Like a just-opened bottle of Champagne, development is effervescent in Lower Manhattan in the wake of the finalization of a more feasible plan for the former World Trade Center site. Real estate investment capital that was kept on the sidelines in anticipation of the right moment is flooding into the area. At least six new hotels, numerous residential condominiums, and a significant increase in retailers and restaurants are in the pipeline. Meanwhile, decreasing vacancy rates and substantial increases in value for downtown office space is leading to buildings trading hands at record prices.

INVESTMENT SALES

A number of Lower Manhattan office buildings are expected to be sold during the first quarter of this year, and the latest round of sales shows an unprecedented rise in real estate values. Last week, it was announced that the 37-story, 1 million-square-foot building at 14 Wall St., directly across from the New York Stock Exchange, would be sold to a joint venture of Josh Zamir and Capstone Equities. The venture is expected to pay about $325 million for the landmarked building. The seller is a joint venture of Shaya Boymelgreen and Lev Leviev’s Africa Israel Investment, which purchased the property in 2005 for $215 million. In 1999, it changed hands for $106.5 million.

As I reported a few months ago, two other buildings are expected to sell before springtime. Koeppel Cos. is moving toward closing on the sale of its landmark Standard Oil Building at 26 Broadway. According to trade sources, the property may fetch close to $220 million from a prominent Manhattan landlord who is shifting his assets downtown from Midtown South. The other is the 47-story, 1.65 million-squarefoot Deutsche Bank building at 60 Wall St. The buzz in the marketplace is that the property will be sold for more than $1.2 billion, the highest price ever paid for a building in Lower Manhattan. Deutsche Bank is expected to sign a 15-year lease for the space, providing the new owner a guaranteed annual return with limited appreciation.

A third tower moving toward a transfer is owned by Beacon Capital Partners, which has retained an investment bank to market its 29-story, 466,000-square-foot building at 100 Wall St., built in 1969. Beacon purchased the property in December 2005 for $134 million from Reckson Associates Realty Corp. Industry sources say the property would fetch close to $175 million, or about $375 a square foot.

The New York Sun has learned that another landmark building on Broadway near the site of ground zero may be marketed and could fetch close to $400 million.

Real estate and business leaders are bullish on Lower Manhattan. The president of Trinity Real Estate, Carl Weisbrod, said Lower Manhattan “is undergoing a tremendous revitalization. I have always been optimistic about this market as long as the public sector reaffirmed the area’s importance as a commercial center, which it has,” he said. “Although the extraordinary intensity of construction activity will be a factor downtown over the next few years, the Lower Manhattan market will continue to strengthen rapidly, assuming the overall economy holds up.”

COMMERCIAL LEASING

The soaring downtown rents are driving the record-setting building values. Investors and owners of commercial properties had never expected rents in Lower Manhattan to reach $70 a square foot. To the surprise of many, the largest lease for office space signed for New York City in 2006 was in Lower Manhattan. This lease was for space in the award-winning 7 World Trade Center, developed by Silverstein Properties. This fall, Moody’s, which sold its headquarters at 99 Church St. to a joint venture of Silverstein Properties and CalPERS for $174 million, signed a lease for 589,945 square feet.

The senior vice president of World Trade Center Properties, John Lieber, said 7 World Trade Center is 60% leased, “with a diverse mix of tenants. So far, nearly 1 million square feet has been leased to a diverse range of industries, reflecting the strength of the downtown market and new ‘creative class’ tenants. This building is a model for new building downtown.” The average quoted rate for rent is now $63.58 a square foot, according to CoStar Property.

The top five leases signed in 2006 were all in Lower Manhattan. These notable transactions were leased by the city Department of Transportation for 421,931-squarefeet at 55 Water St., a 221,314-square-foot lease by AON Risk Services at One Seaport Plaza, a 204,911-square-foot lease by Willis Group Holdings at 200 Liberty St., and a 199,737-square-foot lease by Royal Bank of Canada at Tower C in the World Financial Center.

“Downtown Manhattan is often overlooked in the frenzy of record sales prices and volumes of Midtown,” the chairman of the real estate practice at Greenberg Traurig, Robert Ivanhoe, said.

