The red brick building on North 11th Street appears to be just another one of New York’s vestigial industrial spaces. A cavernous loading dock takes up much of the ground floor, and a sign near the entrance of the six-story building reads “New York Storefronts,” an advertisement for a manufacturer inside.

But a smaller sign spelling out A.I.R. tells the real story. It’s short for Artists In Residence, and these signs are everywhere in northern Williamsburg, as are the young professionals following in the artists’ wake.

Two women in their twenties coming home enter the building through the loading area–there’s no front door. Since last June, Helen Webster and Tara Smith have rented a two-bedroom loft apartment from an artist who converted the building’s fourth floor into seven residential units a few years ago.

Smith admits the building’s dank cement stairwell “is kind of creepy at night.” Webster says the mail isn’t delivered on Saturdays, and within the last two weeks both their cars have been broken into. But both say that they don’t mind living in an industrial building that they share with three businesses, including a garment manufacturer. “Have you tried to get a space in Manhattan?” Smith asks. “It’s impossible. It’s just too expensive.”

The two roommates are in no way unique. Fueled by the trajectory of Manhattan’s real estate prices and the hot reputation of northern Williamsburg, the demand for local residential space has been so great that people are gamely living in garages, in a building that once housed a manufacturer that used toxic heavy metals, above a storage facility for forklifts. For the most part, however, they’re renting space in the neighborhood’s large supply of industrial loft buildings.

It isn’t exactly legal–most of these buildings are zoned for industrial use only. But for landlords, it’s a no-brainer. They can charge residential tenants between two and three times as much rent as industrial firms, and the city isn’t bothering to enforce the zoning rules. “There’s more and more motivation for landlords to replace industrial tenants with residential tenants as their leases expire,” says Kenn Firpo, a real estate agent based on Bedford Avenue, the neighborhood’s main retail strip. “The price has gone up because of the yuppie types coming to the neighborhood. [Rents have risen] a good 20 percent in the last two years.”

Problem is, the same prosperity that has driven up rents in Manhattan has also fueled a mini-renaissance for New York manufacturers. A recent study by the Industrial Technology Assistance Corporation cited nearly 1,000 small manufacturers in New York City that expanded by more than 20 percent during the past three years.

That means that hundreds of small manufacturers–from a firm that designs sets for Broadway theaters to a specialty bookbinding business that makes products for Cartier and Tiffany’s–are looking to grow just as the supply of choice industrial space is drying up. Caught in the squeeze, companies are opting to leave the city instead, taking their well-paying jobs with them.

When Steve Hindy started the Brooklyn Brewery in 1988, the plan was to base operations exclusively in the namesake borough. Business went well. In 1991 the company bought a warehouse on North 11th. In 1996 they started brewing down the block from the “New York Storefronts” building. A year later they bought a storage yard.

But that was it for Brooklyn. All five of the buildings that flank the pale yellow stucco brewery sport the ubiquitous “A.I.R.” signs, and many of the windows are adorned with curtains, plants and other decorations. “Last year, we grew by 30 percent,” Hindy says. “We can’t buy enough property here to be able to expand.”

Hindy now brews about 17 percent of the company’s beer in Brooklyn, employing approximately 70 people. The rest of the work is contracted out to a company based upstate in Utica, costing Brooklyn as many as 100 jobs.

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Williamsburg’s new face is evident as soon as you leave the Bedford Avenue subway station. Tacked to a crowded billboard, a flier advertises the opportunity to rent a space with shared kitchen and bath in a 1,000-square-foot loft for $1,400 a month. Another seeks a tenant who’ll part with $1,500 a month for a “sunny, 1,500-square-foot loft in charming old factory building on quiet block.” The ad neglects to mention that, according to the city Department of Buildings, the building’s legal use is factory/industrial.

