Lower Manhattan Quiet as Sandy Shuts One-Third of Offices
The drone of generators fills the silence of lower Manhattan on a weekday afternoon. A newsstand is open at the corner of Wall and Water streets, its main customers now cleanup crews rather than bankers, lawyers and other financial district office workers.
Such is the scene downtown, where damage from Hurricane Sandy is keeping properties empty more than a week after the storm struck. There are 445 office and residential properties in the area that the city determined may be uninhabitable even while they may have no structural damage. Almost 33 percent of the 101 million square feet (9.4 million square meters) of lower Manhattan office space was out of operation as of Nov. 7, according to brokerage Jones Lang LaSalle Inc.
“We have water in basically every building downtown,” said Joseph Moinian, who owns and manages more than 4 million square feet of commercial and residential space in the area.
“I was always taught that salt water kills germs,” Moinian said. “Now I find out that it kills equipment too.”
The flooding in lower Manhattan after the biggest Atlantic storm in history is displacing workers at companies including American International Group Inc. (AIG) and Morgan Stanley (MS) as landlords drain basements, remove debris and repair electrical equipment. In the aftermath, commercial property values and leasing demand may fall while insurance premiums could rise.
“Lower Manhattan was just starting to come back to a very solid footing,” said Howard Lutnick, chairman and chief executive officer of investment bank Cantor Fitzgerald LP. His firm is a tenant at 199 Water St., where a flooded basement will take six to eight weeks to clean up, he said.
“This is going to have a material effect on values downtown,” said Lutnick, who also runs BGC Partners Inc., owner of property brokerage Newmark Grubb Knight Frank.
Cantor Fitzgerald moved most of its downtown employees to its Midtown headquarters. Lutnick declined to say whether the company would renew its lease at Water Street when it is up in about 16 months.
“We will see,” he told reporters at the NYU Schack Institute of Real Estate’s capital markets conference on Nov. 7.
Jack Resnick & Sons, the family-run real estate investment firm that owns 199 Water St., is working “as hard as possible” to fix the damage, said Steve Solomon, a spokesman.
The New York Daily News is preparing to be out of its offices at 4 New York Plaza for between six months and a year, Bill Holiber, the newspaper’s president and chief executive officer, said in an interview. The newsroom has been relocated to its printing plant in Jersey City, New Jersey.
“We’re still waiting to hear” from the landlord, he said. “We just feel based on our knowledge and observations, it can be up to that period of time.”
Calls to Edge Fund Advisors, a Washington-based real estate firm that bought the building with another company in May, weren’t returned.
Several of the area’s buildings that are more inland are wrapping up their cleanup and should be open by early next week, said John Wheeler, head of Jones Lang’s lower Manhattan office. Those properties are easier to fix because they didn’t have a lot of water pouring into their basements, he said.
Landlords in the area include Brookfield Office Properties Inc., which has 22 percent of its portfolio in lower Manhattan, and SL Green Realty Corp. (SLG), with 16 percent of the assets it owns there, according to a report by Bloomberg Industries.
UDR Inc. (UDR) entered the Manhattan market last year with two purchases downtown: 10 Hanover Square and 95 Wall St., both of which had no power as of yesterday afternoon and where residents are allowed in during the day only to retrieve belongings, according to the company’s website. The firm is working with local utility Consolidated Edison Inc. (ED) to determine how much of the properties’ electrical gear is salvageable.
UDR, based in Highlands Ranch, Colorado, is prorating rents for days the properties are uninhabitable and offering $100 credits to help tenants “restock their refrigerators,” it said on its website.
The company said in a Nov. 1 statement that its liability could total $11 million to $14 million before insurance proceeds. Under an “optimistic” scenario for 95 Wall St., tenants could return no earlier than the middle of next week.
While it repairs the damage to eight of its downtown buildings, Moinian Group is offering rent credits, the company said in a Nov. 6 statement. Properties where tenants will see refunds on their December bill include luxury apartments at 100 John St., a building that offers amenities such as 24-hour concierge service. It’s expected to open to residents this week, Moinian said in an interview.
Credits will also be issued at the W New York Downtown Hotel and Residences at 123 Washington Street, where point guard Jeremy Lin rented an apartment during his time with the National Basketball Association’s New York Knicks, according to Moinian.
The complex at 17 Battery Place, which includes offices and a residential building known as the Ocean, will take longer to rehabilitate, in part because of flooding to an underground parking garage that makes the damage to the electrical equipment still unknown, he said.
“We have to think about what’s going to happen to some of those buildings” in the area, Bill Rudin, CEO of landlord Rudin Management Co., said at the NYU conference.
“Simple things like move the electricity and power boxes from downstairs, upstairs” will need to be done soon, said Rudin, whose 80 Pine St. and 110 Wall St. properties sustained damage from Sandy.
