Wall Street’s Best Bargain May Be Wall Street Office Space

The best deal on Wall Street might be its office space.

Asking rents for buildings at the one-time mecca of global finance have fallen to among the lowest in Manhattan after ranking as some of the priciest as recently as 2008. Wall Street landlords are seeking rates about 18 percent less than the city average, hurt by years of exodus by financial firms looking for bigger, more modern offices, according to brokerage Studley Inc.

The six-block lower Manhattan street is now home to residences, architects, engineers and media companies along with the securities firms that long dominated the area because of its proximity to the New York Stock Exchange at the corner of Wall and Broad. The planned purchase of the exchange’s parent by Germany’s Deutsche Boerse AG would be the latest evolution as the street’s anchor comes under foreign ownership.

“As far as the Wall Street cachet, I think it’s nice, but I don’t think it’s what it was 20 to 25 years ago,” said Marc Shapses, an executive managing director at Studley and a downtown leasing broker for two and a half decades. “Between technology and everything else, I don’t think people need to be right by the exchange anymore.”

The commercial history of Wall Street -- so-named because of the wall that protected the northern end of the Dutch colony New Amsterdam -- began at the East River end of the street, where merchants and traders gathered by the docks, said Carol Willis, director of New York’s Skyscraper Museum. The museum’s The Rise of Wall Street exhibit closed in January.

Buttonwood Tree

Those merchants’ gatherings at Wall and Water streets in the 1790s would evolve into the Buttonwood Agreement, named for a tree where stock brokers would meet to do business. The NYSE traces its history to that pact.

By 1850, “the Wall Street of business and finance would be established in stone,” Willis said.

A century and a half later, the lure of the stock exchange has receded.

At the end of February, asking office rents on Wall Street were about $36.51 a square foot, compared with the average of $38.56 for all of downtown and $44.74 for the city, according to New York-based Studley, which represents tenants. Were the street its own submarket, only four of 20 Manhattan areas would rank lower for rents, the firm’s data show. It would have been seventh-highest as recently as the second quarter of 2008.

Decline in Demand

“What you’re talking about is really symptomatic of the whole downtown market,” said Ruth Colp-Haber, founding partner of Wharton Property Advisors Inc., a brokerage firm that represents Manhattan office tenants. “Very rarely do I hear a firm that wants a Wall Street address.”

Demand for downtown space, like in much of the city, froze after the global credit crisis and plunge in financial-industry jobs. Wall Street was hurt by two additional factors: Goldman Sachs Group Inc. (GS)’s decision to sublease space at a building a block south, and departures at Donald Trump’s 40 Wall St., the biggest multitenant tower on the street, according to Shapses.

Goldman Sachs subleased 600,000 square feet (55,740 square meters) of space it rented and never used at 77 Water St., a 26-story tower built in the late 1960s, Shapses said. The bank sought rents lower than the area’s average, which pressured nearby landlords to reduce their asking rates, particularly at older buildings like those on Wall Street, he said.

Clinton Foundation

Competitive pricing attracted the William J. Clinton Foundation, former President Bill Clinton’s humanitarian action organization, to 77 Water, said Roshan Shah, senior vice president at CB Richard Ellis Group Inc. in New York. He and colleague Keith Caggiano are negotiating a lease for the foundation to take the 18th floor.

“Price was probably the most paramount factor,” Shah said. “Being a nonprofit, they are very cost-sensitive, and they want to make sure their funds are going to the causes they support. Goldman is certainly in a position to undercut the market.”

Andrea Raphael, a spokeswoman for Goldman Sachs, declined to comment. The negotiations were reported earlier today by the Wall Street Journal and New York Post.

At 40 Wall, Manhattan’s sixth-tallest building, American Express Co. (AXP) vacated about 240,000 square feet, mostly on floors 16 to 22, said Brad Gerla, executive vice president at CB Richard Ellis Group Inc., which represents the tower. Law firm Herzfeld & Rubin PC also departed, leaving 67,000 square feet.

40 Wall Vacancies

The building represents about 1.3 million of Wall Street’s 8.5 million square feet of offices, so what happens there tends to affect the street’s overall rents, Shapses said. The property was 31 percent vacant as of last month, according to CoStar Group Inc. (CSGP), a Washington-based real estate data service.

Wall Street had an office vacancy rate of 15.9 percent as of the end of February, higher than downtown’s overall rate of 10.7 percent, Studley data show.

The Trump Organization has been marketing 40 Wall St.’s space at $33 a foot for lower floors and $45 a foot for floors 50 through 61, most of which were occupied by Herzfeld, according to Gerla. There are about 70,000 square feet of leases he expects to have signed in the next two to three weeks, he said.

Interest in those spaces is as likely to come from an architectural firm or a broadband-service provider as a financial company. Fewer than half of the tower’s 450,000 square feet of new tenants in the past two years are traditional securities firms, Donald Trump Jr., who manages the building for his father’s company, said in an e-mail.

Best Value

One of Trump’s tenants is HAKS Engineers, a construction-management firm with more than 400 employees that moved to 40 Wall’s 11th floor in 2006. The company was lured by the street’s prices and its proximity to City Hall, about nine blocks to the north, said Chief Financial Officer Shahid Akhtar.

“Obviously there’s a value and recognition in a Wall Street address, but we weren’t specifically looking to be on Wall Street,” Akhtar said. “We looked at several places downtown and this presented the best value.”

What’s left of the traditional traders who once dominated the street tend to be specialists and trade-execution firms that still benefit from the proximity to the New York Stock Exchange, such as Direct Access Partners LLC. The firm moved into the 42nd floor of 40 Wall last year.

