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Tower at Financial Center Changes Hands for a Song


September 10, 2002

A major downtown skyscraper is changing hands for a surprisingly low price, in what may be the latest indication of how steeply property values have dropped in Lower Manhattan in the last year.

Brookfield Financial Properties, the largest downtown landlord, signed a contract last week to buy Lehman Brothers' 51 percent stake in the skyscraper, the American Express Tower, for $158 million. While Brookfield professed optimism, the sale revealed a sharp drop in the prices of downtown buildings.

Since the attack on the World Trade Center, the vacancy rate at downtown office buildings has tripled and rents have declined as companies moved and laid off workers.

Brookfield is paying $127 a square foot to buy the American Express building, at 3 World Financial Center, some of the best office space in Lower Manhattan. But that is less than one-third of the price per square foot paid less than two years ago by Deutsche Bank for the office tower at 60 Wall Street.

Still, Brookfield executives and some real estate brokers expressed optimism about the future, saying the malaise downtown was temporary.

"This puts our money where our mouth is," said Richard B. Clark, president of Brookfield Financial Properties. "We've been very bullish on the future of Lower Manhattan, notwithstanding that it's a bit wounded at the moment."

After months of negotiations, Brookfield is buying slightly more than half of the 52-story, 2.3-million-square-foot tower. American Express will remain a co-owner. The building is one of four towers at the financial center, the commercial complex in Battery Park City that was developed in the 1980's. Brookfield already owned two of the towers outright and 51 percent of a third.

Richard Baxter, an executive managing director at Insignia ESG, cautioned against viewing the sale as an indicator of the market. He said the building price was low because Brookfield will have to share ownership with American Express and because neither company owns the land beneath the tower.

"I don't think this one is a bellwether," Mr. Baxter said. "It's got a very peculiar ownership structure. I think you'll see a couple of properties trade in the next six months. Then we'll know where things are at."

But Douglas Durst, chairman of the Durst Organization, which had also expressed interest in buying Lehman's stake in the tower, said he was surprised.

"It's a very cheap price," Mr. Durst said. "We were willing to pay more. But there is nothing moving downtown, so it's impossible to gauge the market."

According to Cushman & Wakefield, a real estate company, the vacancy rate downtown has jumped to more than 16 percent from 3.8 percent at the end of 2000. If space that is available but unadvertised is included in the total, said M. Myers Mermel, chief executive of TenantWise, a real estate company, the vacancy rate rises to 20 percent.

With layoffs at most of the city's investment banks, economists and downtown landlords are wondering who will fill up the empty space.

There is about 2.5 million square feet of vacant space at the World Financial Center, including an additional 700,000 square feet under lease to Lehman Brothers. Brookfield and Lehman have been squabbling over that space since last fall.

After the attack on the trade center, Lehman Brothers decided to abandon the World Financial Center, which had been damaged, and its longtime home in Lower Manhattan. The investment bank quickly bought a skyscraper under construction in Midtown, at Seventh Avenue between 49th and 50th Streets, for about $700 million, or $700 a square foot.

While lots of vacant space is available in Midtown, real estate investors are still paying top dollar for first-class buildings. Boston Properties, one of the largest publicly traded real estate companies in the country, paid the highest price this year for a Manhattan skyscraper, $1.06 billion, or $630 a square foot, for the tower at 399 Park Avenue.

Real estate brokers and investors said that pension funds, real estate companies and foreign investors continue to view New York real estate as a good investment because of historically low interest rates and the volatility in the stock market.

"In the long run, New York is a safe haven for investment," Mr. Baxter said.

Copyright 2002 The New York Times Company

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