF, according to a Deloitte report published at the start of 2023.
Occupancy had stayed steadily at 95% and up following the pandemic, which pushed streaming into overdrive and created even more demand for production.
Those factors led Deloitte to project that demand would keep outpacing supply through the end of 2024, despite roughly 780K SF of additional soundstage space reportedly under development in the city at the time.
But the simultaneous labor strikes in 2023 from writers and actors unions have had a lasting impact on production across the country.
Studios were already moving some production to cheaper hubs like Liverpool before the strikes, but they are now ditching the U.S. in the poststrike world for locales like Dublin, where labor costs are lower. NYC’s film industry experienced its own profound contractions, shedding somewhere between 12,000 and 25,000 jobs between May and October 2024.
New York officials are lobbying to increase the state’s tax break for film and television production to $800M a year in the hopes of rejuvenating the industry, despite criticism from a state-commissioned 2024 analysis that called the credit “at best a break-even proposition.”
Pat Swinney Kaufman, commissioner at the NYC Mayor's Office of Media and Entertainment, defended the policy.
“We know this is a very difficult time for the industry, but we think NYC is better poised to recover than other cities,” she said in a statement to Bisnow. “We have the unique commodity of NYC as a location/backdrop, one that can't be duplicated in a soundstage, and we have the talent, both above and below the line, that want to live and work here.”
Stephens said the entertainment business is as cyclical as CRE and that the New York market will remain a “stalwart” and less up-and-down than markets like Atlanta, which has been experiencing somewhat of a studio bust.
“The industry has grown so much, but the talent pool in front of and behind the camera and where people want to be, fundamentally — New York and LA are going to continue to lead the way,” he said.
The city's industrial real estate isn’t exactly in its sunniest moment, either. Average vacancy was 6.1% in the first quarter, up from just over 4% three years prior, according to a Q1 report from CBRE. More than 450K SF of vacant space was added to the market, and developers broke ground on another 470K SF during the quarter, even as Class-A asking rents dropped 2.5% to $35.60 per SF.
Tenants are now rightsizing their operations, cutting down from the spaces they signed during the pandemic and seeking out smaller spaces in cheaper properties, CBRE Research Director Joe Gibson said in an email.
No industrial Class-A leases were signed in the city during the first quarter.
Vacancy is driven by new deliveries without tenants that “were conceived during different market conditions,” he said, adding that landlords are now offering concessions that they didn't have to during the pandemic industrial boom.
“Demand for these larger, institutional-grade buildings waned in recent quarters as users opted for smaller footprints,” Gibson said. “Landlords will most likely have to split up floors in larger buildings to create cash flow, increasing their capital commitment to these new Class-A offerings.”
Innovo is seeking e-commerce tenants with heavy daily distribution demands on the first two floors of The Borden Complex, while the third floor would be better for a tenant with weekly or monthly deliveries, Stephens said. Asking rents are in the mid-$30s, but Innovo is willing to be flexible.
“That's no different than office, industrial, retail space,” Stephens said. “It's the same kind of commercial real estate thought process, which is, you’re balancing the credit of the tenant, the rent that they ultimately pay, with the concessions that the landlord's going to give them.”
He said he isn't concerned long-term about the cooling effect of tariffs on the U.S. economy, the potential knock-on impacts that might happen among consumers, and what that could do to demand for industrial space.
“It's really the uncertainty of the tariffs,” he said. “It just causes companies to wait until there's more certainty before they make decisions. It's just more like kicking the can and waiting, which is the difficult part.”
