Report: Most Displaced Firms Relocating in Manhattan; but Will They Stay? - a Site Selection Online Insider Special Report

NEW YORK -- As America continues to grapple with Sept. 11's grim emotional and physical carnage, New York's 1,300 displaced businesses are continuing, as they must, with the most massive repositioning of business space in U.S. history.
Concurrently, a larger question persists: Where will that army of dislocated businesses, which includes an estimated 80,000 to 100,000 employees, land for the long haul?

Photo by Paul Golden, World Development Federation

Some New Yorkers strongly favor turning the WTC site into a shrine prominently featuring
the South Tower's twisted aluminum facade (pictured), which was dismantled on Sept. 25.
Others favor, just as strongly, building an operational site as a symbol of refusing to surrender.

Some analysts are pessimistic about Manhattan's ability to retain those displaced businesses. One of them is James Meiskin, president of New York City-based tenant representation firm Plymouth Partners (www.plymouthpartners.com).
"I expect New York City's commercial real estate market, which is closely tied to the financial markets, to experience deep decline as we enter into a recessionary environment," he said. "Overall, I'm very negative about the future of the New York City real estate market and the city's economy," added Meiskin, who in these pages last week predicted "a mass exodus from Lower Manhattan."
But hold the phone. A new "In-Depth Special WTC Report" from Insignia/ESG (www.insigniaesg.com) points toward a diametrically different outcome.
"The vast majority of displaced tenants to date have been able to find space in Manhattan, which had 25.8 million sq. ft. (2.32 million sq. m.) of available space at the time of the incident," Insignia/ESG contended.
Said Insignia/ESG Vice Chairman John F. Powers "Although none of us will ever forget the horrific human toll at the World Trade Center, we firmly believe that the recovery of Downtown Manhattan will move forward with dispatch.
"By no later than Jan. 1, 2002, we believe that the majority of dispossessed tenants will have returned to the buildings that sustained window and façade damage, and much progress will have been made in repairing the three most structurally damaged properties," Powers continued.
"Downtown Manhattan will continue to be one of the largest and most attractive office districts in the nation."

Report: Damaged Space Online in Nine Months

The Insignia/ESG report estimated that 13.4 million sq. ft. (1.2 million sq. m.) of space was destroyed in the Sept. 11 attacks. (Other estimates have placed the total higher. Grubb & Ellis, for example, estimated that 15.5 million sq. ft. (1.4 million sq. m.) of prime Manhattan office space was destroyed.)
"Those [destroyed] buildings constitute less than 4 percent of Manhattan's entire office inventory of approximately 353.7 million sq. ft. (31.83 million sq. m.)," the Insignia/ESG report asserted. Another 15.3 million sq. ft. (1.37 million sq. m.) of space was damaged in the attacks, Insignia/ESG estimated. The report contains detailed projections for the timeline for bringing that damaged space back online.
Three buildings comprising 4.8 million sq. ft. (432,000 sq. m.) - 3 World Financial Center, 140 West Street and 130 Liberty (Bankers Trust Plaza) - "sustained some structural damage," according to Insignia/ESG. "It is believed that these buildings can be repaired within nine months," the report noted.
Another seven buildings totaling 10.1 million sq. ft. (909,000 million sq. m.) - 1 and 2 World Financial Center, 1 Liberty Plaza, 101 Barclay Street., 90 and 100 Church Street, and 22 Cortlandt Street - suffered "window and façade damage," Insignia/ESG reported. "These buildings . . . are expected to be habitable by office tenants within two to three months," the report asserted.
Insignia/ESG also noted that another building, 4 World Financial Center (the American Express Tower) "was not significantly damaged, but remains inaccessible at present due to debris, the destruction of the north pedestrian bridge and damage to the south pedestrian bridge."

1991 Philly Fire a Parallel?

But even if the 15.3 million damaged sq. ft. come online that rapidly, will the companies that once occupied them return?
Most of the 1,300 displaced business operations will likely have a choice. Most leases have clauses allowing tenants to opt out in the event of a disaster.
Analysts have searched for historical parallels to provide perspective for the real estate shakeout. Those parallels have included 1871's Chicago fire, which killed 250, and 1920's bombing outside Morgan Bank at the corner of Wall Street and Broad, which killed 38. (Anarchists were suspected of planting the bomb in a horse-drawn wagon, but the crime was never solved.)
More likely, there is no proper parallel for the horror, slaughter and scale of Sept. 11.
Perhaps the closest approximation happened in Philadelphia in 1991. In what Philadelphia officials called "the most significant fire in this century," One Meridian Plaza, a 38-story, 1 million-sq.-ft. (90,000-sq.-m.) high-rise, was destroyed by a late-night blaze. That fire, which burned for more than 19 hours, destroyed 2.5 percent of a Philadelphia office market that then totaled 40 million sq. ft. (3.6 million sq. m.). As in New York, the disaster closed streets needed to access nearby buildings.

