New York City Real Estate: An Insider’s Look
Dean, Dealmakers, and Visionaries Offer Insights into the Upper Echelons of the New York Market
The third and final panel of the Cornell Real Estate Conference began with a presentation by Larry Silverstein about the ongoing redevelopment of the World Trade Center. Silverstein, who signed a 99-year ground lease on the property in July 2001, delivered a passionate and energized vision for the site, beginning with the recently completed 7 World Trade Center office building, and moving on to an overview of each of the five new towers that will be clustered around the 9/11 memorial and the new PATH station and transit hub, designed by renowned architect and engineer Santiago Calatrava.
Altogether, the project will provide 14 million square feet of new office space and 500,000 square feet of retail in the rapidly redeveloping area of Lower Manhattan. By turns describing the project as “magnificent,” “majestic,” and as “the new downtown,” Silverstein ended the presentation by addressing the major changes that Lower Manhattan has undergone since 2001, most recently the skyrocketing cost of space for all types of real estate—a trend that few predicted in the aftermath of 9/11, when many businesses and residents left the area. “What happens when you spend $20 billion in four years on an eight acre site?” he asked, then answered his own question: “Values go up all around.”
The three panelists echoed Silverstein’s views. Daniel Rose, chairman of Rose Associates, Inc., was the first to speak. Introduced by Howard Milstein, chairman of Milstein Properties, as the dean of the New York real estate community, Rose prefaced his comments by saying, “life changes; cycles exist.” He went on to describe the New York of today: “I know of no city more dynamic or self-confident than New York at this moment.” Asked to explain the pricing surge that he says “defies analysis,” he pointed to four key factors: The global economic boom; former mayor Giulani’s “safety legacy;” the infrastructure planned and executed by Robert Moses in the 1950s; and above all, individual entrepreneurship. “New York is blessed by a private sector of remarkably dynamic, energetic individuals,” Rose said, before referencing Larry Silverstein as one such figurehead.
Marc Holliday, CEO of the publicly traded SL Green Realty Corp., a New York-focused REIT, spoke next about strategic decision making in a competitive market with high barriers to entry, such as New York City. Since the credit crunch of this summer, he said, “ingenuity and creativity are back in vogue,” as is the ability to take a multitude of positions in the capital stack. The most important factor, he said, is to be “ready to deploy capital at any time, but not to deploy too early.” Market timing, the correlation of space and capital markets, and the overall perception of the market must be a critical factor in assessing potential deals, especially when one’s business is to acquire in a single, highly competitive geographic area such as New York.
The final speaker, Bob Lieber, described plans to make New York a more livable city. Lieber, President of the New York City Economic Development Corporation (NYCEDC) and formerly of Lehman Brothers, articulated four platforms that will guide the city over the next 20 years: Economic development, tourism, increased density, and new infrastructure. Calling the redevelopment of Lower Manhattan a “great transformation,” Lieber sought to expand the principles that created success there to the rest of the city. Calling for incentives to support the growth of strategic industries, the reclamation of contaminated land, rezoning along the waterfront, and renewed dedication to infrastructure including the development of transit-oriented neighborhoods outside the city, Lieber emphasized that one aspect of NYCEDC's mission is to envision and create a city that can accommodate the extra one million people that are expected to move to New York over the next 20 years.
The panel discussion concluded with questions from the audience that related mainly to forecasting values in light of the recent liquidity crunch. Holliday, echoing the sentiments of the group, posited that the market has not gone bad, it has just been “repriced.” Acknowledging that cap rate movement from 4% to 5% is a major value change, he argued that it is nonetheless possible to still find value in the market: “If you can sell B-class buildings at a five (cap) and buy A-Class buildings also at a five, then there are still arbitrage opportunities out there,” he said, adding that so long as fundamentals are still strong, the market is always “right.”