Gary Barnett, a former Belgian diamond trader and founder of the Extell Development Company, plans to construct a 41-story tower, the New York Diamond Tower (or Gem Tower), in the heart of New York City’s Diamond District. The project, known officially as 50 W. 47th Street, and located mid-block between 5th and 6th Avenues, was estimated to cost roughly $433.5 million to build. The cost has risen to about $750 million. The developer hopes to revitalize New York’s historic role in the diamond trade by developing modern office space, underground parking, a maximum-security vault and a museum, all in one building.
In order to finance the construction of the project, the City’s Economic Development Corporation (EDC) proposed a $37.5 million subsidy package over ten years for the project, which consists of payments in lieu of City property taxes, exemption from City and State sales and use taxes, and exemption from City and State mortgage recording taxes. The City’s Industrial Development Agency (IDA) approved the subsidies on November 14, 2006, despite opposition from other landlords and tenants on 47th Street.
Those who oppose the plan argue that the City’s proposed subsidy would push the tower’s rents below market rates which would in effect plunder tenants from other buildings nearby. By subsidizing the building, the City hopes that rents will be affordable to diamond industry retailers and tenants and will revitalize the City’s diamond industry. As part of the approval of subsidies, which total $49.6 million, 85% of the tenants in the new building must be diamond and jewelry-related businesses, and 50% must be businesses new to New York or attempting to expand.
Extell has been purchasing properties around the site in order to assemble enough air rights for the building to be constructed. The building is designed by Skidmore, Owings, and Merrill, LLP. The plan is to have two separate entrances – one on West 47th Street for jewelry tenants and the other on West 46th Street for other commercial tenants. The height and square footage of the building were both reduced in April 2009 after Extell failed to negotiate a deal to transfer additional air rights. The tower will now be 32 floors and 750,000 square feet.
In February 2009, Extell submitted a “commercial-condo offering plan” to New York State’s Attorney General’s Office which signals the developer’s intention to sell space as opposed to leasing. This change puts Extell’s agreement with the EDC for financing in question as the number of tax breaks was based on certain ratios of tenants in the space. The deal was approved by the City in early May 2009 and Extell has begun to search for additional tenants.
As the market continues to falter, the diamond industry has been particularly affected, increasing uncertainty about the future of the Diamond Tower. Extell has predicted that the building would be complete in October 2010. Even with construction beginning, the Diamond Tower has lost one of its potential tenants, the Diamond Dealers Club of New York.
As the agreement with the City requires that 85% of tenants be industry-related, this could put the use of city benefits in question if additional tenants are not secured.