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| Erected in 1919, the Standard Motor Products Building was bought by Acumen in 2008 for more than $40 million. Brooklyn Grange, an urban farm, grows tomatoes, peppers, eggplants, herbs, and chard on the 40,000-square-foot roof. Inside are other small businesses, including the Jim Henson Co.
When furniture designer Kristen Wentrcek moved her business into a shuttered Pfizer plant in Brooklyn, N.Y., she changed the light bulbs herself and used power tools to rip out a bank of metal pill cabinets. There were missing ceiling tiles, and a light flickered in the hallway. “It was like moving into a weird old library,” she says. “The bathrooms are clean, but the place isn’t super-refined.”
Wentrcek’s landlord, Acumen Capital Partners, specializes in bringing new life to old, offbeat commercial properties in New York City’s outer boroughs. The business was founded in 2007 by longtime Queens real estate developer Jeffrey Rosenblum and his business partner, Ashish Dua, who met 10 years ago while managing investments for real estate firm Time Equities.
Acumen bought the Pfizer plant, once used to make Viagra and Lipitor, for $26 million in 2011 after raising $10 million from private investors. The firm kept costs down by making minimal changes to the property—luring small-business owners such as Wentrcek with short-term leases, low rents, and permission to renovate the spaces as they pleased; tenants say everything from laboratories to janitor’s closets were fair game. Several local food manufacturers have leased space—drawn by its freight elevators and a massive cafeteria kitchen. Movie studios seeking industrial backdrops have rented unleased sections of the building, and parts of The Amazing Spider-Man 2 were filmed there. The result is a hodgepodge of small companies. In one area, the smell of brewing kombucha, a fermented tea that originated in East Asia, seeps into a hallway. In another, a team of Orthodox Jews runs a consumer electronics business.
Acumen is aiming for double-digit returns on the Pfizer building after at least five years of ownership. Rosenblum and Dua, both New York natives, are about to sell the firm’s first big investment. RXR Realty, an aggressive buyer of New York City offices after the financial crisis, is in contract to acquire a former Standard Motor Products manufacturing facility in Long Island City from Acumen for $110 million, about double what the firm paid for and invested in the property since it was acquired in 2008. The former factory built in 1919 houses the Jim Henson Co. and a commercial rooftop farm run by Brooklyn Grange. What Acumen is “doing is really the future of small manufacturing,” says Carlo Scissura, president of the Brooklyn Chamber of Commerce, who was chief of staff to the Brooklyn borough president when Acumen closed the Pfizer deal.
Rosenblum and Dua say they try to keep much of the existing structures intact because it’s less disruptive to neighbors and communities. They’re not, for example, razing old buildings to put up condos.
A few current and former tenants report that having Acumen as a landlord can be both a blessing and a curse. Rents at the Pfizer building started at about $15 per square foot in late 2011 and have risen to more than $20, according to Acumen. The increase threatens to displace some of the original tenants that signed shorter leases, some tenants say. Others have expressed concern about investing heavily in renovations and losing their investment should they be priced out of their spaces or forced to leave.
“You walk into a space that’s yours to build out. In some ways it’s a great opportunity, but it’s also a very expensive situation when the building itself isn’t covering that much,” says Erin Zimmer, a spokeswoman for Good Eggs, a San Francisco-based online delivery service for locally produced foods that has its New York office in the Pfizer building. The company will soon move into a warehouse in the Bushwick neighborhood of Brooklyn to accommodate growth. Zimmer says the space is a better deal with a longer lease. Wentrcek, the furniture designer, also plans to move out soon. She describes the Pfizer building as “a stepping stone type of rental space.” Acumen says the average short-term lease at the building is 12 months; it has offered leases as short as a month.
A standard commercial lease for a small business is five years, according to Sam Chandan, a real estate professor at the Wharton School. Industrial repurposing projects can also be risky for the landlord, he says. Some of the short leases in the Pfizer building are a sign of a high degree of churn—something property managers typically prefer to avoid, he says. Acumen says most of the Pfizer building leases are from two to five years.
Long before this sort of redevelopment became popular, Rosenblum spent 10 years repurposing spaces for Schuman Properties, one of Long Island City’s largest real estate owners at that time. In 1992 he turned a Queens Chevrolet dealership into a row of shops with a fitness center. He purchased a Long Island City-based silk factory in 2004 and broke it into units for lease to smaller commercial tenants.
