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New York Post

 

The Price of Delay

September 13, 2007

By Nicole Gelinas

PRINTER FRIENDLY

LOWER Manhattan's recovery since 9/11 has been a triumph, first of Ground Zero's recovery workers - who worked 24/7 under Mayor Rudy Giuliani to clear the site's 16 acres by May 2002 - and then of the private sector. But it may take another miracle for Downtown's resurgence to survive what may be coming next: a full-stop bust for Gotham's economy, as both the financial and real-estate markets go soft.

After all the drama and wasted time since 2002, things seem to be working out at Ground Zero: Construction is under way, and Downtown itself is thriving. Larry Silverstein's new 7 World Trade Center is nearly three-quarters full. Goldman Sachs is building a new headquarters near Ground Zero, and JPMorgan Chase plans to build a tower on the Deutsche Bank site across the street. Since 9/11, more than 10,000 people have made Downtown their new residence, continuing a pre-9/11 trend.

So what's a few years' delay, one might ask, now that things are going so well?

The problem is that Downtown's rebound is rooted in more than recovery-worker heroism, private-sector determination or the area's fundamental advantages. It's also been fueled by an unprecedented property- and financial-industry boom - one that may well be ending.

Swelled by record profits over the last few years, hedge-fund managers and other financial-industry tenants pushed rents in some Midtown office space above $100 a square foot - making Downtown's lower prices for Class-A space more attractive. And similarly successful business anchors Downtown were hungry for more space.

Meanwhile, rock-bottom post-9/11 interest rates made money cheap for everyone: Developers borrowed readily to renovate Downtown's old buildings into residential towers quickly - while workers from the financial industry, flush with their record bonuses, moved into the new condos, also borrowing freely when they couldn't generate enough cash.

But New York may well see real-estate prices fall in the next few years, for both residential and commercial properties. Few will shed tears if unsustainable prices for office space and apartments decline - but a bust could hurt Downtown's still-fragile recovery in the long term much more than it would hurt Midtown.

If already-built office buildings in Midtown are having trouble finding tenants, developers who own land there can opt not to build more on those properties for a few years, until market conditions warrant; no one will see it as evidence of a death knell for Midtown.

But it wouldn't be so easy for Silverstein - who holds the right to build and control three of four planned towers at Ground Zero - to take the same approach, by delaying, say, one building for a year if financing conditions warrant.

Constraints in his lease from the Port Authority, which owns the site, as well as public perceptions, leave Silverstein without the flexibility that most other developers enjoy - especially since so many politicians and media outlets would love to see him fail.

Silverstein does have an advantage: insurance proceeds from the attacks to start rebuilding his towers. That cash, and money from other sources, probably give him time to at least start work on all three towers before he must raise new funds from fickle investors. And when that time comes, he can tap into Liberty Bonds - approved by the federal, state and local governments for rebuilding Ground Zero - to raise more of the needed cash.

But those bonds may not be as useful if the credit markets remain extremely risk-averse, or if investors are worried about the short-term prospects for the World Trade Center buildings: Liberty Bonds offer investors only tax benefits, not financial guarantees.

If New York's economy is in fact entering one of its cyclical busts, then Downtown's continued revival might hinge on politicians' tenuous comprehension of financial cycles. The pols will need to understand that a bust is just the other half of an economic cycle - not an excuse for tinkering yet again with the long-delayed and vital replacement of what al Qaeda destroyed six years ago.

But if vacancy rates for office space rise, it probably won't be long before enterprising city and state officials, as well as owners of competing office towers, start wondering why we need all the new office space Downtown - and again trying to reopen Silverstein's lease to retake control of some of the site for yet more "rethinking."

Silverstein's aggressive schedule calls for him to break ground as soon as the Port Authority finishes prep work and transfers the sites - starting on two of his buildings next January and on the third next July. (The Freedom Tower, which the Port Authority will control, is already under construction.)

But anything can happen in the economic, financial and political worlds between now and the middle of next year - and then after Silverstein depletes his insurance cash.

Despite real progress, those who care about Downtown's future can only look back with regret on the years that Ground Zero's public-sector planners frittered away - when funding to build or buy anything was there for the taking - and remember the old saying: Time is money.

Original Source: http://www.nypost.com/seven/09132007/postopinion/opedcolumnists/the_price_of_delay.htm

 

 
 
 

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