In case it fails to find a developer willing to pay hundreds
of millions to build a 900-foot skyscraper atop a new New York Stock Exchange,
the Giuliani administration is preparing to go it alone, plunging ahead with
New York’s first large-scale speculative building of its kind in more than a
decade, according to individuals involved with the project.
The decision could clear the way for the city, the state and
the Stock Exchange’s board of directors to sign a long-delayed agreement
committing $900 million or more in public funds to relocating the exchange to a
new 600,000-square-foot trading floor across the street from its current
headquarters. “We are progressing
without naming a developer,” said Janel Patterson, spokeswoman for the city’s
Economic Development Corporation, who said she expected a letter of intent to
be signed “very shortly.”
“It should happen this week,” said one person involved in
the negotiations.
Officials at the New York Stock Exchange declined to
comment.
Some sources familiar with the project maintained that
developer Jerry Speyer remains the leading candidate to build the tower. Informed sources say that Tishman-Speyer
Properties is still engaged in active negotiations with the city, and company
officials do not believe the project can go forward without a developer.
Negotiations with Mr. Speyer, sources said, could continue even after the
letter of intent is signed. But another source said city officials have
indicated that they believe they could get the project off the ground without
either the assistance of a developer or the commitment of an anchor tenant. The
city has retained the Clarett Group, a newly formed development firm, as a
consultant for the project.
NYSE chairman Richard Grasso
hopes to have a letter of intent ready to present to the Stock Exchange’s board
of directors at a meeting scheduled for Dec. 7, sources said. The Empire State
Development Corporation’s board is expected to approve an environmental impact
statement for the project at its Dec. 13 meeting, and could give the project
its final approval at that time.
Once the letter of
intent is signed, it will bind the city and state to building the new trading
floors-office tower or no-assuring that the Stock Exchange, which had
threatened to abandon its 97-year-old headquarters for New Jersey, will remain
in the financial district.
Privately, several
members of the real estate community said they were flabbergasted by the city’s
possible move. “That’s crazy,” said one. Recent public projects
of this sort, such as the office towers popping up all over Times Square, have
only gone forward after a developer has been named, a land deal closed and an
anchor tenant secured.
“Because of the costs
today it’s just not feasible” to build speculatively, said one prominent
developer, who estimated that the tower would cost $650 million to build.
The strategy would
appear to pose great risks while promising rich rewards to the city and Mayor
Giuliani, who announced the Stock Exchange venture two years ago, to great
fanfare and many doubts about the value of building trading floors in a
computer age. City officials have long planned to offset the enormous expense
of buying and razing a number of buildings now standing on the new exchange site-perhaps
$450 million or more, city officials estimate-by selling the rights to build
the skyscraper.
Mr. Speyer was one of
four developers the city E.D.C. invited to submit bids to build the office
tower. Of the four, he was the only one to show much interest in the city’s
proposal, which called for the developers to pay for the rights to build the
tower, finance it themselves and pay full real estate taxes on it when it was
done, while assuming a great deal more risk than they would in a private-sector
deal. Mr. Speyer offered less than the city’s asking price, while voicing
reservations about the uncertainty and complexity of the project, sources said.
By going ahead without a developer, the city would be
gambling that the commercial real estate market will remain strong long enough
to keep the developers interested and to attract the ultimate prize-an anchor
tenant, most likely a bank or an investment house. Otherwise, the city could
end up with an empty office tower, or no office tower at all, leaving the
taxpayers with the entire $900 million tab.
Among developers,
speculative building has long been considered a relic of the freewheeling
1980’s. Mindful of the glass canyons left barren when the last recession hit,
they’ve restrained themselves since then from breaking ground in Manhattan
without at least half of the prospective building pre-leased. Even if
developers wanted to spark a flashback, banks have been loath to finance
buildings without an anchor tenant.
Not Rudy Giuliani. People who reviewed the E.D.C.’s request
for proposals for the project say the city’s bid guidelines required the
developers to build the project with or without a tenant. That’s why Lewis
Rudin and Mort Zuckerman’s Boston Properties Inc. didn’t pursue the project
very far, and why Brookfield Financial Properties bowed out before things got
serious. That left Mr. Speyer.
Earlier this year, Mr.
Speyer announced New York’s first speculative office project in a decade. On
East 41st Street near Grand Central Terminal, it was small by his standards
(375,000 square feet), but it proved a success. Almost as soon as it was
announced, it filled up with new tenants-a law firm and a technology services
company.
A Really Big Show
The Stock Exchange,
though, is of a whole different magnitude. Designed by the architectural firm
Skidmore Owings & Merrill, plans call for the construction of a two-level
trading floor, with a 1.3-million-square foot (or approximately 50-story)
office tower atop it. The office tower would have its own entrance and would be
named in honor of its prized anchor tenant.