He said Midtown rents could reach as high as $150 a square foot, driving many companies downtown. “Law firms, accounting firms, advertising agencies, and similar businesses will be increasingly stressed by rents as they rise well over $100 per square foot and may be forced to seek a less expensive alternative,” Mr. Ivanhoe said. “All of this may be painful for those companies, but downtown may be the beneficiary of that conundrum.”

HOTELS

In addition, the increase in downtown property values, the prospect of a redeveloped ground zero, and a citywide shortage of hotel rooms are driving hotel developers into Lower Manhattan.

“The hospitality sector continues to grow downtown, especially near the financial district, as evidenced by the fact that several of the most recent land offerings which allow for residential construction as of right have been purchased by development companies,” a principal at Eastern Consolidate Properties, Alan Miller, said. “Hotel developers keep on trumping residential developers when it comes to small-to-medium-sized projects near Wall Street and the South Street Seaport.”

Developer Sam Chang’s McSam Hotels recently purchased a parking lot development site at 33 Beekman St. from a joint venture of Jack Resnick & Sons and Lawrence Ruben Co. for $23.5 million. McSam plans to build a 120,000-square-foot hotel on the former parking lot, directly across the street from the new mixed-use development of Forest City Ratner.

Three weeks ago, McSam purchased another parking lot at 8-12 Stone St. from Rockrose Development, where it plans to construct a 100,000-square-foot hotel. A New York hotel operator, the Lam’s Group, recently closed on the purchase of a site from Rockrose Development at 18-24 Cliff St., a blockthrough to 243-249 Pearl St. The site can accommodate an additional 160,000-square-foot hotel.

Across from the South Street Seaport at 151-161 Maiden Lane, a joint venture recently acquired a site two blocks north of Wall Street. The developer is planning a mixed-use luxury hotel condominium with a spectacular riverfront view. The 250,000-squarefoot development will include 100 condominium hotel units, 80 residential condominiums, and retail.

RESIDENTIAL

Several office buildings are in the process of being converted. The Hakimian Organization is converting 75 Wall St. into the largest residential and multiuse project south of Canal Street. The Singer Bassuk organization’s Scott Singer, who arranged financing for the conversion, said the property “is a modern 600,000-square-foot trophy building, a one-of-a-kind facility that will include a major five-star hotel, approximately 350 condominium units, on-site parking, and an incredible rooftop amenity featuring 360-degree views of the entire New York City metro area.”

In December, Singer Bassuk arranged a refinancing of developer Jack Resnick & Son’s 199 Water St., also known as One Seaport Plaza.

“The East River Waterfront is being transformed and General Growth’s acquisition of South Street Seaport creates a huge potential for that long-lagging economic generator,” Mr. Weisbrod said. “The strong indicators of a strengthened office and residential market is a reflection of the market’s acceptance that the entire World Trade Center will be built out with a strong commercial core. The course of action at the WTC site is no longer in doubt. The market certainly believes that now. When that retail gets going it will provide another major economic generator.”

This spring, construction is scheduled to begin for a mixeduse 150,000-square-foot building at 21 Ann St. on the corner of Ann and Nassau streets and Theater Alley behind J&R Music World. The site includes a parcel at 109-113 Nassau St. Pennmark Realty, and the developer’s plans include approximately 125,000-squarefeet of residential condominiums.

The residential marketplace is on fire in Lower Manhattan. A managing director at Douglas Elliman Development, Andrew Gerringer, said the downtown market “is one of the greatest values for people that want to still remain in mainstream Manhattan. You get the most bang for your buck in this part of town. The downtown area will continue to grow and rise in value as the 24-hour community becomes a reality. Families are beginning to select the downtown financial district area as a viable place to live as private schools like the Claremont Academy have arrived, Whole Foods is on the way, and some areas of the financial district fall within the very prestigious and top-ranked P.S. 234 school district. It is a great place to get in on the action before prices take off.”

“Initially, young urban professionals who wanted to live on the island of Manhattan, as opposed to Williamsburg and Hoboken, were able to rent an apartment at a modest and reasonable rent,” the principal of GHC Development, Allan Fried, who was part of a team that converted 75 West St., said. “These early pioneers to Lower Manhattan choose to remain, and many are evaluating the opportunity to purchase in conversions and new construction in the financial district and Battery Park City.”

Mr. Stoler, a contributing editor to The New York Sun, is a television broadcaster and senior principal at a real estate investment fund. He can be reached at mstoler@newyorkrealestatetv.com.