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Real Estate Market Appears to be Picking Up

By Sascha Brodsky

March 26, 2002

The Downtown real estate market is showing some signs of a rebound despite the devastating blow dealt by the World Trade Center attack.

Major companies are moving back to the area and some reports show that rents and occupancy rates are rising. But the physical damage and lingering emotional trauma are still keeping some firms away.

"In the last month we have seen an increase of tenant interest and more tenants looking at space," said John Wheeler, senior director of the real estate brokerage Cushman & Wakefield. "Proposals are being exchanged and new leases being drawn."

But some independent experts said they were doubtful of the rosy predictions by real estate brokers.

Stanley Moses, chair of the Urban Planning program at Hunter College, pointed to recent data showing that New York City was behind the national curve in economic recovery.

"I would want to wait a while before I was sure there was going to be an upswing in the real estate market," he said. "A lot depends on the economy. I don't think the recovery is there yet."

However, brokers point to the return of major companies as a key indicator of the recovery.

About 55 percent of businesses displaced from Downtown by the disaster have indicated they will return, according to Myers Mermel, C.E.O. of Tenantwise.com, an online office broker. Among those coming back is Merrill Lynch, which occupied two buildings at the World Financial Center. The company is moving 5,000 employees back to an office complex in Battery Park City. Another 1,000 Merrill Lynch workers are returning to Two World Financial Center.

American Express Co., which once said it would not return all its employees to the World Financial Center, now plans to return 3,500 employees who were sent to other parts of Manhattan and out of the city.

The New York Stock Exchange is one firm that looks like it may stay put. Big Board chairperson Richard Grasso said after Sept. 11 that he is committed to staying Downtown.

Other firms have renewed their leases, including two large technology companies. Nokia and Sun Microsystems and three new tenants have signed a total of 17,500 square feet at The New York Information Technology Center at 55 Broad St.

Another positive sign is a spurt of building sales. Among the recent deals is the United Federation of Teachers' purchase of the 340,0000-square foot building at 50 Broadway. Deutsche Bank has also bought the 47-story building at 60 Wall St. from J.P. Morgan Chase for its new headquarters.

Wheeler said many companies are starting to see Downtown as a good deal. Rents are lower than a year ago and city and federally sponsored incentives can add up to nearly two years of rent abatement, he said.

"The tenants recognize that Downtown has dealt with the challenges provided by 9/11," he added. "The area is moving forward with some short term solutions like the ferry service being beefed up to replace the PATH service."

The Downtown residential market is also showing signs of picking up. Prices in the Downtown housing market dropped about 11 percent from the year before after Sept. 11 but have since rebounded about six percent, according to the real estate brokerage The Corcoran Group.

"Business across the board has been extremely busy," said Corcoran president Pamela Liebman. "People are leaping back into the market, buying one-bedrooms, lofts and townhouses."

Liebman attributes the rebound to a combination of low interest rates and distrust of the stock market.

"After September 11th, there was an overwhelming feeling among people that they should live for the moment," Liebman added. "There was a lot of trepidation about going into the stock market so they felt real estate is something they can use now and investment wise it's a great place to be."

Shelley O'Keefe, a senior associate at Corcoran, pointed to a recent Tribeca condominium sale as a sign "that prices have stabilized." The 3,000 square foot, 3-bedroom, two and a half bathroom apartment at 19 Beach St. was purchased by a Wisconsin couple for $1.79 million.

"This is a fair price that was similar to the price it would have sold for in August before the disaster," O'Keefe said.

In what may be a bellwether for Downtown, some reports show the Manhattan real estate market as a whole is picking up. Real estate brokerage Insignia Douglas Elliman has reported that Manhattan total sales in the first two months of 2002 were 42 percent higher than in January and February 2001.

Not all the news is good. The office vacancy rate Downtown has surged to 10.5 percent from 4.8 percent in the first quarter of 2001, according to a study by Cushman & Wakefield. Average rents have dropped from $43.79 per square foot a year ago to $38.92 in February.

Another report by the real estate firm Newmark & Company found the vacancy rate Downtown has doubled to 14.1 percent, or 13.4 million square feet in the last year, according to the real estate firm

Officials are making sustained attempts to entice and keep as many firms Downtown as possible. The state and city are offering dozens of multi-million-dollar grants to keep major financial companies as part of a $500 million federal aid package intended to ensure the area's economic viability.

Some companies face a psychological barrier in moving Downtown. Recently, Standard Chartered Bank, which had offices in Seven World Trade Center at the time of the attack, signed a lease Uptown because "their people had gone through trying times," Wheeler said.

"Companies that were near the World Trade Center are still dealing with the emotional fallout their employees experienced," he added. "Some firms have opted to relocate from Downtown because they feel that is the only fair thing to do."

Many firms are moving away. Among them is the Nasdaq Stock Market, which is negotiating a deal to move from its Downtown headquarters to Times Square. Nasdaq Chairperson Hardwick Simmons has said the company is discussing a move to 1500 Broadway from its current One Liberty Plaza location. Cantor Fitzgerald, the bond trading firm that lost hundreds of employees in the attacks, has signed a two-year lease in Midtown Manhattan.

Other firms have fled to lower rents across the river. Goldman Sachs has announced plans to move its entire stock-trading department to Jersey City. Insurance brokerage Marsh & McLennan also has plans to move 1,200 jobs that used to be in the Trade Center to Hoboken.

Other firms are still wavering on whether to remain Downtown. The 1,100 employee insurance firm Aon lost its World Trade Center offices and is reportedly considering subleasing space at 125 Broad Street. But the company is also looking at other spots in Manhattan and New Jersey.

Work on infrastructure damaged in the attack is progressing rapidly and could help lure tenants. The ground zero site cleanup is scheduled to finish by the end of May. The MTA says it's on track to reopen the No. 1 and No. 9 subway line stops Downtown in November while the PATH station should be back in business in 2003.

But rebuilding Downtown's infrastructure still faces major challenges. The collapse of the World Trade Center also destroyed electrical lines, fiber-optic cable, phone lines and sewer pipes. Some of this infrastructure is still under repair.

Because another problem is persuading prospective tenants that Lower Manhattan is still an attractive place to be, the Lower Manhattan Development Corp. has proposed grants of up to $12,000 to individuals who move Downtown and commit to staying for two years.

ęDowntown Express 2002
 

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