Deals inked with incentives, cheap rents; 14%
Crain's New York Business
By Lore Croghan
August 19, 2002
Patrick Curtin remembers the horror of Sept. 11 and always will. But he
just rented a new office six blocks from Ground Zero, committing his law
firm to a 10-year stint in disaster-scarred downtown.
Rents are cheap at newly renovated 48 Wall St. The landlord is handling the
construction of the 18,000-square-foot space, which will spare Conway
Farrell Curtin & Kelly a huge capital expenditure.
The city and state incentives Mr. Curtin is applying for will cut costs even
further. He finds these compelling reasons to make a deal downtown-and so do
scores of other small business owners.
"What drives it is the numbers," he says.
Nearly a year after the destruction of the World Trade Center, big companies
are shying away from signing leases downtown. But small tenants have become
surprisingly active dealmakers since the city and state pulled together a
generous package of grants, tax credits and tax abatements. They've signed
239 office leases since the beginning of the year, which was all but eight
of the deals done in the neighborhood, says real estate brokerage Insignia/ESG
Inc. Most were the size of Mr. Curtin's transaction or smaller, yet added up
to 2 million square feet, enough to nearly fill the Empire State Building.
Busy as they were, the small firms haven't made much of a dent in the area's
inventory of empty space, which currently totals 11.6 million square feet,
creating a 14% vacancy rate. They haven't achieved the critical mass needed
to restore lower Manhattan's office market to full health. Nor are they
Keeping area alive
"They aren't the panacea, but they are a way to keep the patient alive,"
says Kevin Richards, director of leasing at Capital Real Estate.
The small fry do provide a significant boost to the economic vitality of the
area, though. They add to the employment base, buy goods and services, and
swell the pedestrian traffic that retailers depend on. Downtown's energy
level is on the rise, thanks in part to them. Restaurants that were empty a
couple of months ago are busy. At lunchtime, it's impossible to get a seat
on Pier 11.
"We liked the feel of downtown," says Mike Jefvert, director of business
development at The Johnsson Group Inc., a Chicago-based financial consulting
firm that chose a 4,000-square-foot office at 55 Broad St. rather than a
midtown site for its Manhattan debut.
Besides attorneys and consultants, the small-office renters are professional
firms such as accountants, architects and engineers, plus tech companies and
nonprofits. Some are downtown businesses securing new and bigger offices.
Some are from other neighborhoods or are new to the city. Most are privately
held, and real estate spending directly affects paycheck size.
The prospect of saving substantial sums is the single most important factor
in their decision-making.
The spread between midtown and downtown rents is wider than ever, says Kent
Swig, an owner of 48 Wall. Rents for some downtown buildings are half those
of comparable midtown properties.
And incentives, which vary according to a company's head count and the
proximity of its office to Ground Zero, can cut costs for small firms by as
much as $15 per square foot over five years, real estate brokers calculate.
At 2 Rector St., three blocks south of Ground Zero, incentives combined with
landlord's concessions add up to savings that are equivalent to two and a
half years of free rent during a 10-year lease, says Capital Real Estate's
Mr. Richards, the building's leasing agent. The rents themselves are low, in
the high $20s per square foot. This combination has drawn small law firms to
space that won't even be available until January.
Big tenants also stand to benefit from incentives that are not dependent on
lease signings. The city and state have dished out $131 million in retention
grants to 40 large downtown companies with 34,000 employees in the area.
These deals entail pledges to stay put for seven years rather than signing
new office leases. Indeed, some of the recipients are hotels, hospitals,
universities or department stores-not office tenants.
"The (leasing) incentives have been ineffective for big tenants," says M.
Myers Mermel, chief executive of brokerage TenantWise.com Inc.
"They work for small tenants."
Because large companies are shunning the neighborhood, some small tenants
feel they have to go. Caplin Systems Inc. moved to a 2,700-square-foot
office at 111 Fifth Ave. The company, which makes software that delivers
real-time financial data over the Internet, was located at 80 Broad St.
The death of colleague Ari Jacobs, who was at Windows on the World on Sept.
11, wasn't the reason Caplin left the neighborhood. "We lived with the
emotional issues for so long that they weren't the problem," says Nigel
Glen, the company's chief executive.
It was that so many of Caplin's clients and potential clients had left
downtown. Mr. Glen drew a map of their current locations, and Union Square
fell right in the middle.
But other small tenants are betting on a downtown comeback-even some that
had offices in the trade center.
One of them, Wall Street Planning Associates, was located in the North Tower
and lost two employees in the terrorist attack. Managing Director Rob
Sibarium promised his staff three things before seeking a new office
downtown: He wouldn't move them to a building that's a likely terrorist
target. He wouldn't take space above the 10th floor. And he would get them a
world-class facility. The firm, which is part of MetLife Financial Services,
wound up in a 13,600-square-foot office on the fifth floor of 48 Wall.
Another is Financial Technologies International Inc., which just returned to
a 34,300-square-foot office at 22 Cortlandt St. rather than turn its
temporary digs in Iselin, N.J., into its permanent home.
Early this month, the staff of the financial software manufacturer gathered
for a town meeting. Chief Executive Mike Meriton asked them to look out the
window at the panoramic view of Ground Zero. "This can be the remembrance of
tragedy," he told them. "Or this can be where you will see the rebirth of
the financial district."
He's now negotiating with his landlord for a new, cheaper lease, so he, too,
can apply for incentives.
Copyright 2002 Crain Communications, Inc