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TRD podcast gazes into Downtown’s future

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Perhaps it’s his West Coast background and sometimes casual surfer style that makes Kent Swig the exception among city office landlords. It also might be his approach to Lower Manhattan.

Swig, whose company Swig Equities is the fifth-largest Downtown commercial landlord, has worked to keep his 3.4 million square feet of properties as office space while much of the area converts to residential.

Swig also sounds like a bit of a contrarian when he discusses the area’s rebuilding effort, calling the Freedom Tower less important than adequate transportation planning. “That’s Gov. Pataki’s legacy,” he says, “not another tall office building in Manhattan.”

Swig is also co-chairman of Terra Holdings, which owns brokerages Brown Harris Stevens and Halstead, and he was recently involved in the purchase of the Sheffield, the largest residential building sale in the history of the U.S.

The Real Deal sat down in mid-August for a chat with Swig as part of our weekly podcast series. The complete audio interview can be heard at TheRealDeal.net.

The Real Deal: In your approach to real estate, you seem to be bucking the conventional wisdom on a number of fronts. You have a lot of great buildings that are prime for condo conversion, yet despite the hot residential market you’ve passed on going residential Downtown.

Swig: That is true. The first building I purchased was in March of 1998, which was 48 Wall Street. And, actually, originally we were going to convert that into a residential rental building. At the time, the market was about evenly split for a residential building and commercial building or even a hotel evenly balanced in terms of the income production that would be generated for the building. As it turned out, the commercial market caught on fire and we decided to keep it commercial. Based on that success, we rolled into 5 Hanover Square, 44 Wall Street, 80 Broad Street, and 110 William Street.

TRD: Does your staying commercial reflect any concerns over a potential condo glut in Lower Manhattan?

Swig: I hope not. We have a building at 25 Broad Street that we are closing on in a couple of weeks, with 347 units and about 600,000 square feet. So we’re a big believer in residential as well.

If anything, Downtown is building up on itself where actually the residential market is enhancing the commercial market, and the residential market itself is building on itself to bring in more people, which is creating a better synergy in the marketplace.

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As far as a condo glut, everything that’s on the drawing board, if you look at history, never gets built all at once. It just doesn’t happen.

TRD: So much office space has been converted to residential Downtown, yet it doesn’t seem to have driven down the vacancy rates by much. Is this impact still to be felt? What is your outlook for vacancy levels?

Swig: It’s interesting there are actually 36 buildings in Downtown Manhattan, representing 10.1 million feet, that had been taken off the market for residential conversions many of them rental, not condo. Plus, another 13 million feet that has been taken out of the marketplace as a result of Sept. 11 and the destruction of the World Trade Center.

That represents almost 22 percent of the entire commercial Downtown market taken out since 1995. And one would say, with all that taken out, why wouldn’t it be lower?

The answer actually is the opposite as a result of 23 million square feet taken out of the Downtown market, 23 million square feet of tenancy was taken out of the marketplace because those spaces weren’t vacant.

So you have shrunk the commercial population which means fewer people working there, fewer people going out, etc. That has taken away some of the synergy that Downtown had and actually caused the vacancy rate to increase. However, in a longer perspective, the residential population has reinvigorated Downtown into a 24-hour city, and more tenants want to be located down there.

TRD: What is your outlook for rebuilding Downtown?

Swig: Four of the largest transportation hubs in the United States individually are being built Downtown. One is finished the Whitehall Street ferry station; the other one is the ferry station being built at the foot of Battery Park; the other is the Santiago Calatrava PATH station, which is going to be started in September; and then the other one is the Fulton Street Broadway station which will be, quote, the Grand Central of Downtown Manhattan, which will incorporate every single subway line in there.

Before, the subway stations were terrible. There was no central station where you could go and get connections, like Grand Central and Penn Station now you are going to have two of them.

That’s the legacy. What Robert Moses did with the infrastructure. That’s the thing New York needs to do.

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