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Most people think of underground Manhattan as a labyrinth of sewers, steam pipes and dank, lightless spaces ruled by rats and who knows what else--a realm where most folks fear to tread for anything other than a swift subway ride.
Now a growing group of the borough's landlords hopes to change that. They are collectively pouring hundreds of millions of dollars into subterranean floors that they envision as the future homes of stores, restaurants and entertainment spaces that will differ little from those upstairs, where the sun shines.
In the process, they hope to turn straw into gold, converting spaces that produce little or no income into cash cows, after the precipitous rise of retail rents in recent years.
"All the sophisticated landlords have begun to realize that if they can use their lower level, they can unlock tremendous value," said Brad Mendelson, a retail broker with Cushman & Wakefield. He is helping Paramount Group, a large Manhattan-based real estate company, lease 40,000 square feet of lower-level space--the term landlords prefer over "basement"--at the office tower it owns at 1633 Broadway. It recently announced plans to erect a glass box on the plaza in front of the 48-story, 2.4 million-square-foot building in the heart of midtown.
Mr. Mendelson said that prime Manhattan basements used for retail purposes typically rent for between $75 and $125 per square foot--rates that often surpass even the most expensive office floors upstairs and generate millions of dollars in additional annual revenue for landlords. Meanwhile, retailers--daunted by rents that now soar as high as $1,000 per...