Are We There Yet? A World Trade Center Progress Report
Daniel Edward Rosen Sept. 11, 2012, 7 a.m.
The Silverstein Properties marketing center on the seventh floor of 7 World Trade Center has the air of a sacred vault. After entering past the sliding glass doors, visitors are greeted by a hallway lined with pictures documenting the World Trade Center’s sometimes contentious, sometimes momentous journey from somber graveyard to gleaming new development featuring state-of-the-art office space and retail.
Pictures depicting union construction workers at a 2010 protest and Larry Silverstein unveiling Jeff Koons’s balloon flower monument outside 7 World Trade Center compete for space with five LCD televisions broadcasting Silverstein promotional videos.
But the most effective marketing in the entire suite may be the building itself.
“Seven World Trade Center is kind of the model, because we opened it six years ago,” said Janno Lieber, president of World Trade Center Properties, a subsidiary of Silverstein Properties. “No tenants. Everybody was gnashing their teeth and tearing at their hair about that. And now we’ve fully leased it.”
The remaining World Trade Center towers are experiencing a similar situation. It’s still too early to predict whether companies will flock to the Downtown market once the buildings are completed. But just a few years away from opening to the public, the key properties are nearly 50 percent leased, according to Mr. Lieber and published reports.
The building known as 4 World Trade Center, the 72-story asset co-owned by the Port Authority of New York and New Jersey and Silverstein Properties, boasts the city Human Resource Administration as a major tenant. When the building opens 2013, it will have already been at least 50 percent leased, according to Mr. Lieber.
One World Trade Center, operated by the Durst Organization and the Port Authority, is 55 percent leased. The fate of 3 World Trade Center rests on whether Silverstein Properties can find an anchor tenant in time to prevent the building from being capped at seven stories. Plans for 2 World Trade Center are moving forward slowly.
Despite these developments, Silverstein Properties officials remain confident that, as with 7 World Trade Center, tenants will eventually sign deals.
“That’s part of the reason you find us pretty calm about where things stand right now,” said Mr. Lieber. “In fact, we’re in better shape than we were back then.”
Once completed, the new World Trade Center complex promises to significantly alter the landscape of lower Manhattan, transforming the buttoned-up office environment of financial firms and white-shoe law offices into a melange of publishers and tech workers. Nothing exemplifies that more than the Condé Nast deal at 1 World Trade Center. Since inking in early 2011, the publisher of Vanity Fair and The New Yorker has succeeded in injecting style into lower Manhattan where many others have not.
“Condé is the confirmation that it’s not just the insurance companies and law firms that work Downtown,” said CBRE Tristate Chief Executive Mary Ann Tighe, who represented Condé Nast’s 1-million-square-foot lease.
That deal alone has acted as a selling point across the Downtown market, brokers said. Why stay in Midtown when the fashionable sorts are working in sparkling new buildings? Brokers have been using this pitch on clients while touring 7 WTC.
Law firm WilmerHale moved into its 210,000-square-foot offices at 7 World Trade Center in July. Brokers have been highlighting WilmerHale’s environmentally friendly new offices as a selling point showing what a new home at the World Trade Center will be.
Ms. Tighe said she toured Condé Nast through a number of Downtown offices, including a handful of floors at 7 World Trade Center, to give the publisher a sense of what life Downtown could be.
“In order to explain what the 21st century looks like, you need to actually walk a floor,” she said. “We looked at the built space, we visited a number of offices in 7 World Trade.”
But some recent reports argue that most firms are not going to be following Condé Nast’s lead. Last week, Reuters reported that law firms and banks are not falling for the Downtown carrot, opting instead to remain close to their clients in the Midtown market.
Aided by tax breaks and environmental incentives, average asking rents in the new World Trade Center range between $75 and $80 per square foot, according to Cushman & Wakefield. Low rental rates, however, may not be enough to woo tenants away from their current lease deals in other markets.
“Some people don’t quite see the vision that Si Newhouse did in trailblazing what will really be realized at the site, with the Calatrava train station, with the eight acres of the park, with all the incredible retail space that will be opening on the site,” said Tara Stacom, vice chairman at Cushman & Wakefield who is representing the Durst Organization in leasing 1 World Trade Center. Ms. Stacom’s team will be unveiling the marketing materials for 1 World Trade Center sometime in the approaching weeks. In the meantime, in order to sell an unfinished product, one that is literally covered in fencing, Ms. Stacom has been taking her prospective tenants on tours of the Memorial park and to 7 World Trade Center. Having seen what a finished floor plate can look like comes handy when a tenant tours a raw floor at 1 World Trade Center, Ms. Stacom added.
There is opportunity for tenants in the Downtown market, and there may be movement toward that market from Midtown South. The overall vacancy rate in Manhattan was 9.3 percent, added Ken McCarthy, a senior economist at Cushman & Wakefield, while the vacancy rate in Midtown South was at 6.1 percent in the second quarter of 2012, making it the tightest market in the country. Downtown’s overall vacancy rate was at 8.9 percent during the second quarter of 2012.
“Tenants who can’t find space in Midtown South anymore are now starting to look Downtown as well as [in] Midtown,” said Mr. McCarthy. But the World Trade Center may not be the kind of destination these tenants are seeking.
“A Midtown South tenant would tend to look at different kinds of properties than the newer buildings,” he added. “We definitely know that tenants are still looking at some of the major properties as well, and that will continue to be the case.”
For 1 World Trade Center, now two years away from building out Condé Nast’s offices, those working to lease the Durst Organization-owned tower are pleased with its current vacancy rate.
“We can turn over to the next tenant sometime in the second quarter, maybe third quarter, of 2014, so we’re confident as we continue to actively tour—as again this afternoon we have another 12 people touring the site—that we are well on our way to what we are considering a very successful campaign,” said Ms. Stacom.
“Two years is more than enough time.”