By Joseph Dobrian
When the law firm of Cadwalader, Wickersham & Taft moved out of 125 Maiden Lane about a year ago, the buildings owners, Time Equities, had a half-full building and the opportunity to introduce a new concept to the Insurance District: the office condo. Today, having disposed of most of that buildings for-sale space, Time Equities is looking to make several more office-to-condo conversions in Manhattan. Meanwhile, the new residents of 125 Maiden Lane have substantially changed the character of the neighborhood.
We had considered keeping 125 Maiden Lane as a rental office building or converting it to residential condos, said Michael Rudder, director of office leasing and sales for Time Equities, but we realized that many companies, nonprofits, in particular, want to own their own space. We started selling office condo space in the summer of 2006, and we sold 180,000 square feet of this 350,000-square-foot building in the first four months.
The Empire State Development Corporation, the Lower Manhattan Cultural Council, and the Civil Service Employee Association were among the first purchasers, followed by the U.S. UNICEF fund, the Guttmacher Institute, and, most recently, the Committee for Education Foundation.
That last transaction went for $500 per square foot, a new Downtown record, Rudder reported, and prices will only get higher. Were selling about 200,000 square feet and keeping the rest as investment. Our latest rental deals there were $40 per square foot.
Owning condo space secures a companys place in Manhattan, with an asset that appreciates quickly, with fixed costs, rather than rising rents. Moreover, nonprofit organizations dont pay real estate taxes if they own their space, but they do if they rent so owning represents a big annual savings. Finally, its easier to raise funds from donors if the money is going to ownership, rather than rental.
Historically, Rudder noted, the Insurance Districts office buildings have been occupied almost entirely by finance, insurance and real estate companies. Lately, though, a whole new employment base has moved in: nonprofits, creative firms, government agencies, and unions.
Downtown is no longer a niche market, he declared. I dont think the Insurance District even exists anymore and thats a positive.
A new lease on Downtown
Cushman & Wakefield has reported that Downtown Manhattans office vacancy rate has declined to 6.7 percent, an unprecedented drop from 11.2 percent at this time last year, probably due to a 68 percent increase in leasing activity. A total of 2.2 million square feet of office space was leased in Lower Manhattan in the first six months of 2007.
Some tenants are being priced out of Midtown, remarked Joseph Harbert, Cushman & Wakefields chief operating officer of the New York Metro Region. But were also seeing tenants who genuinely want to operate Downtown, to be part of the revitalized community there.
The current vacancy rate apparently puts the market slightly out of equilibrium, which is typically described as a vacancy of 7 percent to 9 percent. Over all, asking rents Downtown now stand at $44.48 per square foot, compared to $35 at midyear 2006. Asking rents on Class A property Downtown average $50, higher than Class A rents in Midtown South.
Residential boom lowering?
Will fast residential growth continue in the Financial and Insurance Districts? Both are pretty well established now as mixed-use, 24-hour communities, but market watchers differ on whether the recent fast growth will level off over the next few years.
Were afraid that some new residential projects in those areas are a little overambitious as to price point, and might not sell very quickly, warned Spencer Garfield, managing director of Hudson Realty Capital, an opportunity fund. Weve pulled back on our investment in residential real estate in that area.
That part of Downtown has finally become a 24-hour community, with sufficient retail to accommodate the residents, and weve seen some spectacular residential developments, most notably the Cipriani Club Residences at 55 Wall St. and the 47-story tower at 15 William St. But going forward, I think were going to see more modest appreciation and slower sales.
I dont see residential development slowing down, countered Nicholas LaPorte, executive director of Associated Builders & Owners of Greater New York. And as more residential properties are added, more services will be added: supermarkets, dry cleaners. This is definitely becoming a residential neighborhood.
Look for more conversions of office buildings to high-amenity condos in the Insurance District, echoed Amy Dellasala, sales associate from Warburg Realty. The recent conversions of 75 Wall St. and 20 Pine St., she said, have demonstrated the demand for Downtown residential product, and the area between the Brooklyn Bridge and Maiden Lane offers many possibilities.
This neighborhood is a hidden treasure, she declared. Ive lived here for 12 years, and other people are finally catching onto whats beautiful about it. Its full of buildings that were built to represent the importance of the companies that occupied them, and they were built for maximum interior flexibility, for optimal light and views.
This area offers such a diversity of buildings that could work as residential, such as the cast-iron buildings on Fulton St.