It hasn’t always been this way. For much of Williamsburg’s history, the majority of the neighborhood’s residents lived on the South Side, a thriving neighborhood dominated by entrenched Hasidic and Latino communities engaged in their own battles over the area’s precious affordable housing stock. Williamsburg’s North Side was home to a stable community of Polish immigrants–but the landscape was mainly dominated by warehouses, industrial lofts and factories.

Artists began descending on the North Side in the mid 1980s, attracted by cheap rents for big workspaces and quick access to Manhattan. For the most part, they moved into the lofts without the required zoning changes or variances to allow residential use. Nobody much cared. Most of the buildings were vacant and manufacturing companies were leaving the city in droves. In fact, the artists were credited for bringing in new restaurants, food markets and other retail stores to a struggling community.

As happened in Soho during the 1970s, the artists’ success gave the north end of Williamsburg new appeal, attracting a wave of white pioneers to the neighborhood. By December 1997, the Utne Reader, a bible for monied New Agers, had named Williamsburg the third hippest place in America and the land rush was on. The same cachet that pushed the artists out of neighborhoods like Soho and Tribeca was now threatening Williamsburg.

Today, health food stores and sushi bars are joining the Polish food shops, and the residential zone of the neighborhood is growing steadily. Emboldened by signs like the Sweet Water Tavern, which recently opened between two meat wholesalers on North 6th Street, a number of building owners have applied to the city for variances that would allow them to legally convert their property into residential units. Developers have started to snap up vacant industrial buildings, keeping them empty until they can win permission from the city to rezone the area. Plans to legally subdivide lofts, tear down old warehouses and put up apartment buildings are already in the works.

One vacant warehouse on the corner of Kent Avenue and North 7th Street will soon be torn down and replaced with eight row houses, if Anthony Fernicola gets his way. Fernicola, who owns an upscale restaurant across the street, bought the warehouse and an adjoining lot in 1996. Though the space is zoned for manufacturing, Fernicola has applied for a variance that will allow him to create 40 apartments renting for an average of $1,500 a month.

The owner of the four-story loft building on the corner of Bedford Avenue and North 5th Street doesn’t have to wait–this section of Williamsburg is zoned multi-use. Until a few months ago, the building housed two textile manufacturers that locals say employed a number of Latina workers, mostly from William-sburg’s South Side. Now it’s a construction site, as the interior is being renovated.

For more than 30 years, the Gombo family manufactured garments in this building, but Arnold Gombo and his sons have decided to get out of apparel and into a more profitable line of work: real estate. When construction here is complete, they expect to rent out some 30 loft units in the building and use the ground floor as a market space for retail tenants.

Losing their space isn’t the only threat to businesses here. As the nature of the community changes, the industrial companies are finding that they are the ones that stick out.

Speaking over the din of buzz saws, Luiz Decampos, the owner of Inner Glaze Furniture, says that these residential tenants shouldn’t expect the comforts they would have living on a block of brownstones. “This is supposed to be an industrial area. If they can’t sleep, what am I supposed to do?” he says. “I don’t mind paying the city taxes, but we don’t have the same rights as the people who live here.” It’s not fair, he adds, considering the fact that he employs 16 people, all taxpayers themselves. “We bring in the money, not them.”

Complaints from residents, some of whom live in the building that houses his woodworking company, are a big reason Decampos says it’s only a matter of time before he moves his firm, which has been here almost 10 years, to New Jersey. “I wanted to expand, but most of the buildings around here are all living space. And they don’t want a woodshop here.”

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Williamsburg’s changes wouldn’t be a problem if industrial companies could relocate elsewhere in the city. But business officials and real estate agents say that the market for industrial property is the tightest it’s been in years. Between the third quarters of 1996 and 1998, the overall vacancy rate for industrial real estate in Brooklyn fell from 15.12 percent to 10.87 percent. Brokers say the actual supply of usable space is much lower.

The shortage is even greater in Queens, which along with Brooklyn has long been home to some of the most desirable locations outside of Manhattan for manufacturers. Firms are even finding it difficult to find available industrial space in the Bronx and on Staten Island. As a result, companies like Inner Glaze Furniture are increasingly looking to move or expand outside the city.

