Lower Manhattan Looks Ever Upward In Its Transformation
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Wall Street is now home to more luxury condominium developments than investment banks. Talk about a dynamic transformation.
Hundreds of companies and individuals are flocking to live and work in Lower Manhattan. Not because they have to do so. These entities can choose to be anywhere — and they’ve chosen to be downtown.
In the early 1990s, and immediately after the attacks of September 11, 2001, companies and individuals were fleeing Lower Manhattan. But the seeds of dynamism — rugged, boldfaced American dynamism — took root.
“Over the past 10 years, Lower Manhattan has transformed itself from a business district to a vibrant, growing residential and mixed use neighborhood,” the senior vice president of World Trade Center Properties LLC, Janno Lieber, said.
There are 3 million square feet of retail space downtown. Wall Street, it seems, is outdoing Madison Avenue in terms of shopping prestige. New retail tenants include Hermés, Tiffany, Whole Foods, Barnes & Noble, and Hickey-Freeman. More than 30 new gourmet restaurants have opened in Lower Manhattan since Spetember 11. The BMW dealership on Wall Street is the highest grossing dealer in America.
Downtown Manhattan is the fourth largest central business district in America with 91 million square feet of office space. For the first time since the end of 2001, more than 90% of downtown’s office space is leased. More than 4 million square feet of office space was leased downtown in the first nine months of 2006, compared to 3.4 million square feet of leasing activity for all of 2005.
In August, about 1.04 million square feet of office space was leased downtown, the largest single amount since January 2002.
“We have rents that are a considerable value to Midtown Manhattan and other international business districts. And we have valuable financial incentives, including exemptions and reductions in energy expenses and commercial and sales taxes, unparalleled access to public transportation, inviting parks, spectacular open space, and a bustling retail, restaurant, and cultural scene,” the president of the Alliance for Downtown New York, Eric Deutsch, said.
Investors from around the world are interested in owning office buildings in Lower Manhattan. In 1956, Socony Mobil, the successor to Standard Oil, moved its headquarters from 26 Broadway to 150 E. 42nd St. when the building was acquired by the Koeppel family. Last week, the Koeppel Companies announced it had retained CB Richard Ellis to sell the landmarked, 31-story, 650,000-square-foot structure, built in 1926. Industry leaders expect the property to fetch close to $210 million.
Earlier this month, a joint venture of Silverstein Properties and California State Teachers’ Retirement System purchased from the Koeppel Companies the 35-story, 611,000-square-foot office building at 575 Lexington Ave.The joint venture paid some $440 million for the building.
Moody’s Investor Services owns the 11-story, 336,000-square-foot office building at 99 Church St. Last month, Silverstein Properties announced that Moody’s had signed a 20 year lease for the 15th floor of the 52-story 7 World Trade Center, and will occupy about 600,000 square feet of the 1.7 million square feet of available office space. Moody’s has retained CB Richard Ellis to market the building.
Industry leaders expect 26 Broadway and 99 Church St. will be sold to an investor that will continue to operate the buildings as offices due to the lack of available office space in Lower Manhattan. The primary reason to operate as an office building (as opposed to a conversion to a residential condominium) is the discontinuation of the 421g real estate tax abatement.
The 421g program was established in 1995 as part of a comprehensive plan to revitalize the Lower Manhattan business district. The program provided both exemption and abatement benefits for the conversion of existing commercial buildings into residential properties.The program benefits were available only for conversions for which building permits were issued by the Department of Buildings on or before June 30, 2006.
On June 28, the Moinian Group obtained a building permit to convert all the office building at 95 Wall St. to residential units. On June 30th, Zamir Equities obtain a building permit to and plan to convert the top floors of 40 Broad St. into 128 luxury condominiums. Now that’s good timing!
Earlier in the year two other major office properties were sold in Lower Manhattan.In July, the 32-story,55 Broadway (aka One Exchange Place) was sold by the Bank of Communications to Raymond Chalme and Dan Blanco, principals of Broad Street Development. The new owners paid $82 million (or $273 per square foot) for the property.