In recent months, several large firms that are in the market
for office space have looked at the hypothetical Stock Exchange building,
including the insurance firm American International Group Inc. But so far there
have been no takers, in part because of the constraints put on the office tower
by the Stock Exchange.
For one thing, real
estate sources say, the size of the floors, around 35,000 square feet, is
smaller than what is on offer in midtown office buildings. Brokerages like
large, column-free expanses for their trading floors. The Stock Exchange office
tower would have a “sky lobby” situated above the exchange, making it necessary
for visitors to take two separate elevators to get to the upper floors. As for
branding opportunities, there’s no way to guarantee a wavering chief executive
that his pricey new International Widgets Building won’t be colloquially
referred to as “the new Stock Exchange building.”
Meanwhile, with signs
abounding that the economy is cooling, the list of prospective tenants for the
Stock Exchange tower is shrinking. In recent months, Brown Brothers Harriman
has entered into negotiations for an office tower in Battery Park City; Chase
Manhattan has signed a lease for one million square feet of space at 277 Park
Avenue (occupied by Donaldson Lufkin & Jenrette Inc. until the firm was
gobbled up by Credit Suisse First Boston); and the Goldman Sachs Group Inc. has
been talking about expanding on Water Street.
Adding to the complexity
of the project, the city must still take ownership of several properties that
make up the site, a block bordered by Exchange Place and Wall, Broad and
William streets. The investment bank J.P. Morgan & Company Inc. owns the
buildings that make up most of the block, and talks about buying the land have
been on hold since the bank merged with Chase Manhattan Corporation earlier
this year. (A Chase spokeswoman declined to comment.) The Daily News reported in September that Rockrose Development
Corporation, which recently converted another building on the block of
apartments, had reached an agreement with the city to sell the building for
$150 million, but the deal hasn’t closed yet. (Rockrose also declined to
comment.) Two other buildings that J.P. Morgan leases are owned by the Wilf
family.
After signing the
agreement, the city and the state will probably move ahead with condemnation
proceedings against the Wilf buildings, and may do the same if an agreement
cannot be reached with Chase over the J.P. Morgan parcels, sources said. If the
land is condemned without the owners’ consent, the state will have to reimburse
the owners for its fair market value-but, more importantly, it will face the
prospect of lawsuits which could hold up the project for years.
Cloudy Crystal Ball
“If we could have
Superman wave his magic wand, and we could demolish the block and build it
overnight, I would have no problem; it would lease,” said real estate broker
Don Schnabel, vice chairman of Julien J. Studley Inc. “But by the time we clear
out that block and build the building, it will be five years from now. I’m
sorry-my crystal ball is cloudy.”
In the meantime, the city has turned to the Clarett Group
for guidance. Founded two years ago by Veronica Hackett and Neil Klarfeld, both
former top aides to developer George Klein, Clarett has been coordinating the
various architects and other designers during the initial stages of
development. Ms. Hackett and Mr. Klarfeld have experience with big government
projects-they were with Mr. Klein in the 1980’s, when he was designated
developer for 4 Times Square office towers, a deal that ended unhappily for
everyone concerned. But they have built only one residential building on their
own, and real estate executives doubted the firm would be able to take over the
project. (Ms. Hackett declined comment.)
With Clarett
concentrating on design, the plan is for the city to take over the other half
of the developer’s job-assembling, demolishing and excavating the site.
The outlines of the
letter of intent itself have been clear for some time. The city and the state
will commit to spending $480 million to build the trading floor. The city will
pick up slightly more of the tab-$255 million-than the state, which has balked
at investing more than $225 million in the project. The NYSE will pay any cost
overruns, as well as the cost of outfitting the trading floors with
state-of-the-art technology. The city will pick up the tab for acquiring the
land-and no one knows how much that will cost-in addition to offering the NYSE
$160 million in tax breaks and other incentives.
One real estate executive speculated that the city officials
were pushing ahead with signing the letter of intent and assembling the land in
order to show they are serious about the project. Then, presumably, a developer
would come forward to build the tower.
City officials have told
members of the real estate community that the office tower is intrinsic to the
project and must in fact be built first, for engineering and other practical
reasons. But several people involved in the project said that, once the letter
of intent is signed, there is a worst-case scenario in which the city might not
build the tower at all.
In a slightly-less-bad
scenario, some suggested, the city could try to engineer the building so a
tower could be added later, during some future bull market. Something similar
was done when the Port Authority Bus Terminal was built 50 years ago. Recently,
Vornado Realty Trust and the Lawrence Ruben Company Inc. bid $90 million for the
rights to build a Skidmore-designed office tower above the terminal.
At last report, the
developers were still searching for a tenant.