A stroke of genius.

A collection of grimy, abandoned warehouses resting wearily along the East River near the Manhattan Bridge used to largely comprise what often is referred to as a "bad neighborhood."

Now the area's called DUMBO. And despite the name, the neighborhood's been hailed as a genius investment.

For more than a decade, the work of developer David Walentas has transformed the area from "old" to historic and its real estate from virtually worthless to very valuable--yet a cost-effective alternative to Manhattan.

Today, DUMBO (Down Under the Manhattan Bridge Overpass) looks downright trendy.

The blacktop has largely been stripped to allow the passerby to walk the original cobblestone streets. And Bubby's, the chic breakfast joint that became a mainstay in Tribeca, has opened a new location at 1 Main St.

Luxurious condominiums, usually significantly more spacious than their Manhattan counterparts, offer picturesque views, while office tenants marvel at DUMBO's accessibility to commerce and municipal centers. Lawyers are often set up a mere seven-minute walk from the courthouse.

Retail establishments, ranging from a general store to various interior design centers, dominate the landscape.

An old spice factory, built in the late 1830s, was recently remodeled and featured on Bob Vila's "Home Again" television series. And Jacques Torres, a veteran Manhattan pastry chef at Le Cirque, opened his acclaimed chocolate shop on Water Street in 2000.

Of course, DUMBO is still the place to be for artists. Though most can no longer afford to live there, the river views are enticing for those seeking work space.

Christopher Havens, director of leasing for Two Trees Management, said Walentas sought from the beginning to bring artists to the area.

The tradition seems to continue to this day with Walentas saying he gives away about 100,000 s/f of space for use by various arts uses.

"It's good for business," he told REW. Walentas bought two million s/f of space in DUMBO, starting in the late 1970s. At the time, the buildings were largely dedicated to low-end commercial and industrial use.

The trouble was the industrial services had largely moved out, going southwest or overseas. What were once thriving corrugated paper factories opened by paper pioneer, Robert Gair, were now abandoned warehouses.

"It was vacant," Walentas said. "Industrial buildings were renting for $2 a foot," adding, "We paid $6," with a laugh. At the time, the buildings were zoned for industrial use.

"David then spent the next 17 years trying to get the area re-zoned to mixed-use/residential," Havens said In the meantime, in 1986, the New York State Department of Labor set up offices at 1 Main St, taking up 500,000 s/f of space. The area was given another boost when the New York City Child Services Agency leased 200,000 s/f of office space in the Sweeney building at 30 Main St.

Gone, however, are the days when Two Trees offered a year or two of free rent or other enticing incentives for commercial tenants to move to DUMBO. But the demand is apparent anyway. In 1997, Walentas' request to re-zone the area was finally granted. Condos were built at 1 Main St. and demand for commercial space skyrocketed.

"The industrial space has evolved from record storage and tertiary kinds of manufacturing to offices for startup companies ... whether they're web designers or architects," Walentas said.

And although 2003 was considered a mediocre year for developers, Two Trees didn't feel the squeeze in DUMBO.

"Over the last year, we've created over 750,000 s/f of office space--the biggest office-to-loft conversion ever in the boroughs," Havens said.

In the past year, since converting the Sweeney building to residential space, 87 apartments have been sold for $84 million, Walentas said.

Meanwhile condo re-sales can go as high as $800 per s/f, according to Havens. Walentas still marvels at his development of DUMBO.

"We really amazingly built a true mixed-use waterfront historic district for living and creative (different) kinds of business," he said. "I love it here."