Photo: Buck Ennis The Red Hook Container Terminal

Michael Stamatis sees helicopters.

Not the ones carrying sightseers or shuttling Wall Streeters to the Hamptons. These hover over the 80 acres of prime Brooklyn waterfront that Stamatis controls as operator of the Red Hook Container Terminal.

“It’s the developers,” Stamatis said. “It’s no secret they have a strong interest in the site. But once this operation is gone, you’ll never get it back—and that would be a detriment to the city.”

While local elected officials have fought for years to preserve it, redevelopment of the Red Hook site—potentially as part of a dramatic makeover of the entire neighborhood with new parkland, flood protections and a subway—is now on the table. Earlier this month Gov. Andrew Cuomo called on the Port Authority of New York and New Jersey, which owns about 100 acres of Red Hook waterfront, including most of the terminal, to explore moving the facility.

The governor, who effectively controls the authority’s New York properties, stopped short of saying what should become of the site. But it is clear that he is finally focused on a stretch of waterfront that has cost the agency hundreds of millions of dollars, yet could generate the billions needed for a host of megaprojects. “The terminal’s development is definitely in play,” said Moses Gates, director of community planning and design at the Regional Plan Association.

Perhaps to head off criticism from the facility’s many boosters, Cuomo said its relocation to nearby Sunset Park should be examined. But those familiar with container operations call such a move unrealistic and say closing the Red Hook terminal would likely spell the end of what was once Brooklyn’s signature industry.

Losing the Red Hook Container Terminal would be a “detriment to the city,” said Stamatis, the facility’s operator.

The Red Hook Container Terminal and two piers just north of it called the Brooklyn Marine Terminal together lost the Port Authority $518 million from 1991 to 2016, the authority’s comptroller calculated at the request of Crain’s. Other financial documents obtained by Crain’s suggest the losses may have been even more accelerated, with the agency losing about $424 million from 2001 to 2016.

A former staff member at the Port Authority said that coming to a definitive estimate was difficult. “It’s a remarkably hard number to figure out, and it would likely be hotly debated too,” said the former staffer, noting the agency’s complex accounting methods. “Whatever it is, it’s a lot of money.”

Red Hook’s cost is small, though, relative to the Port Authority’s roughly $3 billion annual operating budget or its 10-year, $32 billion capital plan. But its value as a development site is substantial. According to an internal Port Authority memo in 2015, a market study by consulting firm HR&A Advisors found Red Hook’s working waterfront—100 acres of which is owned by the Port Authority, the other 20 by the city—would fetch as much as $2.7 billion if rezoned to allow thousands of apartments with sweeping views of Lower Manhattan, New York Harbor and the Statue of Liberty.

With the agency struggling to fund a $10 billion bus terminal on the West Side, an $11 billion redevelopment of John F. Kennedy International Airport and pay nearly $3 billion for the Gateway tunnel project’s first phase, optimizing its real estate holdings—especially unprofitable assets—has gained urgency.

“It is widely recognized that the Port Authority should return to its core mission of transportation,” said Scott Rechler, a former Cuomo-appointed vice chairman at the agency. “The reality is that Red Hook will never return to the kind of container terminal that it was during its heyday. The Port Authority should shed this money-losing asset, and the site should be monetized.”

Red Hook’s obsolescence as a shipping hub stems from changes in the maritime industry. Chief among its problems is that, at 80 acres, it cannot accommodate more than 150,000 containers—the 20-foot-long, stackable metal encasements that hold virtually all goods shipped by sea—annually. The terminal has not even attracted enough vessels to reach that number, handling about 100,000 last year, according to the Port Authority.

The agency’s four ports in New Jersey move roughly 6 million annually, benefiting from their more than 2,000 acres of space and privately owned maritime and storage facilities nearby.

“All the serious port activity is in New Jersey,” the former staff member said. “We have tried to maintain this fiction that we can have a major container-ship operation in Brooklyn, and it’s insane.”

The industry has shifted to large-volume facilities, a trend likely to accelerate in the coming years with the introduction of some of the largest vessels ever built. They can carry 14,000 or more containers and are so massive that the Panama Canal was widened at a cost of more than $5 billion to accommodate them. To make its Port Elizabeth and Port Newark facilities accessible to these ships, which can be 1,200 feet long and 200 feet tall, the Port Authority just spent $1.7 billion to lift the Bayonne Bridge’s roadway 64 feet.

