By Josh Rogers
Sheldon Silver got Albany’s other power players and the mayor to back most of his “Marshall Plan” to jumpstart the World Trade Center area’s office market, so the question now is, will it work?
The package includes commercial rent subsidies for 7 W.T.C. and for the trade center complex site across the street. It also eliminates the commercial rent tax for five years Downtown. The legislation passed in Albany on June 24 with the support of Assembly Speaker Silver, Gov. George Pataki, Mayor Mike Bloomberg and State Sen. Majority Leader Joseph Bruno.
Dep. Mayor Dan Doctoroff, who manages the city’s Lower Manhattan plans, said the subsidies are more about changing business leaders’ feelings about Downtown rather than their bottom lines. “Incentives are not a science,” he told a few reporters last week. “To some extent they have more to do with psychology than they do with real economics.”
Doctoroff said although it’s true Larry Silverstein, developer of 7 W.T.C. and the proposed Freedom Tower at ground zero, is asking for high rents at 7 W.T.C. relative to other Lower Manhattan buildings, the deputy mayor sees it as “an expression of optimism for Lower Manhattan. What [Silverstein] thinks is by waiting longer, he’ll be able to get a higher price. I happen to think that is correct.”
According to Mayor Bloomberg and others, Silverstein is asking for more than $50 per square foot at 7 W.T.C., which will be ready for tenants to build out their space later this year.
Silverstein and his executives did not comment for this article but they have previously said that asking for rents as much as $20 more per square foot than other high end offices Downtown is justified because the others are all at least two decades older, and there are energy and tax savings connected to the building lowering the rent significantly. With the new $3.80 per square foot rent state subsidy for the first 750,000 square feet of space leased at 7 W.T.C., plus a match that is required from Silverstein, the firm’s brokers are marketing the effective rent discount at about $20 per square feet.
At the unveiling of the new Freedom Tower design last week, Silverstein said his office has received many calls about the subsidy and “very large block users” are interested in renting out the space.
Speaker Silver told Downtown Express that he has also received a lot of calls about the program. There has been a “tremendous response to that package,” he said. “My office has received calls from brokers – they have people interested in relocating Downtown.”
When Silver first outlined his “Marshall Plan” for Lower Manhattan in May, some critics said that requiring Silverstein to match the rent subsidy was a meaningless gesture since his asking rent price is too high to attract any tenants.
Silver said last week that the Empire State Development Corp. and the Port Authority, which owns the W.T.C. site, will scrutinize the leases to make sure Silverstein is offering real discounts.
“The state of New York will not enter the contract if it’s an inflated rent,” said Silver. “We’ll have to determine what’s a reasonable rent and we will go from there. And it requires Larry Silverstein to contribute an equal amount to the incentive package.”
Some business leaders have suggested that uncertainty about rebuilding plans and security concerns make rent subsidies at the W.T.C. necessary. To that argument David Dyssegaard Kallick of the Fiscal Policy Institute said: “It would be a foolish company that would disregard whatever concerns they have for $5 a square foot.” He called the idea that Silverstein is matching the subsidy “a complete joke. At this point he’s charging more than the market can bare.”
Dep. Mayor Doctoroff said there is no way to know if Silverstein would have discounted his rents without the subsidy. He said the plan is similar to the Lower Manhattan Development Corporation’s housing rent subsidy that encouraged people to move and remain in Lower Manhattan.
“You can make the exact same argument that all that had to happen was the owners of buildings should have lowered their prices but it wasn’t really until we gave the incentives that people started to flock,” said Doctoroff.
The new state-funded program includes a $5-per-square-foot rent subsidy for the first 750,000 square feet leased for five years at the Freedom Tower or other new W.T.C. buildings, $3.80 for the first 750,000 square feet of the 1.7 million square feet at 7 W.T.C.; permanently eliminating the commercial rent tax for ground zero tenants and eliminating it for five years for all of Lower Manhattan; a sales tax exemption for build out costs for any business leasing space in Lower Manhattan; a sales tax exemption for office furniture and equipment for businesses leasing at the W.T.C. site; modifying the Relocation and Employment Assistance Program to make businesses moving Downtown eligible for the program’s tax credits; and eliminating tax incentives that encourage building owners to convert offices to apartments one year early so that they expire June 30, 2006.
A spokesperson for Silver said there is not a cost estimate for the entire package but the costs of the changes to the relocation program and commercial rent and sales taxes will be about $200 million over five years.
Carl Weisbrod, president of the Downtown Alliance, said he is happy with the entire plan, which he believes will help the Downtown economy recover. He said the end of the 10-year-old subsidies for office conversions makes sense because the demand for apartments continues to rise.
“It was established to create a [residential] market,” said Weisbrod, who runs Lower Manhattan’s business improvement district. “The program is highly, highly successful and the need for these incentives are no longer necessary.”
Julie Menin, newly-elected chairperson of Community Board 1, agreed it was time to end subsidies for conversions and also supports the rest of Silver’s plan. Eight years ago, Menin moved into 25 Broad St. just after her husband, developer Bruce Menin, converted the building. She said both residents and workers want better retail Downtown, but there has to be a good mix of both to make it an attractive area for stores.
“I think we have a tremendous amount of residential product coming online,” Menin said, “and you have to strike the right balance.”
Josh@DowntownExpress.com
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