In March, L & L Acquisitions and GE Asset Management purchased the landmarked, 29-story, 1.05-million-squarefoot 195 Broadway, the former headquarters of AT&T, directly adjacent to the Fulton Street Transit Center development site. They paid $270 million, or about $257 per square foot, to H.J. Kalikow, which is owned by MTA chairman and real estate investor Peter Kalikow.
The building, completed in 1916, served until 1983 as the corporate headquarters of AT &T and was sold to H.J. Kalikow in August 1983.
“Five years ago, pre-9/11, downtown was becoming a 24-hour, 7 day-a-week, fully diverse community: residential, retail, commercial, education, and the beginning of improved transportation,” the chairman of global brokerage at CB Richard Ellis, Stephen Siegel, said.”That was interrupted by 9/11 and now has returned with even greater promise of fulfilling that direction. The transportation infrastructure is a complete reality and will be improved dramatically, and with the residential infrastructure that exists and is growing virtually daily, the basis for corporate occupancy downtown becomes an easily reached decision.”
Downtown’s 14 subway lines, 32 bus lines, PATH trains, and waterway ferries make it ideally suited to residential and commercial development.
“The trend of the diversification of the tenant base moving away from financial services to a broader base, plus the spectrum of media companies, telecom, design, publishing, and more legal firms moving to downtown is aiding in the trend for companies to relocate to Lower Manhattan,” the president of Rudin Management, William Rudin, said. “With significant announcements of more tenants making deals will reinforce the trend of companies realizing to take advantage of the various incentives and affordability, making downtown a significant viable alternative to Midtown.”
One company that is taking advantage of lower occupancy costs and incentives of moving downtown from Midtown is Darby & Darby, a leading intellectual property law firm. It announced it had signed a lease to relocate its headquarters to the 41st and 42nd floors at 7 World Trade Center.
The law firm signed a 15-year lease for about 80,000 square feet and will be relocating from its office at 805 Third Ave., where it has been a tenant for the last 17 years.
Mr. Rudin said, “Last week, we celebrated the 10th anniversary of the conversion of 55 Broad St., the most wired and technologically advanced building in the country. The mayor and others were on hand celebrating the creation of the smart building concept. Twelve original tenants have been in the building since the building opened in 1996. Some day the next YouTube or Bloomberg LLP will be saying it had its office at 55 Broad St.”
Trinity Real Estate is the largest owner of commercial real estate in the Hudson Square neighborhood of downtown Manhattan. The property is owned by Trinity Church, an Episcopalian parish founded in 1697. The parish became a prominent city landowner in 1705 when England’s Queen Anne gave a large land grant to Trinity Church.
“We see a lot of interest from our bread-and-butter creative companies: publishers, media, architectural firms, postproduction companies, advertising businesses, and the like,”the president of Trinity Real Estate, Carl Weisbrod, said. “We are the neighborhood of choice for these businesses.We still get higher rents with lower concessions than we have seen since before 9/11.There is a strong desire among our current tenants to renew and expand.The sublet space on the market is very low, a good indication of market strength. Our market is being aided by both the exceptionally high rents in Midtown and the lowered resistance to the Lower Manhattan market around the World Trade Center.”
Mr. Janno said, “The Downtown business district is key to the city’s economic future. Downtown needs new office space to replace the almost 15 million square feet of office space that was lost on 9/11; to attract first-class companies who want state-of-the-art space but can’t pay Midtown rents; to maximize the potential of the transportation hub; to ensure the City’s economic future. Tenants are being faced with a choice: Pay higher rents, move out of the city altogether, or move downtown.”
People are flocking to Lower Manhattan to live. Some 37,000 individuals reside in Lower Manhattan south of Chambers Street.The population has increased to a projected population of 42,000 by 2007 from 22,000 in 2001, making Lower Manhattan the city’s fastest growing residential community.
A total of 29 new developments are underway totaling 4,000 new units and an additional 4,000 units in various stages of planning, increasing downtown’s residential stock by 40% to 28,500 units by 2010.
