In Skyscraper at Ground Zero, Sentiment Trumped NumbersBy JOE NOCERA
Published: September 17, 2010
Timing is everything.
I had originally planned to write this column last week, on the ninth anniversary of the terrorist attacks that brought down the World Trade Center, killing nearly 3,000 people who were working in the two buildings that awful morning. The topic is the economics of 1 World Trade Center — the building, formerly known as the Freedom Tower, with one of the most tortured construction histories in New York history — that is finally being erected at ground zero. When it is finished, it will stand 1,776 feet in the air, making it the tallest building in New York.
With an expected completion date of 2013, 1 World Trade Center is the most expensive skyscraper ever constructed in the United States, with a price tag currently estimated at $3.3 billion. By contrast, the spanking new Bank of America Tower in Midtown Manhattan cost about $2 billion. That is pretty much the going rate for building new skyscrapers in New York City. Just to break even, 1 World Trade Center will require rents far higher than the going rate in Midtown, much less downtown New York, where the building is located and where rents are considerably lower.
Since 1 World Trade Center is owned by the Port Authority of New York and New Jersey, it seems fair to assume that any shortfall between the building’s annual rental income and its carrying costs will most likely be borne by the people who pay the toll to cross the George Washington Bridge, or use the Lincoln Tunnel, or ride the PATH rail system, all of which the Port Authority controls. It also seems fair to say that no private developer in his right mind would build a $3.3 billion high-rise office building in a marketplace that tops out at $2 billion. Only a government entity would do such a thing. My plan was to question whether 1 World Trade Center really made sense for the city and its taxpayers.
But I blinked last week. Even nine years later, the events surrounding 9/11 remain so emotional that it seemed somehow sacrilegious to ask tough questions about 1 World Trade Center on the day of the anniversary. Although the Port Authority claims it changed the name from Freedom Tower precisely because it wanted the building to be viewed as a commercial office building and not a civic symbol, it is difficult to rid the building entirely of its symbolism.
It is, after all, going up on the same hallowed ground where the twin towers once stood. Part of the reason it costs so much is that its first 200 feet are reinforced concrete and steel — designed to deter future terrorist attacks. (Another reason is that it will have a 408-foot spire, allowing it to reach that 1,776 foot mark.)
But as I discovered this week, I’m not the only one who’s been blinking. It turns out that there are plenty of people, including former New York State officials and New York City developers, who believe that 1 World Trade Center is folly. “An emotionally induced misuse of money,” said one such person. “You can only understand this as a political statement,” said another. “It makes no sense as a commercial real estate endeavor.”
Not one of these people, however, would go on the record; there was simply no percentage in it. As a result, the notion that a government agency would spend $3.3 billion constructing an uneconomical high-rise in a depressed market has drawn far less scrutiny than it deserves. Better late than never.
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When the twin towers went down, New York City lost 10 million square feet of office space. But the initial impetus to rebuild had less to do with reclaiming that lost office space and more to do with showing the terrorists that we wouldn’t be cowed. Over time, however, as the rebuilding got bogged down in disputes over design and financing, it gradually became clear that the city didn’t really need the 10 million square feet it had lost on 9/11. It had a glut of office space. Rents were falling. Especially after the bubble burst in 2007, commercial real estate developers struggled.
Yet there was never a moment when anyone in government was willing to question whether 1 World Trade Center — with its 2.6 million square feet of office space — still made sense. Former Gov. George Pataki pushed the Freedom Tower — a name he came up with — with every fiber of his being. Mayor Michael R. Bloomberg never wavered in his support. Former Gov. Eliot Spitzer came into office professing to be more skeptical of the project, but did nothing to stop it.
In those earlier years, the building’s economics were even worse than they are now. In 2006, with no potential tenants in sight, the Port Authority actually negotiated deals with federal and state agencies to occupy parts of the building at above-market rents. In other words, taxpayers were going to take a hit so that the building could have some occupants. Thankfully, those deals eventually disappeared.
http://www.nytimes.com/2010/09/18/business/18nocera.html?_r=1&scp=2&sq=nocera&st=cse