Wall Street Journal – by Eliot Brown
The owners of the tallest tower at the World Trade Center are cutting office rents just months before it opens because of slow leasing activity.
Only one private tenant has signed a lease at One World Trade Center in nearly three years: a one-floor deal with advertising firm Kids Creative that was signed last week. The 3.1-million-square-foot skyscraper, formerly named the Freedom Tower, is 55% leased.
The owner—a venture of developer Douglas Durst and the Port Authority of New York and New Jersey—is cutting asking rents nearly 10% to $69 a square foot for larger tenants on the building’s middle floors, down from $75 a square foot, Mr. Durst said in an interview Friday.
“The market’s not there,” said Mr. Durst, whose Durst Organization bought a stake in the tower from the Port Authority in mid-2011. “When we started in 2011, everybody expected the economy to take off, and obviously that hasn’t happened.”
The move adds to the financial challenges for the 1,776-foot building that is set to open its doors by the end of the year. With a construction cost of $3.9 billion, it is set to be the most expensive office tower ever built and has little hope of proving to be a good financial investment in the short term.
To be sure, parts of the downtown office-leasing market have seen increased deal activity recently. Time Inc. last week said it would move from Midtown to take 700,000 square feet at Brookfield Place, the former World Financial Center. Bank of New York Mellon Corp., which considered One World Trade, is in negotiations for more than 400,000 square feet at Brookfield Place, according to people familiar with the matter.
But Mr. Durst said the other large deals downtown were in the $50s a square foot, making it difficult to compete. Downtown average rents sought by top-quality buildings were $53.87 in the first quarter, according to real-estate services firm Cushman & Wakefield Inc.
“We have a lot of people looking at the space, but because of the asking rent, we are not able to really put anything over the finish line,” Mr. Durst said.
The rent at One World Trade is being cut amid a debate over how much more office space should be developed at the 16-acre site.
Developer Larry Silverstein, who has built one tower on the 16-acre site and has the rights to build two more, wants to start construction on his second tower and has asked the Port Authority to modify a prior aid package and guarantee $1.2 billion in debt on the planned 2.5-million-square-foot 3 World Trade Center.
Despite support from the Port Authority’s staff, the measure hit resistance from multiple members of the agency’s board of directors wary of making more bets on real-estate development, particularly when leasing at the site thus far has been slow. Some real-estate executives, including Mr. Durst, also have criticized the modification.
The Port Authority board is scheduled to vote on the proposal on Wednesday. In recent weeks, agency officials have reworked the modification to increase potential payments to the agency.
It now is less risky for the Port Authority, according to Scott Rechler, the agency’s vice chairman who has pushed the deal.
But the commissioner who has been most critical of the plan, Kenneth Lipper, said he thinks it won’t have enough support to pass. “I believe it will be formally defeated,” he said.
One World Trade’s leasing troubles echo the early years of the original World Trade Center. With 10 million square feet of space, the Twin Towers struggled for years with slow leasing, renting significant chunks of the buildings to government agencies.
The rebuilding of the towers that were destroyed in the Sept. 11, 2001, terrorist attacks has been more gradual. Mr. Silverstein in 2006 built 7 World Trade Center, a 1.7 million-square-foot tower across the street from the main complex, which is now fully leased.
The next two buildings to start were One World Trade and Mr. Silverstein’s 4 World Trade, a 2.3 million-square-foot tower that opened last fall.
But leasing has been slow. One World Trade has one major private tenant, Condé Nast, which took about 1 million square feet in 2011. Meanwhile, 4 World Trade is 51% leased to two government agencies. Mr. Silverstein has been asking in the $70s and $80s a square foot, comparable to the rents at One World Trade, before the latest price cut.
Mr. Silverstein and other downtown boosters have said they believe rents and occupancies are likely to rise in coming years downtown. They point out that many tenants prefer modern, newly constructed towers, of which there are few in lower Manhattan, and they are willing to pay a premium to be there.
At 4 World Trade, Mr. Silverstein is in negotiations with advertising company MediaMath for more than 100,000 square feet at rents above $70 a square foot, according to a person familiar with the matter.
Mr. Silverstein also recently signed a 515,000-square-foot lease for 3 World Trade with advertising firm GroupM for an undisclosed rent. That deal isn’t big enough to enable him to secure private financing, which is why he wants to rework his aid package with the Port Authority.
Another possible obstacle for office leasing at the World Trade Center, particularly the towering One World Trade: security concerns. Port Authority officials have long worried the history of the terrorist attacks could damp demand.
But Mr. Durst said he doesn’t believe safety concerns are an issue. “We really have not seen that,” he said, calling it “the safest building in the U.S.”
Write to Eliot Brown at eliot.brown@wsj.com
Good. I hope the few tenants they have move out, and the entire building gets filled with whores, crack heads, and putrid-smelling homeless people.
The prince of Zion (Larry Silverstein) made billions from 9-11. He shouldn’t profit from his crimes forever. It’ll be nice to see him on the gallows.
That’s ok. We’ll just sell it to the Chinese like we do with every other piece of real estate. No biggie. (sarcasm)