1m s/f in leases lined up for new Freedom Tower

Real Estate Weekly, Sept 13, 2006 by Daniel Geiger

State and Port Authority officials stated last week that the one million square feet of preliminary leasing commitments that had been sought for the Freedom Tower will likely be secured in time for the Port Authority's board meeting on September 21, a deadline that had been set by the building's stakeholders to decide if the iconic tower was economically feasible.

The commitments, whose monetized value has been described as essential to financing the building, mean that the tower's construction will likely proceed as planned on a site where no project, despite pronouncements and groundbreaking ceremonies, has seemed certain in the five years since 9/11. Speaking at the unveiling of the designs for the World Trade Center site's three other office buildings, Towers 2, 3, and 4, Governor George Pataki revealed that negotiations with a number of tenants had advanced to the point where documents that establish a memorandum of understanding had been issued.

Such memorandums don't always result in a lease but are considered by real estate experts to generally be a strong indication that a deal will be completed.

"The MOUs are out there," Pataki said. "Whether or not they're all signed I don't know but we're very optimistic that the one million s/f will be in place."

The leases come just before the Port Authority's board meeting next week, during which its executives are scheduled to formalize an April agreement with Silverstein Properties that outlines the redevelopment plan for the World Trade Center site that the two parties have so far been operating under. As part of that plan, the Authority agreed to take on ownership and development of the Freedom Tower.

But in June, Port Authority chairman Anthony Coscia thrust the tower's future into uncertainty when he hinted that the building might not be able to reach a one million square feet pre-leasing target whose monetized value he said played an essential role its financing. Questions emerged whether the building, whose 2.6 million s/f size and soaring height made it the site's most symbolic commercial development, would have to be scaled down or if it would even be built at all.

Just a few weeks later however, Coscia and other Port Authority officials confirmed that the building had entered into a memorandum of understanding with the U.S. General Services Administration for US Customs to take 600,000 s/f of space in the Freedom Tower, an agreement that did much to relieve the doubt surrounding the building's development. "The letter of intent is a great sign of progress," Coscia said at the time.

Represented by the GSA, a federal organization that provides a broad array of government agency support functions including real estate services, U.S. Customs committed to roughly the same amount of space it had previously occupied on the site. The agency was the sole tenant at 6 World Trade Center, a 7-story, 540,000 s/f building that was severely damaged by the collapse of the Twin Towers and subsequently had to be demolished.

During the months-long feud between Silverstein Properties and the Port Authority, it became clear that Larry Silverstein was willing to release his control over the Freedom Tower because the building was considered the site's least commercially viable property. Not only is it farther from the area's transportation hubs than Towers 2, 3, and 4, it has smaller floorplates and is seen as the site's most likely potential terrorist target, a perception that precipitated the building's complete redesign to address security concerns last year.

The Governor, for whom the building plays an important role in his legacy, as well as the Port Authority consequently came up with the plan to lease much of the building to state and federal government agencies, perhaps the only group of tenants that realistically can be counted on to take significant space in the building.

The Governor's deputy and downtown development czar, John Cahill confirmed that the roughly 400,000 s/f of leasing activity since the lease with US Customs was being done with both federal and state agencies. He said that he couldn't yet comment on which agencies would be signing leases.