Dua says the recent runup in property prices in New York has for the moment put an end to shopping for another outer borough property. The firm is considering buildings in Chicago and Philadelphia. “We love New York. We are both lifelong New Yorkers, but we’re just two guys competing against the biggest of the big,” Dua says. “We can only survive in New York when everyone else isn’t so bullish.”
The bottom line: Acumen Capital Partners, which redevelops industrial properties, is plotting a move outside New York
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A major challenge for Ghost is that the Navy’s policy is to buy only technologies in which it has announced interest. “It is not procedure to procure a system without established requirements,” says Commander Thurraya Kent, spokeswoman for the Navy’s research, development, and acquisitions arm. In the fall of 2009 the Defense Advanced Research Projects Agency (Darpa) briefly expressed interest in funding the Ghost project, but Sancoff declined its request for a formal proposal because the agency required use rights to all of Juliet Marine’s patents. “I’m a startup company—this is how I’ll earn money, by owning the technology,” says Sancoff. Darpa declined to comment.
Over the years, Sancoff sent the Office of Naval Research images of his design. “They laughed at me; they thought I was crazy,” he says. “‘Those jet engines can’t run underwater in those tubes. That boat can never be stable. You can never supercavitate those hulls.’ Obviously I was discouraged.”
In October 2009, after about six months working in the hangar, Sancoff got a frantic call from his patent attorney. “He said, ‘I got something in the mail, I’ve never seen anything like it, and I’ve been practicing for 35 years,’ ” remembers Sancoff. The letter, from the U.S. Patent and Trademark Office, with a recommendation from the Office of Naval Research, turned out to be a secrecy order, forbidding Juliet Marine from filing its patents internationally or talking with anyone, including potential investors, about its technology. “They didn’t explain why. … They wouldn’t talk with my lawyer. They wouldn’t talk with me,” says Sancoff.
For two summers, Ghost’s trial runs were conducted only at night. “We were going out at like 3 a.m.,” says Joseph Curcio, a marine engineer who taught at the Massachusetts Institute of Technology and designed robotic systems for the Navy before joining Juliet Marine in 2010 as vice president of research and development. “We’d have to cover the [propellers] with a blanket and move the boat in the dark. We weren’t allowed to let anyone take pictures.”
The secrecy orders were lifted after two years, also without explanation. That’s when Kinsella of Avalon Ventures heard about Ghost and joined the company’s board, investing $10 million. “We’ve never done a military application before,” he says, before pointing out that Sancoff has a strong track record as a serial entrepreneur. “I’ve always made money with this guy. He can squeeze a nickel until the buffalo pees.”
Ghost failed to lift out of the water on its first dozen trial runs. Then, one day in 2011, with Sancoff and Curcio at the helm, Ghost emerged from the water. “We’d just gotten all the controls right,” says Curcio. “We were calling over to the chase boat, asking ‘Are we up? Are we up?’ and Tom [Richards] radioed over, like, ‘I can’t believe it, I can see, like, four feet under the hull.’” Euphoria ensued. “We’d had all these experts telling us … it’s going to nosedive and flip over,” says Sancoff. “And all of the sudden, it runs perfect. It’s not unstable at all.”
Not long afterward, Sancoff accidentally drove the craft into the rocks. “The Admiral was away on a business trip, so we got to blame him,” says Curcio. Admiral Richards generally captains the Ghost’s chase boat during trial runs. “We had no adult supervision,” adds Sancoff. “I was not happy with myself, to say the least.”
“We’d had all these experts telling us … it’s going to nosedive and flip over. And all of the sudden, it runs perfect. It’s not unstable at all”
That’s when Juliet Marine hired Cliff Byrd, a 6-foot-3 former Navy SEAL trained to drive anything from a dumptruck to a Mark V Special Operations Craft. Byrd, 36, had spent 12 years with the SEALs, traveling more than 220 days a year to hot spots around the world. Mild mannered, with a shaved head and an arm tattoo that reads Strength From Above, Byrd says he cannot talk about his missions but that he left the Navy to spend more time with his wife and two daughters after a helicopter was shot down in Afghanistan, killing some of his friends. Like so many of his colleagues, Byrd suffers from back pain and permanent injuries to his elbows, caused by the harsh impact of riding in small boats through rough seas.
“You’d think skydiving or all the other things we do, that you’d get injured from that, but actually it’s the boats that you take most of the beating on,” he says. “A lot of guys have back injuries, hips, ankles, knees, shoulders, you name it—any joint, just because of all the shock your body goes through.”
