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Green shoots at Ground Zero

By Juliana Ratner, Property Correspondent

FT.com site; Sep 11, 2003

Two years after the devastating destruction of the September 11 terrorist attacks, Lower Manhattan's real estate market is seeing the green shoots of recovery.

Alongside the construction site at Ground Zero, businesses - including many that two years ago would not have been typical Lower Manhattan tenants - have moved to the area, lured by landlord incentives and federal tax breaks for bringing jobs there, as well as the promise of one of the best public transportation hubs in Manhattan once it is rebuilt.

Among those who have returned or relocated from other locations are Thacher, Proffitt & Wood, a law firm that had been in the World Trade Center; Health Insurance Plan of New York, which is moving from midtown and taking 485,000 sq ft at 55 Water Street; and the Teachers' Retirement System of New York, which is taking 157,000 sq ft in the same building.

Other not-for-profit organisations that would have been out of place amid the financial services behemoths that once dominated Lower Manhattan, not least because they would not have been able to afford it, are coming to the neighbourhood too.

Educational organisations are leasing space there because it is available and affordable. In January, New York University's School of Continuing and Professional Studies opened a downtown campus in the Woolworth Building, two blocks north of Ground Zero.

Financial and economic losses in the area pale in comparison with the human tragedy that took place there but as people put their lives back together, they focus on every day events and more mundane activities.

"This is a difficult week but I feel optimistic," says Bruce Surry, executive vice-president at CB Richard Ellis. He has worked in Lower Manhattan for 25 years and, before September 11 2001, he worked in 1 Liberty Plaza, next to the World Trade Center.

Mr Surry says his clients are more upbeat now than at any time in the past two years with hotels and shops, such as Borders Books, which had been in the towers, reopening and transportation expected to be better than it had been.

In addition to the economic revival, the area will be more aesthetically pleasing once it is rebuilt.

"The destruction of the World Trade Center was addition by subtraction," says James Corl, senior vice-president at Cohen & Steers Capital Management, a Reit (real estate investment trust) investor. "Even with the small hint of green space that is there today, you can tell that the area surrounding the site is going to be the best and most highly amenitised location in downtown," says Mr Corl. "The location has gotten a lot better. Those buildings, from a real estate standpoint, were awful."

The improving atmosphere and local economy is something that Morgan Stanley is hoping other people recognise since it plans to sell 140 Broadway, a 1m sq ft building one block east of Ground Zero.

"We expect to see a record price on the sale," says Peter Riguardi, president of the New York region for Jones Lang LaSalle. He says Morgan Stanley is asking for $400 a sq ft or more.

The price per foot is half of that fetched by the General Motors Building, a trophy skyscraper on Fifth Avenue sold for a record $1.4bn last month but it would be a significant marker for Lower Manhattan real estate values.

Not only is the area becoming more attractive to different kinds of business, it is luring residents who once thought living downtown meant only going as far south as TriBeCa.

Mitchell Moss, professor of planning and director of urban studies at New York University, says about a million square feet in Lower Manhattan has been converted to housing in the past two years.

"It has great light and shadow - it's becoming the new SoHo and TriBeCa and has become good value to a young educated population," he says.

Michael Bloomberg, New York's mayor, has been encouraging the transformation and has been luring restaurants, bars and other services to the area.

Even so, the neighbourhood is unlikely to make a complete transition into a residential area, especially because the economic incentives to companies are too strong.

The average rental price in Lower Manhattan is about $39 a sq ft while midtown offices rent for about $50 a sq ft, says Greg Gang, managing director of Sage Group Associates, a builder and developer that owns buildings in midtown and downtown Manhattan.

Cost has been a strong incentive to businesses feeling the economic downturn from which Manhattan still suffers. "The decision to move downtown from midtown is purely economic," says Mr Gang.

The economic incentives are compelling as the area tries to recover after the loss of an extraordinary amount of space two years ago.

Out of 97m sq ft, more than 34m sq ft were affected, 13m of which disappeared, says M Meyers Mermel, chief executive of TenantWise, a real estate research firm that has followed the impact of September 11 on the downtown Manhattan real estate market.

The gap between downtown and midtown vacancies is narrowing. This month, the vacancy rate downtown was 15.6 per cent versus 12.2 per cent in midtown, according to TenantWise. A year ago, downtown had a 17.4 per cent vacancy rate while midtown was 9.6 per cent.

"We are slowly but surely seeing people who lost their space come back," says Mr Riguardi, at Jones Lang LaSalle. "It is a great market and there is a lot of opportunity down there."

Copyright The Financial Times Ltd 2003.

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