It’s a typical New York City apartment in many ways. The windows in the two bedrooms look out on airshafts and the living room, about the size of the kitchen in a suburban tract house, has a view of a gray stone wall across the street. All that for only $3,000 a month.
“A great party place,” crowed David Lowenfeld, executive vice president of World-Wide Holdings Corp., which owns the building.
Lowenfeld had better hope so. He, his company, and a host of New York business and political leaders are taking a chance that converting 20 or so creaky but classic office buildings in the Wall Street area of lower Manhattan into apartments is going to be a cause for celebration long into the future.
World-Wide is turning the landmark former New York headquarters of U.S. Steel Corp. at 71 Broadway, built in 1901 by plutocrat J.P. Morgan, into about 240 living units, whose residents will get to live only about a block from the New York Stock Exchange.
The apartments are among about 3,000 completed or under way in the area just in the last two years, and they are expected to be augmented by another 4,000 within the next four years in what amounts to the creation of a new urban village within the venerable bastion of world capitalism.
Whether residents will flock to live in the cold-hearted canyons of finance is still a question, but the early results are good–aided by a 1 percent apartment vacancy rate in Manhattan.
The U.S. Steel building’s units are 50 percent spoken for after only two months of pre-construction leasing. Another 440-unit building on Wall Street itself is filled.
The same idea of adapting old office buildings to residential use is catching on in Chicago’s Loop. But there is a significant difference.
In Chicago, a handful of private developers are cautiously testing the concept in downtown Chicago with some hope of possible city involvement through the new central Loop tax increment finance district.
“The city believes the downtown real estate market is sufficiently vigorous that many projects can be financed entirely with private funds,” emphasizes a 1997 city planning department blueprint for residential conversion in the Greater State Street area.
In contrast, New Yorkers are going at it in a far more coordinated fashion and have a comprehensive, well-publicized vision for their downtown’s future.
Lower Manhattan business leaders, New York Mayor Rudolph Giuliani, state legislators and New York Gov. George Pataki have all gotten together on a major economic incentive plan–including an eight-year suspension of all property taxes for Wall Street area office buildings adapted for residential use.
In addition, the area is getting a big boost in sanitation, safety, publicity, transportation and other services from a business improvement district financed by the property owners themselves.
The effort is a big civic gamble on reshaping the future of the third largest office market in the country, behind Mid-Town Manhattan (No. 1) and downtown Chicago.
In the early 1990s the area faced an outlook that was “very, very bleak,” according to Carl Weisbrod, president of the Alliance for Downtown New York, which runs the business improvement district.
The office building vacancy rate was 25 percent with some 30 million square feet of space unoccupied–more than the total office space of all but the biggest U.S. cities. Older buildings from the salad days of the great bankers a century ago were even more disused.
The area had been suffering a long-term decline for decades with the growth of Mid-Town and business flight to the suburbs. It was hit hard by the Wall Street crash of 1987 because of its dependence on financial markets and rocked further by the real estate slump a couple of years later.
From 1990 to 1993 the area’s tax revenues fell from $1 billion to $600 million.
“That was a scary thought to the city,” Weisbrod said.
So the downtown business leaders got together and realized they had to address the district’s problems in a fundamental way. What they came up with was a plan to preserve the area’s commercial vitality by bringing in residents who would not only add 24-hour life to the area but also soak up empty space that was depressing commercial rents and values, Weisbrod said.
They put together an economic revitalization plan, including the radical tax incentives, that was embraced by Mayor Giuliani, who lobbied the state and Gov. Pataki for the necessary enabling legislation, Weisbrod added.
The plan’s effect on developers was dramatic. Before it was adopted in late 1995, there was little or no residential conversion activity in the area.
Since then 14 buildings, including three in the 500,000-square-foot range, have been completed or are under construction and at least seven more are in the planning stage.
One key part of the development boom has been to make the Wall Street area more fun, an idea that might have elicited the fabled icy frown from old John Pierpoint Morgan, a man for whom money was serious business.
One of the major entrepreneurial forces is New York developer Tony Goldman, renowned for spearheading the transformation of New York’s SoHo and Miami’s South Beach into havens for the hip, who has bought eight buildings in the area.
“The residential strategy is to ignite an area with entertainment and restaurants first,” said Goldman, who has opened a new eatery and is planning more. “The people come second and the services come third.”
That essential of the new urban scene–a multi-screen cinema complex–is also coming to nearby Battery Park City as part of a hotel development. Enthusiast Goldman called Wall Street “the greatest future urban neighborhood in the country.”
But Weisbrod emphasizes that the vision for downtown New York is still first and foremost a business plan, aiming to capitalize on the notion that many of today’s enterprises choose a location not only for the usual core business reasons but also for an exciting environment.
“We needed to be more diversified because businesses want to be in more interesting and exciting neighborhoods,” he said.
As another part of the business plan, the Alliance, City Hall, and a business and civic group called the New York City Partnership collaborated with the owners of a 30-year-old vacant office building to turn it into an information technology center that has become the anchor of New York’s growing Silicon Alley.
Using other hefty real estate tax breaks in the economic revitalization package, the owners rehabbed and rewired a building that had been occupied by Drexel Burnham Lambert–the now defunct investment banking house that came to symbolize the ills of Wall Street in the late 1980s–to enable tenants immediate access to the fast lane of the information highway.
Opening in late 1995 with rents starting at $15 a square foot–about $10 below the going market rate–the building attracted some 60 companies, a mix of small high-tech firms and development units of larger companies such as accounting giant Ernst & Young.
Today the offices are 100 percent occupied, new-lease rents have almost doubled, and prospects are being sent to other buildings in the area that have signed up to offer built-out, Internet-ready space to growing information technology companies.
A third of all the information technology leases in the city are in the 410,000-square-foot building, and it has become a tangible representation of the strength of that business sector in New York, Weisbrod said.
With all the activity, the financial district has posted an “unbelievable turnabout,” Weisbrod said. Office vacancy has gone down to 13 percent overall and below 10 percent for Class A office space. There are even rumors of planned new construction, he added
Weisbrod admitted that a lot of that change comes from the luck of a booming economy, but he added that diversification has enabled the area to take advantage of a hot market and will provide a cushion in bad times.
His vision seems sound for now. But even developer Lowenfeld, who said the old U.S. Steel Corp. building is ideal for residential conversion, wonders how deep the market for a “downtown lifestyle” goes.
Many of the apartments, unlike the one with the blank-wall view, overlook historic Trinity Church and its churchyard, which contains the burial ground and a statue of Alexander Hamilton, first secretary of the Treasury and a founder of the New York Stock Exchange.
At Manhattan rents–these are without price controls–it’s a fitting view. The tenants so far are young and flush, typically with “high positions at a tender age,” he said.
“The question is, `Are we skimming the cream of the market?’ ” Lowenfeld commented.
Hamilton may know, but he’s not saying.