New Residents

James Craig, co-founder of Direct Access, called the changes he’s seen in 30 years on the street “kind of startling,” in part because of an influx of people living in the neighborhood. From 1997 to 2008, nine Wall Street office buildings were converted to rental or condominium housing -- or in one case, a hotel -- creating more than 2,900 dwellings, according to the Alliance for Downtown New York.

“It’s something as simple as coming up from the 4 and 5 subway in the morning -- now there’s as many people going down those stairs as coming up,” Craig said. “To me, years ago, Wall Street was a destination. Now people get on the subway from there and go to other places.”

For M.R. Beal & Co., a municipal-bond firm on the sixth floor of 110 Wall St., it helps business to have “Wall Street” on the letterhead, said Chief Operating Officer Stanley Grayson.

“Everyone in the country knows what Wall Street is,” he said. “That’s an important thing for us -- for a small, minority-owned firm. And at the time we moved, there was great space in lower Manhattan, and it was affordable, high-quality space.”

14 Wall

At 14 Wall, the former Bankers Trust Building across from the stock exchange, the tenant roster includes many firms not directly connected to trading. The 99-year-old tower now includes the headquarters of architectural firm Skidmore Owings & Merrill LLP; F.J. Sciame Construction Co., which restored New York’s Guggenheim Museum; and offices of New York University’s medical center.

Another tenant is TheStreet.com Inc. (TST), the news and investing website that reflects both the area’s financial history and possible future as a home to media companies. The New York Daily News; American Media Inc., publisher of the National Enquirer; and Omnicom Group Inc., the world’s second-biggest advertiser, have leased offices on nearby streets in the past two years. Conde Nast Publications Inc. is nearing completion of a deal to move its headquarters to One World Trade Center, which is rising about six blocks to the northwest.

‘Good Price’

The owners of 14 Wall also donated the building’s 30,000-square-foot basement vaults to the Lower Manhattan Cultural Council for use by artists, said Joshua Zamir, managing principal of Capstone Equities, which co-owns the 1.1 million-square-foot tower with Washington-based Carlyle Group.

“We’ve invested $50 million of capital to create a world-class office location,” Zamir said. “Given that the rents are a little bit lower than they were in 2007, someone really has an opportunity to take advantage of getting in at a good price.”

The property has attracted lucrative offers in the past. The sale of the building’s site in 1910 was “the most expensive land conveyance in the history of the world,” said Willis of the Skyscraper Museum.

About 39 percent of offices downtown, from Canal Street to the foot of Manhattan, are rented to financial firms, according to statistics from Cushman & Wakefield Inc. In 2001, the percentage was 48 percent. A decade earlier, it was 64 percent.

Plaza District

“The big players in finance, the most profitable, the hedge funds and private-equity firms, they don’t want to be down there,” said Colp-Haber of Wharton Property. “They all want to be in a pretty narrow corridor uptown in the Plaza District.”

Rents for Plaza District offices, the Midtown home of Citigroup Inc. (C), KKR & Co., and Carl Icahn’s Icahn Enterprises, are the priciest in the city. They average $65.69 a foot, or 80 percent higher than on Wall Street, according to Studley. Prices for high floors in some top-end buildings exceed $100 a foot.

Two financial giants -- Deutsche Bank AG (DB) and Bank of New York Mellon Corp. -- still have headquarters on Wall Street. Citigroup also owns and completely occupies 111 Wall St., near the East River.

Deutsche Bank, Germany’s biggest lender, has its North American headquarters at 60 Wall. That 47-story skyscraper, completed in 1988, was the street’s last major new building. It was commissioned by J.P. Morgan & Co., which sold it to Frankfurt-based Deutsche Bank in 2001 after being acquired by Chase Manhattan Corp. to become JPMorgan Chase & Co. (JPM) Deutsche Bank in 2007 sold the tower to Paramount Group.

$500 Million Check

JPMorgan’s departure ended a presence of more than 120 years on Wall Street, going back to the days when John Pierpont Morgan Sr. personified the power of The Street.

“You might have seen him walking around the corner the day he wrote Andrew Carnegie a $500 million check for all his companies,” said Annaline Dinkelmann, a former Morgan Stanley information technology specialist who now runs Wall Street Walks, a company that conducts walking tours of the financial district.

BNY Mellon owns and occupies 1 Wall St., a 52-story Art Deco tower completed in 1931 as the headquarters of Irving Trust Co., one of the bank’s predecessors. The company in May said it was considering moving out and selling the building to find offices with better meeting space and state-of-the-art technology. In November, it told employees it would stay.

Staying Put

“We did not find a building that met our requirements,” Ron Gruendl, a BNY Mellon spokesman, said in an e-mail. “Given the current economic environment, we were not willing to make any move that would increase expenses, and decided that, over time, we would continue to invest in our current facilities.”

NYSE Euronext, parent of the stock exchange, agreed last month to be acquired by Frankfurt-based Deutsche Boerse. Nasdaq OMX of New York is in talks with lenders to fund a possible rival bid, two people familiar with the matter said this week.

A takeover by Deutsche Boerse would be indicative of the street’s long decline as the center of the trading universe, a trend which goes back to the 1950s, said Richard Sylla, a financial historian at New York University’s Stern School of Business and chairman of the Museum of American Finance. The museum occupies the former Bank of New York banking hall at 48 Wall St., on the spot where the company, founded by Alexander Hamilton, had been since the beginning of the 19th century.

“There was a time when it made sense to be on Wall Street because you could meet a lot of other people in finance face to face just by walking a little bit,” he said. “If there’s a nicer place to locate a financial services firm than old downtown New York, you go there.”

To contact the reporter on this story: David M. Levitt in New York at dlevitt@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

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