With the city unemployment rate still hovering over 7 percent (in Brooklyn it’s around 10 percent), preserving well-paying manufacturing jobs can’t be easily dismissed. New York was recently ranked as having the widest gap between income ranges in the country, and the industrial sector provides blue collar jobs that can keep the city from becoming even more skewed.

“It’s essential that the city keep space for the companies that make the products that support high value sectors like business services, arts and entertainment, design, and finance,” says Hugh O’Neill, the president of Appleseed, a New York City-based economic development consulting firm and the co-author of a 1996 report on the city’s manufacturing sector. “If you squeeze out enough of those industrial support activities, you wind up with a business environment that is less attractive.”

The loss of manufacturing hits Williamsburg especially hard. The community has a disproportionately large amount of underskilled and undereducated residents–only 44 percent of adults in the neighborhood over the age of 24 have a high school diploma, compared to 68 percent for the city. According to a neighborhood-based development plan prepared for the local community board, 23 percent of Williamsburg’s residents are employed in the manufacturing sector, compared to 11 percent for Brooklyn and the rest of the city, and Williamsburg has the highest walk-to-work rate in the borough.

Businesses and community advocates point out that Williamsburg is one of the most desirable places in the city for small light manufacturing firms. It’s close to highways and ports, it has the building stock and other infrastructure, there’s a good local labor pool, and perhaps most important of all, it’s a mere five minutes from Manhattan by car or subway. What’s missing is a commitment by the city to protect these assets for industry.

The City Department of Buildings received 96 complaints about illegal conversions within the community district that includes industrial Williamsburg between January 1, 1997, and March 2, 1999. The agency resolved 82 of those complaints, usually by issuing a violation. But Paul Wein, a spokesperson for the department, stresses that agency inspectors will not vacate tenants who are living illegally unless they determine a building is unsafe.

Even a cursory stroll through the neighborhood reveals that the city’s effort to curb illegal conversions in Williamsburg has been wholly ineffective. Kenn Firpo, the real estate broker, says, “It’s not even an issue anymore with the Buildings Department.”

In fact, some note that the city exacerbated the problem when the Planning Department agreed in 1995 to study seven areas on the Williamsburg waterfront for rezoning to residential use. Signals from the city that such a change is possible have encouraged developers to withhold industrial properties from the market until zoning changes come into effect.

Rob Perris, a longtime resident of the area who was hired by the community board to put together a neighborhood-based strategy for future development, says the city needs to make a commitment to preserving the area’s manufacturing sector. He recommends that the administration create “industrial sanctuaries” that would be off-limits for conversion, giving local business owners the assurance that they would be able to build their companies without worrying whether the area would be rezoned or whether rents would skyrocket due to speculation.

Local businesses overwhelmingly supported the idea at a meeting last year to discuss the potential impact of zoning changes. “The consensus was, ‘If you want me here, then create industrial zones where we can do business without having to respond to all the residential complaints,'” says brewery owner Hindy, who hosted the event.

David J. Dukes, owner of the International Foodcraft Company, says he doesn’t want to leave Williamsburg, which is a short commute from his home in Manhattan. His company has been in Williamsburg for 50 years, but business has been particularly good as of late, so the firm needs space for new machinery and to store more raw materials. He conducted a search in Williamsburg and in other neighborhoods in Brooklyn, but turned up nothing suitable. Dukes says he is now resigned to the likelihood that he’ll have to sell his Williamsburg property and commute to New Jersey.

So what will become of the old International Foodcraft building? Take a guess. It is equipped with a loading dock and seems ideal for another industrial firm, but Dukes isn’t entertaining offers from manufacturers. This space will be going directly into the hands of apartment dwellers. Business is business, he says. “I can sell this building to artists for three times what a manufacturer would pay.”