The smoothness of Ghost’s ride is perhaps the team’s greatest point of pride. “I was riding down to Newport, and we had up to 8- to 10-foot seas,” says Byrd. “We’re sitting in here joking about it and not actually feeling anything.” Sancoff slept for half the ride. “But the chase boat that came along with us pounded through the ocean so bad,” he says. “They were seasick, throwing up. When we got to Rhode Island, I said, ‘Let’s go and get a steak,’ right? They couldn’t even eat.”
Roger Schaffer, a member of the Society of Naval Architects and Marine Engineers, worked as a civilian contractor on Navy ship design for 42 years. He saw Juliet Marine give a presentation about Ghost earlier this year. “It’s difficult to come up with something new in a field like naval architecture, but they’ve managed to combine a number of features into an overall concept that looks quite attractive,” says Schaffer. “If the supercavitation technology of the Ghost proves successful, it will allow the Ghost to obtain significantly higher speed than hydrofoils or SWATHs have been able to achieve.” That said, Juliet Marine faces a tough battle. “Normally, innovative ship designs stem from funded research by the Navy at one of their labs,” says Schaffer. “[Juliet Marine] also has a problem with the institutional bias the Navy tends to have against small crafts like the Ghost.”
In the face of budget cuts, Defense officials have asked companies to fund more of their own research, which is why Juliet Marine personnel are surprised they haven’t garnered more interest. Juliet Marine hopes things will change if the craft breaks the commercial SWATH speed record of 31 knots. So far, Ghost’s top speed is 29 knots, but Curcio says 50 knots is within reach, roughly the speed of Mark V boats, a formerly popular mode of transport for Navy SEALs that was discontinued in 2012.
Seven U.S. allies, including Qatar, Israel, and Korea, have expressed interest inGhost, according to Sancoff. “A lot of countries adopt new technology much more rapidly than the U.S.,” he says. “Do I want to see this boat in the Persian Gulf with another flag on the back of it? Not necessarily. But if that’s what it takes to make this company successful, to supply boats to the U.S. Navy, then we’ll do it,” he says. The Wright Brothers, he adds, got a contract from France before the U.S. government. “They thought they were crazy, too,” says Sancoff. “It took years for the Wright brothers to convince [the government] that an airplane might be viable.”
“Do I want to see this boat in the Persian Gulf with another flag on the back of it? Not necessarily. But if that’s what it takes to make this company successful … then we’ll do it”
The potential market for new naval vessels will reach about $46 billion in the next nine years, according to AMI International, a global defense market analysis firm. Juliet Marine says Ghost’s technology could also be adapted to build stable, superfast torpedoes or unmanned sea drones. Commercial possibilities include jet skis or craft for transporting workers to oil platforms. “These rich bankers who take helicopters from [Wall Street] to the Hamptons now, you know?” adds Kinsella. “If they don’t want to take a helicopter, the Ghost could take a bunch of people out there at high speed.” Juliet Marine is in talks withBarclays (BCS) about an initial public offering, and Kinsella says the startup isn’t opposed to an acquisition by a larger defense contractor. The startup plans to build two additional boats by the end of the year, which will be used for weapons testing and demonstrations.
With its patents now available to the public, Juliet Marine’s staff worries other countries and companies will steal its technology. “The Chinese are probably already starting to knock this off,” says Sancoff, adding that hackers attempt to break into his company’s computer systems hundreds of times each month. One day in 2009, he arrived at Building 129 to find the locks broken. He assumes whoever did it wanted to photograph the boat’s parts; the break-in remains unsolved, he says.
On a sunny morning in July, Ghost is tethered to a buoy off the Portsmouth shipyard in the Piscataqua River. Curcio and Byrd climb aboard through the back door, above which is emblazoned New Hampshire’s motto: Live Free or Die. They’ll be manning the ship for a trip down the river out into three-foot swells in the open ocean.
Up front, the cockpit is outfitted with large windshields fashioned from two-inch-thick glass. There are multiple screens displaying maps and Ghost’s various controls, but Byrd needs only the throttle and a four-inch joystick to steer the craft. As he turns on the engines and ventilation, the vessel sounds like an airplane lifting off. The back cabin, big enough to transport 16 people, is dimly lit. Seats clamped into the metal grid floor are outfitted with quick-release race car safety belts. There are no windows but for two round glass panes near the cabin floor, each with a diameter of about six inches. Through them, one sees the water gushing by—until the hull lifts up into the air. Then, against a blue backdrop of the ocean below, one sees only drops of spray against the portholes.
For a video on Ghost, go to: www.businessweek.com/ghost-boat
