On Top of the World: Durst Organization Director of Leasing Eric Engelhardt on Leasing Up 1 WTC
Gus Delaporte Oct. 15, 2013, 11 a.m.
In 2010, with 1 World Trade Center rising slowly in the skyline of Lower Manhattan, the Durst Organization had a problem. The developer and its ownership partners at Port Authority still hadn’t secured an anchor tenant for the project.
Eric Engelhardt, who had previously sat across the table from the Port Authority pitching the case for a role in the development, was then part of Durst’s acquisitions and development group, and this time was on the same side of the table as the government agency—pitching Condé Nast.
In the months preceding the negotiations, CBRE’s Mary Ann Tighe and Greg Tosko had taken the publishing giant—headquartered coincidentally at Durst’s 4 Times Square—out into the market to look for a new home. The power duo left no stone unturned. Eventually their search led the group to 1 World Trade Center.
“They began a conversation first with [Cushman & Wakefield’s] Tara Stacom and then the group began to expand to include the Dursts, Port Authority and the Newhouse family,” Mr. Engelhardt said from Durst’s 1 Bryant Park headquarters, overlooking both the Empire State Building and 1 World Trade Center.
Those tense negotiations yielded a 25-year, 1-million-square-foot lease for Condé Nast, a venerable publishing house whose roster of magazines includes such well-known names as the New Yorker, Vogue and Vanity Fair. The deal, estimated to be worth around $2 billion, quickly brought credibility to a project that, until that point, had been recognizable more for its logistical sputtering than its leasing successes.
Fast forward to 2013 and Mr. Engelhardt has come full circle. After a six-month hiatus working on potential acquisition and development opportunities elsewhere in the city, Mr. Engelhardt has been appointed director of leasing at 1 World Trade Center. No small task—15 months from launch, the tower still sits 45 percent vacant, with nearly 1.5 million square feet of space available at the Downtown tower.
Having Condé Nast committed to the building, it is hoped, will help spur things along. “Condé is a trendsetter and I think it has helped to garner some interest at 1 World Trade,” Mr. Engelhardt said.
Furthermore, expectations are when the fences around the construction site come down early next year and 1 World Trade Center begins to transition into the fabric of Lower Manhattan, the leasing velocity will escalate.
“The World Trade Center site has been something to look at from afar, and when those fences come down, it will no longer be something just to look at,” Mr. Engelhardt said. “It will be a place people can experience and will want to be a part of.”
Having already snagged a prominent media tenant, the Durst Organization is keen to tap into both the changing tenant profile Downtown and the growing residential communities in the area and in nearby Brooklyn. As the residential population in Lower Manhattan has close to doubled in the last decade and Brooklyn has emerged as a viable alternative to Manhattan, Lower Manhattan has become an attractive option for commercial tenants.
“When I first came into the industry 17 or 18 years ago, Downtown was Wall Street-centric,” Mr. Engelhardt said. “People were still going to the trading floor and at 4:00 or 4:30 everyone cleared out of Dodge. Now you’re seeing people who want to spend more time Downtown.”
The Durst Organization has gone as far as setting aside 100,000 square feet in the tower for prebuilt and build-to-suit programs for tenants not in need of a lot of space — a reaction to a series of requests the company had been receiving.
“These two floors are floors by which Condé Nast has the right to expand on 10 years from now,” Mr. Engelhardt said. “It makes a whole lot of sense to engage a smaller-scale tenant community.”
Mr. Engelhardt speaks optimistically about his task at 1 World Trade Center, but the fact remains that no major corporate tenants have signed a lease at the building since Condé Nast committed.
However, the stagnant leasing activity has not been isolated at 1 World Trade. Larry Silverstein’s planned 3 World Trade Center development had struggled to find an anchor tenant, though reports indicate advertising giant GroupM has come to a preliminary agreement to take more than 500,000 square feet there.
The tide will soon change, Mr. Engelhardt said.
“2014 is going to be a very busy year for us and the Cushman team, and frankly, I hope so for Mr. Silverstein and their CBRE team,” he said.
Mr. Engelhardt is no stranger to difficult situations and complex deals. Twice in his career, the 41-year-old has been part of a deal that won REBNY’s Ingenious Deal of Year award—though not without hiccups along the way.
In 2000, just four years into his career, the Long Island native was part of an Insignia ESG deal team that worked to bring Arthur Andersen in as the anchor tenant at Boston Properties’ Times Square Tower. Though the leasing team had already lined up a number of tenants in the building, once the accounting firm expressed interest, a scramble was on to move those tenants elsewhere.
“Some of the tenants are confidential, but one of those happened to be Insignia ESG, so that was an easier conversation,” Mr. Engelhardt said. “I was the relatively junior guy on that team, but I think John Powers magnificently played mediator between multiple parties.”
But the ending was not all happy. Arthur Andersen soon found itself embroiled in the Enron scandal, and in 2001 voluntarily surrendered its accounting licenses following criminal charges related to the firm’s auditing practices for the energy company. In the summer of that year, it negotiated with Boston Properties to terminate its lease agreement.
“The intention at the real-estate level was still creative and complex within itself,” Mr. Engelhardt said of the outcome. “When Arthur Andersen went down, we went looking for new tenants and shortly thereafter, I went to Durst.”
Having started at Edward S. Gordon in 1996 fresh off earning a Bachelor’s degree in architecture, Mr. Engelhardt spent the early part of his career being acquired by larger firms, first by Insignia and later by CBRE. His experience, which stretched from consulting to agency, left him in a good position when the Durst Organization called him in 2003.
“Durst was going through growth,” he said. “They had just shaken hands with Bank of America to anchor 1 Bryant Park and they wanted to staff up.”
Despite the disappointing outcome of the Arthur Andersen deal, a successful conclusion to a complex transaction in his new position was right around the corner, and with a publishing company, no less.
In 2004, Mr. Engelhardt, a newly minted vice president at Durst, teamed up with colleague Tom Bow to carefully restack the developer’s 733 Third Avenue property for Rodale Press. The deal, which required Durst to accommodate the needs of seven tenants, concluded with Rodale locked in as the building’s largest tenant.
“Rodale moved into a large block of floors and now anchors the building and 733 holds their name,” Mr. Engelhardt said. “There were a lot of moving pieces and people with disparate goals and objectives.”
Not long after, it was developments and acquisitions that were the focus of Mr. Engelhardt’s attention, not 1 World Trade Center at first, but Hudson Yards, pitching the project to the MTA alongside Vornado.
Though that pitch ended in disappointment, with Related Companies taking the reins on the far West Side, the experience prepared Mr. Engelhardt for what was to come in negotiations with Port Authority for 1 World Trade Center.
“After that daunting task, we had our sleeves rolled up and were ready to hit the ground running,” he said.