In February 2003, a group of prominent New York City real estate investors joined Stephen Siegel, the chairman of the global brokerage division at CB Richard Ellis, Arnold Penner, and a partner at Tishman Speyer Properties, Jerry L. Cohen, at the opening party for the famed P.J. Clarke’s bar and restaurant on Third Avenue and East 56th Street. At that time, less than 18 months after the tragic events of September 11, 2001, I would doubt if any of the investors in the new P.J. Clarke’s would have ever expected to open a second location in Lower Manhattan. Yet, last month, these partners entered into a lease with the owners of the World Financial Center, Brookfield Properties, for approximately 8,000 square feet of space to open a second location at the Merrill Lynch Building at Four World Financial Center in Battery Park City.

Mr. Penner, a partner in the deal, said Lower Manhattan is in need of places like P.J. Clarke’s. “I have never seen more activity in one place than Lower Manhattan. Every owner, developer, real estate investor is interested in this area. It is a great bargain for commercial tenants and less expensive for residential tenants. It is going to be the next TriBeCa,” he added.

Trizec Properties is the owner of the 50-story, 2.5 million-square-foot office tower at One New York Plaza. Wachovia Securities, one of the largest tenants in the building, leases about 600,000 square feet. Last week, Wachovia announced they subleased 447,000 square feet to the financial services firm Morgan Stanley. Morgan Stanley is paying about $20 a square foot for the space in this class A building. Similar office space in Midtown would cost between $50 and $60 a square foot.

Caleb Koeppel, principal of Koeppel Companies, which owns the land marked building 26 Broadway, told me Lower Manhattan is the low cost alternative for office space. In the case of Morgan Stanley, the savings is in the neighborhood of $16 million annually.

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On December 16, Trizec Properties sold its 31-story, 868,000-square-foot office building at 110 William St. to the principal of Swig Burris Equities, Kent Swig. Over the past few years, Mr. Swig’s firm, one the leading investors in Lower Manhattan, has purchased four other office towers in the area, including properties at 44 Wall St., 48 Wall St., 5 Hanover Square, and 80 Broad St.

Mr. Swig said, “Prices for office buildings downtown are still lagging as compared to Midtown Manhattan. Prices are at least one third to 50% lower in Lower Manhattan. In regard to the downtown office market and the residential market to some extent, I think that there is a major gap between perception and reality. The reality is that the downtown market is one of the most vibrant and ever changing markets in the United States. In addition, the residential population is booming and, in fact, downtown has the highest occupancy for rental buildings in all Manhattan. The perception has not yet caught up with this reality, much like the perception of Times Square during its resurgence during the past seven years,” he added.

Land prices are significantly lower in Lower Manhattan. In December, NYU Downtown Hospital sold the parking lot adjacent to the hospital to an affiliate of Forest City Ratner for about $85 million. The developer Bruce Ratner plans to build a 75-story, 1 million square-foot building, which will include residential apartments, and 25,000 square foot of outpatient space for the hospital. About 330,000 square feet of space may serve as a new public school and community center. Over the past 12 months, since Forest City entered into the contract to purchase the site, the price for land in Lower Manhattan has increased by at least 50%.

Evidence of the increase in the value of vacant land in Lower Manhattan can be seen in the recent purchase of a small parcel at 133 Greenwich St., at the corner of Thames Street. Shaya Boymelgreen, one of the most active developers in Lower Manhattan, paid about $150 a developable square foot for the site. Mr. Boymelgreen and a holding company controlled by Lev Leviev, Africa Israel, are bullish on Lower Manhattan and cite the huge demand for residential condominiums. The demand is evident in the pre-sales of more than 70% of the units at 23 Wall St./15 Broad St. at the landmarked former headquarters of JP Morgan. Units are selling for close to $1,000 a square foot, more than double the original asking price of $500 a square foot. The partnership purchased this building in August 2003 for approximately $100 a square foot.

A few weeks ago, Mr. Boymelgreen and Africa Israel bought the 35-story, 568,000-square-foot building at 20 Pine St., also known as 2 Chase Manhattan Plaza, from the Resnick & Rueben families for $170 million, or $300 a square foot. The acquisition was the sixth joint project between these two companies downtown. They plan to convert the building into about 400 residential condominium apartments.

Three new residential developments are scheduled for sites in Battery Park City. The developers include Jack Resnick & Sons, Edward J. Minskoff Equities, and the Sheldrake Organization. Goldman Sachs is planning to build a 2.3 million-square-foot, 800-foot office tower on the parking lot of West, Murray, and Vesey streets on the last commercial site in Battery Park City. Last August, Goldman received preliminary approval for $1 billion in Liberty Bond financing for the $1.8 billion development.

It is reported that Whole Foods Market is planning to open a store in the Minskoff Equities’ 1 million-square foot residential development at 270 Greenwich St., a site formerly owned by the city. The New York Sun has learned that the largest grocery store in the area, the Pathmark Supermarket of Pike Slip at 227 Cherry St., will probably close its doors. The large site is being marketed for sale for potential conversion to residential.

Plenty of new construction of residential rental and condominium apartments is scheduled for completion in Lower Manhattan over the next 24 months. Later this year, Silverstein Properties is set to open its 52-story, 1.7 million-square-foot 7 World Trade Center. Construction is scheduled to begin on the Freedom Tower this year, with completion in 2008. Mr. Siegel said he expects rents in downtown will increase to about $50 a square foot with an average somewhere in the $40 range.

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Many of the grants, increased tax deductions, tax abatements, and reductions available to companies have and will expire by the end of the year. The cofounder and principal at Murray Hill Properties, Norman Sturner, said, “It is essential that the federal government renew the financial incentives which are to expire on December 31,2005,that are available to companies which relocate in Lower Manhattan.” Mr. Swig said, “In order to stabilize the office marketplace in Lower Manhattan, I hope that the incentives are renewed for at least a period of three to five years.”

The executive managing director and principal at Newmark & Company Real Estate, Brian Waterman, agrees with Mr. Sturner, saying, “There is not a great enough economic differential to incentives for a tenant to move downtown without the government incentives. I think that tenants do want the incentives and it has been a driving force in pushing people downtown. Even though there have been large transactions downtown, the depth of the market from the smaller tenants (2,000 to 30,000 square foot) will dictate how the downtown market performs this coming year,” he added.

The executive director of Cushman & Wakefield, Andrew Peretz, disagrees with Messrs Sturner, Swig, and Waterman. He said, “Many of the companies which relocate to Lower Manhattan are leasing small spaces, and the incentives have little or no impact in their decision process”. The lower rents are enough of an incentive for a company to relocate, he said.

The horizon seems bright for Lower Manhattan. One must remember the area is the city’s third-largest office market. The combination of the new transportation center and growth of retail will help to make this a 24/7 community.