“Downtown has reinvented itself as a mixed-use, residential–office community, primarily as a result of Mayor Giuliani’s incentives instituted 10 years ago,” one of the co-founders and principals at Rockrose Development, K.Thomas Elghanayan, said. Rockrose was a pioneer downtown when he converted 45 Wall St., a vacant office building, into 435 residential units in 1997.”Building on this transformation, in the next few years, we’ll see one of the greatest urban development programs in U.S. history,” he said.
Residential construction is booming in Lower Manhattan, especially in Battery Park City. Earlier this year, the fist tenants moved into the newest “green” residential rental tower at 211 North End Ave., the Verdesian (a clever name play on the green theme), developed by the Albanese Organization in partnership with the Northwestern Mutual Life Insurance Company. “The apartments leased up in just six months at rents of $58 per square foot,” a principal at the Albanese Organization, Christopher Albanese, said.
This building was the second building of the partnership that in 2003 opened the Solaire. The partnership broke ground in August on Site 3 in Battery Park City at 70 Little West St. This full block development (bounded by Little West Street, Battery Place, Second Place, and Third Place) will contain a 33-story, 500,000-square-foot, 250-unit luxury Green Condominium designed by Rafael Pell occupancy is expected in the summer of 2008.
A few months ago, the Sheldrake Organization opened the sales office at Riverhouse, One Rockefeller Park on Lots16 and 17 in Battery Park City.The 26-story condominium has 264 luxury units. “We are doing well on the project with 50 contracts out and signed with approximately $100 million in sales,” the president of the Sheldrake Organization, Christopher Daly, said.
Albanese Development is also serving on a fee basis as the as the co-developer with Andre Balazs of the 43-story, 320-unit luxury condominium on 15 William St. at the intersection of William and Beaver streets for SDS Investments.
“Downtown is a city within a city: office, residential, schools, retail, restaurants, and every retailer is looking to be there,” Mr. Siegel said.
Mr. Elghanayan said,”The density of population has reached a point where more and more stores remain open after the office buildings close. Downtown no longer lacks supermarkets or other amenities necessary for a vibrant neighborhood.”
Downtown has become one of the largest tourist attractions in the world. The annual visitors projection for Lower Manhattan is 8 million, with attendance at select downtown sites at 4.5 million, the highest level since 2001.
To house these tourists, the hospitality business is booming. Downtown presently has 2,500 hotel rooms with an occupancy of 89.2%, up from a low of 69.3% in 2002, and the highest level since before 2000.To meet the demand, one of the largest owners of commercial and residential properties in Lower Manhattan, Joseph Moinian, is planning to build a mixed use, 440,000-squarefoot,53-story W Hotel 53 and condominium tower on a site behind the former Deutsche Bank building at 123 Washington St.The project would include 220 hotel units and 180 condominiums.
As reported earlier this week, Goldman Sachs acquired the mixed-use site in Battery Park City that was built, developed, and owned by Forest City Enterprises. The complex north of the World Financial Center is the home of a 463-room Embassy Suites Hotel and 170,000 square feet of retail space which includes a United Artists 16-screen movie theater. It paid $300 million for the complex, which is near Goldman’s new headquarters under construction in Battery Park City.
Early next year, BD Hotel and Robert DeNiro’s hotel on Greenwich Street, Travelers, have the opportunity to secure one of the 72 rooms at the Best Western Seaport Inn Downtown at 33 PeckSt.,or one of the 53 guest rooms and suites at the Exchange Hotel, formerly the Manhattan Seaport Suites, at 129 Front St., one block north of Wall Street.
Early next year a new Best Western Hotel will open in Chinatown. Additional hotels are planned for sites at 8-10 Stone St., 161-169 Maiden Lane, and 115-117 Nassau St. Indeed, the future is bright for Lower Manhattan.
Mr. Stoler is a television broadcaster and a senior principal at a real estate investment firm. He can be reached at mstoler@newyorkrealestatetv.com.