“We also have to look at bigger-picture issues -- surge protections, things like that,” Rudin said. “Those are billions of dollars of money and time.”
At the 39-story tower at 80 Pine, two blocks from the lower Manhattan waterfront, Rudin’s building manager and engineer were nearly killed Oct. 29, as they were shutting steam lines and checking equipment while the water began to flood in. With the basement of the property, also known as 110 Maiden Lane, now drained, workers this week were tackling the piles of debris left behind.
In an underground level, beneath a Hale and Hearty soup shop at the property, workers earlier this week were packing garbage bags full of wood and ceiling material, as well as wet cardboard boxes in what appeared to be a basement storage room. Ceilings there sagged and collapsed, walls were knocked over and a food-storage refrigerator belonging to the restaurant was pushed into the middle of the room.
Sandy’s surges filled the basement and rose upward into the Hale and Hearty, partially submerging the refrigerated storage case where bowls of salad are usually displayed.
“This was all messed up,” Pedro Salabrria, a cleanup crew member, said from inside the soup shop, where workers found serving stations and display cases flipped over.
The scene was similar all along Maiden Lane and Water Street, which runs parallel to the East River: dumpsters parked outside, filling steadily with garbage bags, and generators at the base of the buildings snaking power in for the cleanup crews. Outside the Andaz hotel at 75 Wall St., damp rugs were rolled up outside the lobby entrance and a note from management alerted passersby that the hotel is closed until further notice. At 77 Water St., workers spent the afternoon of Nov. 7 rinsing off decorative rock beds in front of the building with power hoses.
At 1 New York Plaza, where Morgan Stanley leases more than 800,000 square feet, Brookfield is “assessing the condition of the mechanicals,” Melissa Coley, a spokeswoman for the landlord, said in a Nov. 7 interview. She said the company was hoping to open the building in three to six weeks.
The tower at 125 Broad St., also known as 2 New York Plaza, suffered “heavy flooding and related damage,” Edison, New Jersey-based Mack-Cali Realty Corp. (CLI) said in a statement today. It gave no timetable for its reopening. The company owns 525,000 square feet in the 1.2 million-square-foot building, whose occupants include the law firm Sullivan & Cromwell LLP.
At 180 Maiden Lane, the headquarters of AIG, heavy flooding will keep tenants out for 30 days, landlord SL Green said in a Nov. 7 statement. All of SL Green’s other properties are open.
The storm’s effects are temporary and are unlikely to hurt real estate values downtown, said Jones Lang’s Wheeler.
“The drivers of lower Manhattan’s resurgence are still intact and valid,” he said in a telephone interview.
Those reasons include the rise of affluent residential communities both in and near lower Manhattan, including Tribeca, downtown Brooklyn and Jersey City and Hoboken in New Jersey, he said. Leasing rates are also about a third cheaper than in Midtown, and the area also offers striking water views.
Insurance rates for office properties probably will increase in the low-lying areas of lower Manhattan that sustained the most damage, according to Finley Harckham, a partner at Anderson Kill & Olick PC, who represents policyholders in litigation.
Sandy, while smaller than Hurricane Katrina, may cause similar legal disputes as the 2005 storm over whether damage was caused by wind or flooding, he said.
“Even where there’s coverage, in a situation like this the insurance companies tend to be notoriously slow” in paying claims, he said. “In the next couple of weeks, we’re going to see businesses screaming to get at least partial payment so they can make the necessary repairs to restore their operations.”
While insurers have plenty of capital to continue writing coverage, they will probably re-examine the risks they’re taking in the areas affected by Sandy and last year’s Hurricane Irene, said Brian Duperreault, chief executive officer of Marsh & McLennan Cos., the second-largest insurance broker.
“We do expect the Northeast and mid-Atlantic regions will be under more scrutiny from underwriters on the heels of two major storms within 14 months,” he said on a Nov. 6 conference call with analysts.
Kathryn Wylde, CEO of the Partnership for New York City, a trade organization for city-based corporations, said her group is studying whether to advocate for the federal government to offer an insurance loss “backstop” to private insurers who are hesitant to write policies for lower Manhattan properties.
“We certainly have a new definition of the flood plain and I doubt federal flood insurance, available to homeowners, will suffice,” she said in an e-mail.
Insurance may not cover all of the costs of flooding, such as relocation of equipment, which may hurt individual property owners who can’t afford repairs, Darcy Stacom, vice chairman of CBRE Group Inc., said at the Schack Institute conference.
“Will investors think about this when they look at buildings in hard-hit areas? Yes,” she said. “Unless you can show them the infrastructure has been changed to deal with it, they’re going to tighten the core area that they’re going to look to invest in.”
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