September 28, 2008 / 6:40 PM / in 9 years

Crippled financial industry may crimp downtown NYC

NEW YORK (Reuters) - Seven years after the September 11 attacks, a financial windstorm shaking Wall Street may have slowed New York’s drive to rebuild the World Trade Center and revitalize Manhattan’s downtown neighborhoods.

The near collapse of the financial industry -- New York’s engine of growth driving jobs, office rents and apartment sales prices and rents -- will likely take a bite out of the city’s economy, experts say.

Lower Manhattan, whose crown project, the rebuilding of the World Trade Center site and its 10 million square feet of commercial real estate, is seen as the most vulnerable.

“The entire chain of failures will also hamper our ability to rebuild my hometown of Lower Manhattan, to recover the jobs we lost after September 11, and to regain our status as the nation’s third-largest central business district,” State Assembly Speaker Sheldon Silver, a Democrat who represents Lower Manhattan, said recently.

The 2.6 million square-foot Freedom Tower originally was expected to be completed by 2009, with three other buildings opening through 2013. But construction and bureaucratic delays have pushed that schedule off the page.

The Port Authority of New York & New Jersey, the agency that owns the site, is scheduled to issue new timetables and cost estimates on Tuesday.

Ironically, the Port Authority’s inability to stick to a schedule may work to Manhattan’s advantage, planning and real estate experts say.

“It’s a godsend,” said David Arena, president of the New York business for real estate services company Grubb & Ellis Co.

Manhattan’s current 357 million square-foot office market is expected to take a hit from the layoffs created by the downfall of Bear Stearns and Lehman Brothers, the troubled insurer American International Group (AIG), Bank of America Corp’s buyout of Merrill Lynch -- who leases 4.2 million square feet downtown -- and the overall shrinkage of the financial industry.

Office market rents are expected to fall about 7 percent annually over the next three years, according to Grubb and Ellis. The average asking rent at the end of August stood at $68.39 per square foot, and $50.72 for downtown.

Office vacancy rates, which now stand at 5.7 percent for Manhattan and 6.9 percent for downtown, could go as high as 9.5 percent before the end of the 2009, Arena said.

But most think the World Trade Center project should go ahead because Manhattan has a shortage of new office buildings and will eventually need them.

“I think that the financial world is never going to be the same, but that doesn’t mean it will disappear,” Owen Gutfreund, director of the Barnard and Columbia Urban Studies Programs of Columbia University, and former vice president of investment bank Lazard Freres & Co.

“I think it will slow the pace at which the rebuilt World Trade Center will be leased, but I don’t think we should give up on the entire project,” he said.


A new World Trade Center would have boosted the city’s effort to turn lower Manhattan into a round-the-clock, live-work hub, said Jonathan Miller, president and CEO of appraisal firm Miller Samuel.

“It’s moved more in that direction in the last five years than in the last 20, but it still has a way to go,” he said.

Almost 100 new stores and restaurants have opened there since 2002.

The state labor department expects Wall Street to lose 40,000 jobs, perhaps permanently, which means the city’s service industry could lose another 80,000 workers, in fields ranging from retail shops to law firms.

Lower Manhattan’s future could rest on residential development, which has seen its population double to about 57,000 since 2001, as a older, obsolete office buildings were converted into trendy apartments for Wall Street whiz kids, said Mitchell Moss, professor of Urban Policy and Planning and director of the Taub Urban Research Center at New York University.

“That’s going to turn out to be one of the great ironies that the residential development is going to create the demand for office space,” Moss said, “because people enjoy working near where they live.”

But financial sector job losses could drive down prices for apartments 20 percent to 25 percent, more than the rest of the city, said Bill Staniford, chief executive of real estate data web site

“The buildings that have gone after this young hot Wall Street crowd will be the most vulnerable,” said Pamela Liebman, chief executive at The Corcoran Group, which specializes in luxury homes in the metropolitan area.

“Finance is one of the more dominant buyer profiles that you’ll see, so obviously it’s a concern,” said Angela Ferrara, a vice president of sales for The Marketing Directors, sales agent for The Setai, a luxury building at 40 Broad Street.

The week after Lehman Brothers failed, brokerage Cooper & Cooper received several calls from clients who needed to break their lease or could not take a new apartment, according to the brokerage’s Vice President Jed Cohen.

Additional reporting by Joan Gralla, editing by Maureen Bavdek

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