JLL’s Downtown Don: John Wheeler
Lauren Elkies Schram March 20, 2014, 1:30 p.m.
John Wheeler was tapped in March 2012 to run JLL’s lower Manhattan office after returning to the firm in 2009. He is a managing director at the company and has been with JLL for 14 years. He had two stints working on the principle side of the business for Gramercy Capital and Antares Real Estate Partners. Today he directs JLL’s efforts on Gramercy Capital’s 13.5-million-square-foot national portfolio. A couple of his key transactions have been a 500,000-square-foot sublease to Morgan Stanley at 1 New York Plaza and a 450,000-square-foot master lease to the City of New York at 180 Water Street. In his entire career, Mr. Wheeler, 52, has negotiated 13 million square feet of leases for clients. Last week, Commercial Observer sat down with Mr. Wheeler in his office at 140 Broadway and talked about lower Manhattan post-Superstorm Sandy, leasing prices being pushed from the bottom up and the newly distinguished submarket of the Water Street corridor.
You direct JLL’s efforts on Gramercy Capital’s portfolio. That’s a company for which you used to work. What’s it like to be on the other side?
Mr. Wheeler: I left JLL to go on to the principle side of the business and Gramercy was the firm that I came back to JLL from. It’s been great because I have great relationships with their leadership. I’ve got knowledge of what their objectives are, what their challenges are. And I’m able to meld our teams’ efforts to support that.
JLL considered you its go-to guy after Superstorm Sandy. What made you the guy for that job and what did you do?
Well, I came back down here to strengthen and grow our footprint in this marketplace because I had spent so much time in lower Manhattan. When I came over in 2003 after Peter Riguardi joined the New York operation, I came to open up the lower Manhattan office for JLL and really establish a footprint down here and that’s because I had been down here for so long. I’m now approaching 25 years of involvement in the marketplace being physically located here. So when Sandy arrived, they didn’t turn to me and say, “Get Wheeler on it.” What we did is we were looking around and saying, “This is unprecedented. What does it mean? What’s the scale?” We very aggressively went about tallying up what the impact was of the storm, how many buildings were out, square footage, what type of issues they had. We actually got some resistance from our competitors and others in the real estate industry as our information started to get picked up.
We were looking at all the commercial buildings. Many did not want to provide any information. Furthermore, we received some negative feedback because they felt that we were highlighting negatives about the marketplace. We just felt obligated to quantify it. You can’t look around and just say, “It’s bad out there.” How bad is it? How many people and businesses are disrupted? The irony of it is, by virtue of us tracking it so aggressively, we were able to chronicle how dramatic and quick the return was of the assets. By the time we got to the year’s end, there were only four buildings that had been knocked out by Sandy that were not open for business, which was remarkable.
Similarly, we now have been able to see that it’s not just opinion that lower Manhattan is back. Many of the buildings that were more directly impacted have had significant leasing success post-Sandy.
Starting in first-quarter 2014, JLL is viewing lower Manhattan as four submarkets (Tribeca/City Hall, World Trade Center, Financial District and Water Street Corridor) rather than three submarkets (City Hall/Insurance District, Financial District and World Trade Center). Why?
We were looking at the subdistricts that we had carved out. It didn’t really correspond to the business as we see it and as we’re involved in it. We started to listen to ourselves. When an investor would come down for an overview, when a tenant would come in to the market for an overview, we found ourselves referring to the Water Street Corridor. There is a physical geographic cohesion to that market. There’s similarity in the trends that are happening there that really bind it as a market today.
To my knowledge we are the only one that has distinguished the Water Street Corridor as a submarket.
What’s the advantage of that?
We think it reflects the market as it is today and we think that when you look at Water Street and those buildings you want to understand how they are performing, where their price points are versus the other subdistricts. The center of lower Manhattan has really moved north and west from Wall Street and is more proximate to the transit hubs that are being completed today and the [World] Trade Center. You’ve seen buildings such as 195 and 222 Broadway outperform the market because that’s where the center of the market has moved and tenants covet that location more than in the past.
How are lease terms now?
Because of the activity the rents have been rising. What’s interesting is a lot of the rental increases are being pushed up from the bottom. So two years ago many of the leases being signed were in the low $30-per-square-foot range—really good values, good quality buildings. A lot of the significant leasing that would be in the higher quality B-type product and A-minus product could be in the low-$30s to mid-$30s. Today you’re very hard-pressed to find anything of value in that price range. It’s all been pushed up in the upper $30s. Your Water Street Corridor buildings are holding relatively steady in the low- to mid-$40s. The top end of the market had a lot of success as well, with 17 State Street and Brookfield Place, in particular. Their better spaces are getting in the $50s and even in the $60s.
At what point will lower Manhattan be able to forego incentives?
The rental abatement is one month per year, so a 10-year deal with 10 months outside the term would not be uncommon and would be less when the landlord is building the space. That’s typically the first concession to decrease and then you’ll see the cash allowance start to be squeezed.
How have residential projects contributed to Downtown’s commercial growth?
There are two drivers. The first is that we’ve had over 15 million square feet of tertiary type of product get pulled out of the office supply and be converted to residential. So that’s been a big driver of maintaining the health of the office market. Those buildings didn’t warrant further investment as office buildings.
The second thing, and it’s probably bigger, is the overall growth of the residential market and lower Manhattan has finally gotten the critical mass necessary to make it a seven-day, 24-hour kind of community.
Where do you live?
I live in New Jersey.
If you lived in Manhattan, would you live in lower Manhattan?
I’d be very happy to live here. Some of the kids in my office walk to work and that’s a big change. In the ’90s, nobody that worked in my office walked to work.
Where in lower Manhattan would you live?
Probably because I’m older I’d go over to Battery Park and grab a nice waterfront location there.
What is the greatest misconception about lower Manhattan today?
It’s manifold but what we’ve seen is that most people who have not been down here still frame the market in the 1980s mindset, and so they’re still thinking Gordon Gekko and big institutional pinstripe suits dominating everything and no amenities and no diversity down here. What I think we’re poised for is a real paradigm shift once the transit hubs open up and the construction barriers come down from around the Trade Center site. We are very near Condé [Nast]’s relocation down here in October or November of this year. That’s going to be a dramatic change. You’re going to have over a million square feet of young professionals down here. You’re going to have follow-on industries that are here. You’re going to have amenities that appeal to that clientele.
What do you expect to see Downtown in 10 years?
I expect what’s being done here will have created this millennium’s Rockefeller Center. So what I see in 10 years is this fully mature place that is really coveted for its unique attributes. If you look at lower Manhattan, 20 percent of the area below Chambers [Street] is parks and green space. It’s less than two percent in Midtown.
Any other Downtown trends you want to note?
I think the demographic shifts that are happening with the population are really a key long-term harbinger for the success of Downtown. I mean, I have a guy in my office, he’s 30-something years old. He’s got one child. When he moved out of Manhattan, he went to Brooklyn. Brooklyn and the Jersey waterfront are really going to be much more important as today’s suburbs.