In 1995, as New York City struggled to recover from the recession that swept through the markets earlier in the decade, the commercial real estate world waited to learn the outcome of two signal events.
The first was the acquisition of Rockefeller Center’s landmark complex, and the disposition of the Olympia & York portfolio. Both involved bankruptcy courts, and each was resolved, despite fierce struggles, to some satisfaction. And each site, under its new ownership – Tishman Speyer and Goldman Sachs at Rockefeller Center, and Brookfield Properties with the core of the O&Y empire, the World Financial Center- played a major role in the subsequent resurgence of New York real estate.
As I write in late April, the city awaits the outcome of another property/courtroom drama, this one in a jury trial in state court: The infamous “One Event or Two” battle between Silverstein Properties and the insurers of the World Trade Center. As you read this in early May, it is more than likely that the jury has returned its verdict. One or Two – besides the not insubstantial sum of $3.6 billion – what difference will it make?
A fascinating one. Commercial landlords across the city have to be feeling torn. Of course, they want to see their colleague Larry Silverstein emerge triumphant, a warrior hero with an unfathomable bundle of cash in hand.
If he does, then they smell trouble. With the Downtown office market barely emerging from intensive care, and Midtown just beginning to see the light of equilibrium at the end of the dark shadow-space tunnel, the prospect of a developer with such a bundle of cash in hand still means only one thing: more building, regardless of interest rates or inflation fears. Why, Silverstein just might manage to replace the Twin Towers’ lost 10 million square feet by the end of the decade.
That prospect, however, will have tenant reps and end users chortling and chomping at the bit to start lease negotiations – but not to end them. Meanwhile, downtown could experience a renewal of its long-gone cachet as a center of wealth and power. It will have the best and brightest transportation in the city, thousands of new residential units, a waterfront under revitalization and resplendent retail.
And the new office buildings could create what we’ll call the Chicago effect. That’s what happens when major tenants decline to move anywhere but into a brand-new, efficient, secure and state-of-the-art office building and thus leave large gaps among existing buildings in a market with little growth potential.
Of course, there’s always the other scenario. The insurers carry the day, and downtown renewal proceeds at a less hurried pace. Freedom Tower (I love freedom, but I cringe at that politically motivated moniker – might I suggest French Tower?) is built and occupied. Seven World Trade, too, rises on schedule.
And then, perhaps, instead of just building something because we can spend the money, we’ll have time to see what we really need to build to help New York City move forward at its very best.