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Gigantic Space Needs Spur Massive Efforts

Industry mobilizes to meet demand; slaps limits on rents

Crain's New York Business

By Lore Croghan

September 17, 2001

Real estate people are mourning. But they’re mad, too. And now they’re mobilizing to house the businesses made homeless by the appalling destruction of the World Trade Center.

“This was a terrible tragedy,” says Steven Spinola, the president of the Real Estate Board of New York. “But New York City is determined to deal with this and build new skyscrapers and be the capital of the world.”

The effort began the day after the destruction of the Twin Towers. It started with an ad hoc meeting of the board’s members, a group that included no less than 40 landlords and half a dozen of the city’s biggest real estate brokerage firms.

Their mission: to figure out what to do for dispossessed tenants, the hundreds of businesses that filled about 20 million square feet in the demolished World Trade Center and the seriously damaged buildings surrounding it. Those companies need emergency lodging now and permanent offices as soon as possible.

In the short term, that effort will mean that millions of square feet of vacant space from west Chelsea in Manhattan, to Princeton, N.J., and Fairfield County, Conn., will be snapped up quickly. In the longer term, it will mean the construction of up to 20 million square feet of new space in New York City itself.

The REBNY group got down to business immediately. It set up a space bank, listing all of the office space available for periods of six months to a year. Notably, the landlords promised to provide the space at cost- to cover operating expenses and taxes but not a cent more. On their end, brokers pledged to forgo their customary commissions for these triage deals.

For longer-term lease, REBNY sternly instructed the city’s landlords not to charge rents any higher than the going rates prior to Sept. 10. The ones who attended the meeting, at least, wholeheartedly agreed.

“They were united in there decision that there will be no gouging,” says Jimmy Kuhn, the president of Newmark & Co. Real Estate Inc.

By happenstance, the rush to accommodate displaced firms comes at a time when there is plenty of space around, notably a glut of 12 million square feet of sublets created by a softening economy.

Life at the fringe

In Manhattan, companies will go to fringe neighborhoods such as Hudson Square, Chelsea and Hell’s Kitchen. There, landlords had done expensive renovations and technology upgrades during the leasing boom of 1999 and 2000, only to see these locales fall out of favor with tenants this year.

“Space will be space again, and location will be secondary," says Steve Siegel, the chief executive of Insignia/ESG Inc., the city’s largest commercial real estate brokerage.

The very day of the attack on the trade center, Mr. Siegel’s firm started racing to secure new locations for businesses it had placed in the Twin Towers. And a top Insignia broker began organizing a “war room” for use by the entire real estate industry, to offer intelligence on what spaces are available and which are spoken for.

Other tenants will probably cross the East River to Long Island City, Queens, and downtown Brooklyn. To speed the process of relocation, the Downtown Brooklyn Council circulating a list of spaces totaling about 1 million square feet that are available either immediately or by the end of the year. Locations include 180 Livingston St., a 275,000-square-foot building, and 9 Bond St., which contains 250,000 square feet.

Some will go the other way, across the Hudson. Lehman Brothers, for example, a big tenant at damaged buildings near the Trade Center, is close to securing a building on the waterfront, the 410,000-square-foot 70 Hudson St. so great is the sudden need for space, however, that its effect is likely to be felt as far away as Connecticut and central New Jersey.

To begin the process of recovery, though, real estate businesses are first having to shake off the horrors of Sept. 11.

“We’re all dealing with our emotions, with our grief, our frustration, our anger,” says Mitchell Steir, the vice chairman of Julien J. Studley Inc. His colleague, Jim Gartenberg, was trapped in the firm’s downtown office on the 86th floor of 1 World Trade Center and is missing.

Brokers at GVA Williams spent the day of the catastrophe huddled around the television in their office in midtown. “We went into bunker mentality,” says Robert Freedman, the firms’ vice chairman. “The next day, we said, ‘We have to start functioning.’”

The first thing they did was to check whether their dispossessed clients have other offices in the tristate area with room to house their personnel from downtown. Their second move was to start analyzing unaffected customers’s offices. If the companies aren’t fully using their space, they expected to offer part of it for rent to firms that survived the disaster.

Businesses say they will stay in New York City as much as space availability will allow.” Our tenants have given us a very clear message,” says Bruce Mosler, the president of the U.S. operation of brokerage Cushman & Wakefield Inc. “They are committed to the city.”

And they’re wasting no time in going after space.

“Companies are making deals instantaneously so they can show their shareholders they are viable businesses,” says M. Myers Mermel, the chief executive of online brokerage TenantWise.com Inc.

Aiming for speed

Meanwhile, developers are gearing up for construction and are committed to the re-creation of downtown. To help, the real estate board is organizing committees to grapple with the problems of how to get temporary and long-term space built quickly.

One group’s job is to figure out how best to create additional short-term offices for businesses, whether through constructing prefab buildings in boroughs outside Manhattan, switching residential conversion projects back to office buildings or deploying underutilized telco hotels.

A second committee will make recommendations on how to get long-term space built in New York City, 15 to 20 million square feet all told. It will come up with ways to get construction expedited and will see to persuade city, state and federal governments to subsidize companies that would move into new buildings.

That committee will draw on the findings of Sen. Charles Schumer’s Group of 35, which were issued in June. It is a blueprint for development, says REBY chieftain Mr. Spinola.

Most notable of all the potential construction sites around town is, of course, the destroyed Trade Center itself. Larry Silverstein, who bought the complex’s 99-year lease just two months ago, vows to rebuild.

Normally competitive developers and brokers are forming united front to carry out the monumental tasks of the months to come.

“New York will be thought of as a city that banded together,” says Newmark’s Mr. Kuhn. “As it always does.”

Copyright 2001 Crain Communications, Inc

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