'Only a Handful Have Relocated Outside Manhattan'

Many of Philadelphia's displaced business operations relocated to the suburbs. Most thought the moves would be temporary. In fact, though, many permanently located outside the city's center. Some observers have predicted a similar scenario in New York.
But that's not what's happening, according to Insignia/ESG. Its report noted, "Only a handful of displaced tenants have relocated outside Manhattan. The Hoboken/Jersey City waterfront - an extension of the Downtown Manhattan market - has garnered the most interest outside Manhattan."
The report recounted some major deals that buttressed that argument. Insignia/ESG reported 10 deals "of at least 79,000 sq. ft. (7,110 sq. m.)" as of September 21st, the majority of them in New York. Those deals included:

Bank of New York, two deals: 229,000 sq. ft. (20,610 sq. m.) at 330 West 34th Street, and 79,000 sq. ft. at 111 Eighth Avenue;
Hartford Fire Insurance, 145,000 sq. ft. (13,050 sq. m.) at 2 Park Avenue
US Customs, 118,000 sq. ft. (10,620 sq. m.) at 2 Penn Plaza;
Thacher Profitt & Wood, 100,000 sq. ft. (9,000 sq. m.) at 11 West 42nd Street;
Zurich-American Insurance Group, 95,000 sq. ft. (8,550 sq. m.) at 601 West 26th Street;
American Express, three deals totaling 681,000 sq. ft. (61,290 sq. m.) in New Jersey and Connecticut; and
Lehman Brothers Holdings, 175,000 sq. ft. (15,750 sq. m.) at 70 Hudson in Jersey City, N.J. "Another 3.5 million sq. ft. (315,000 sq. m.) of leases are pending," the Insignia/ESG report indicated.

What Future for FTC Site?

Still unsettled is the fate of the site of the World Trade Towers, once the twin stars of Manhattan's picture-postcard skyline. One voice calling for rebuilding is Larry Silverstein, the New York developer who led a consortium that took over a 99-year, $3.2 billion lease on the WTC in July. Silverstein is not advocating "a carbon copy of what was." He's suggested that he may construct four 50-story buildings. WTC's Twin Towers before attack

"The reality is, once we care for the human needs, I personally feel we have an obligation to our children and our grandchildren and the world," he said. "We can get this done. . . . Let's get to it and get to it today."

Larry Silverstein, the New York developer who led a consortium that took over a 99-year, $3.2 billion lease on the WTC, has suggested four 50-story buildings to replace the World Trade Towers, once the twin stars of Manhattan's picture-postcard skyline.

In fact, though, it may be quite some time before it's clear what will occupy the WTC site. Some New Yorkers, for example, strongly favor turning the WTC site into a shrine that would prominently feature the South Tower's twisted aluminum facade (which was dismantled on Sept. 25).
Then there's the fact that the Port Authority of New York and New Jersey, not Silverstein, owns the site. Said Silverstein, "There is no doubt in my mind that we'll have the cooperation of the port, the insurance carriers and the political leaders." But, as of this writing, the Port Authority has taken no stance on rebuilding. And there's also the matter of the consortium having no tenant rents to funnel into making its lease payments to the Port Authority. Plymouth Partners' Meiskin thinks that the 25 million sq. ft. (2,250 sq. m.) of direct and sublease space available on the market will preclude any new development in New York City.
"This space has been sitting on the market languishing for a lengthy period of time, and is largely being marketed at very reduced rents," Meiskin said. "Thus new construction, which in today's world requires at least $75 per square foot in rent to break even, would never be able to compete, and would also take too long to build. We're talking about a 24-to-36 month process at the very least."
That may be logical enough. For many, though, the issue transcends logic. A significant number in that group lean strongly toward Silverstein's argument:
"If we don't rebuild it, we give in to the people who resort to destroying our way of life. To those who lost their lives and who almost lost their lives, this is our obligation."