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
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
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