Boats of such size cannot park in Brooklyn, and ports as small as Red Hook’s cannot flourish in an increasingly low-margin business, where profits are eked out by handling huge quantities of goods. The nation’s busiest container ports, the Port of Los Angeles and the adjacent Port of Long Beach, which are the main depots for U.S. trade with China, together are 7,500 acres and handle 15 million or more containers annually.

“If you look around North America, you see almost no niche container ports anymore,” said Sam Ruda, deputy director of the Port Authority’s ports department. “It’s an industry that’s characterized by scale. And to operate a container terminal you have huge sunken costs like equipment, labor and capital expenses before you even move the first box. To make it all pencil out, you need a lot of volume.”

Against the backdrop of a such a competitive market, Cuomo’s suggestion to relocate the Red Hook facility to Sunset Park’s South Brooklyn Marine Terminal makes no more sense than maintaining the current operation. A terminal at Sunset Park would require installing nearly 100-foot-tall cranes to hoist 27-ton containers, dredging the shoreline to accommodate larger vessels and rebuilding its dilapidated dock. Experts say the cost would be a multiple of the $39 million the city announced last year that it would spend to upgrade the facility. Unlike Red Hook, the site has access to freight rail, but a facility there would be roughly the same size, limiting its potential.

“They would have to spend a tremendous amount of money on improvements, easily over $100 million,” said Lou Pernice, the president of the International Longshoremen’s Association Local 1814, which has about 200 members working at the Red Hook terminal. “These are grand plans, but where is the money going to come from?”

Perhaps grasping the costs and limitations of a container operation on the site, the city, which controls the South Brooklyn Marine Terminal, has for months been in talks with several groups to use it for lighter-duty maritime purposes, sources said.

A partnership between Stamatis and Industry City, the creative-office complex next to the terminal, has submitted a bid to make it a barge depot to receive goods from containers at New Jersey’s ports and floated to Brooklyn. Neither Stamatis nor Industry City officials would comment on the proposal. Another operator has offered to use the marine terminal to ship scrap metal, also by barge, a source said.

“Brooklyn’s future is not container operations but in efficient barging that connects to trucks that service markets east of the Hudson,” said Chris Ward, a senior vice president at AECOM, which is advising Stamatis and Industry City in its bid for the marine terminal site.

NEW VISION: Ward and AECOM have big plans on the waterfront.

If the city leases the Sunset Park site to such users, it would put Cuomo, who has feuded with Mayor Bill de Blasio on a host of issues for years, in a tricky position. Rep. Jerrold Nadler, a longtime champion of Brooklyn’s maritime industry and of moving freight by water and rail, said he would vigorously oppose closure of the Red Hook Container Terminal unless a similar facility were first developed in Sunset Park.

“Once you get a container port functioning in Sunset Park, at that point, but not before, you can shut the port in Red Hook,” Nadler said. “You can’t have a hiatus of two or five or 10 years, because you’ll lose the business.”

Nadler has no official say in the matter, but he is a political force who can steer federal transportation funds to New York. Any project involving the Red Hook piers, which are in the West Side Democrat’s two-borough district, would be far easier with him on board. Stamatis’ partner in the Red Hook Container Terminal, the Brayman family, has donated liberally to Nadler’s campaign funds over the years.

Stamatis’ Red Hook Container Terminal LLC has operated the facility since 2011 and earns $2.75 million per year in management fees from the Port Authority. He insisted the terminal is on the verge of a financial turnaround. Its Port Authority subsidy has been reduced in recent years, he said, and is expected to fall to $1 million this year, its lowest point in decades. With vehicular traffic worsening, Stamatis said, the city’s waterways will become increasingly vital, allowing the terminal to charge fees sufficient to make a profit or at least break even. Already, he said, it takes about 30,000 trucks a year off the roads.

“You have to look at the bigger picture,” Stamatis said. “One of the main threats to our economic growth is congestion. We’ve been moving goods on the water for years, and as the need continues to rise and we’re able to pass the costs on to users, we believe container operations will become commercially viable.”

A version of this article appears in the January 22, 2018, print issue of Crain’s New York Business.

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