Comeback city: New York City has fully awakened from its Sept. 11, 2001, nightmare, with more than 11.5 million square feet of office space under construction or planned—and that's just in Manhattan. Rental and condo buildings are popping up everywhere, and multibillion-dollar waterfront projects are in the works

Mortgage Banking, July, 2004 by Albert Warson

NEW YORK GOVERNOR GEORGE PATAKI AND MAYOR Michael Bloomberg presided over the laying of a 24-ton Adirondacks granite cornerstone in the excavated site of the destroyed World Trade Center towers on July 4. Not quite three years have elapsed since the catastrophic Sept. 11, 2001, terrorist attacks.

There is no date more stirring to Americans' sense of patriotism than the Fourth of July. Nor has the significance of the Freedom Tower's 1,776-foot height been lost on anyone with even a passing acquaintance with American history.

While the event was laden with emotion, it was also something of a curtain-raiser for a commercial real estate revival unfolding in Manhattan and some of the other boroughs. The city is witnessing a seemingly unstoppable rental and condo building boom.

"The city is engaged in an overlapping, intensely focused process of remembrance and rebuilding" is the way John E. Zuccotti, chairman of Brookfield Properties Corporation, Toronto and New York, and the Real Estate Board of New York, described it to a real estate conference in Toronto in early December.

"Downtown is rebounding," he said, singling out residential and commercial markets, improving transportation, new parks and better-aligned streets, a few heavy-hitter corporations like Goldman Sachs Group, law firms and other service-sector professionals, and small businesses and retailers trickling into lower Manhattan.

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Shirley Jaffe, vice president of economic development at Alliance for Downtown New York (representing the area below Chamber Street), says most of the space leased over the past two years has been by small companies under 10,000 square feet, such as law firms, architectural practices, design and consulting firms and the like. These firms took advantage of incentives that lowered rental rates and still left them room to grow.

Zuccotti says that while there aren't any million-square-foot tenants among the returning or incoming businesses just yet, New York's Silverstein Properties has the 1.7-million-square-foot 7 World Trade Center building well under construction across from the World Trade Center site. (There are no tenants, but New York owner/developer Larry Silverstein can nonetheless afford to build on a "spec" basis, flush with more than $2.5 billion in cash he has to play with, provided by the insurance coverage pay-off on the World Trade Center's twin towers, which he bought a few months before Sept. 11, 2001.)

Zuccotti also notes that more than 4.2 million square feet of midtown office space built or planned represents more commercial space added to the city's inventory in any one year since 1990. It includes the Time Warner Center at Columbus Circle and the 1.1-million-square-foot Brook field office tower.

At the time of his remarks, the residential occupancy rate in Battery Park City, the community closest to ground zero, was about 97 percent, with another 2,500 apartments planned for 2004.

"Residential activity is also convincingly showing that the lesson of 9/11 isn't stasis," Zuccotti said. "Indeed, in the slightly more than two years since that date, there has been the largest surge of residential growth in nearly 20 years--with more than 30,000 units under or pending construction and 20,000 more in advanced planning."

$800 a square foot

Real estate values keep rising and properties sell for astonishing prices--the General Motors Building sold for $800-plus per square foot and a Park Avenue building for more than $625 per square foot, according to Zuccotti. One condo unit at the Time Warner complex recently sold for $45 million, and there is nothing exceptional about condominiums fetching more than $1,000 per square foot.

In an interview with Mortgage Banking in late May, Zuccotti noted that Governor Pataki had recently approved a rapid transit line to connect lower Manhattan with John F. Kennedy International Airport as well as Long Island City. Only $3 billion of $6 billion to pay for it is in hand, he says, but then most projects in New York proceed with only a quarter of the financing, so it's really a "positive thing," says Zuccotti.

Residential land values are much higher than for commercial land for the first time in New York's history, Zuccotti adds. The cost of midtown land zoned residential is approaching $300 per square foot, compared with $150 to $180 per square foot for land zoned commercial.

"Brownstone houses in Brooklyn that sold for $500,000 are selling for as much as $1.3 million," Zuccotti says. "I'm very heartened, considering where we were two years ago," he says.

So is Steven Spinola, president of the Real Estate Board of New York. He reports that as of May 2004, the board identified 5.8 million square feet of office space under construction in Manhattan alone. Another 5.7 million square feet are planned, with the potential, based on the board's knowledge of its members' plans and access to other industry sources, for a whopping 29.7 million square feet--for a total of 41.2 million square feet.