June 16 (Bloomberg) -- Deloitte LLP is negotiating with Brookfield Properties Corp. about moving into Merrill Lynch & Co.’s former headquarters building at lower Manhattan’s World Financial Center, two people familiar with the talks said.
Deloitte, one of accounting’s “Big Four” firms, may lease 400,000 to 450,000 square feet (37,000 to 42,000 square meters) at 4 World Financial Center, said the people, who asked not to be identified because negotiations are ongoing. Deloitte has the biggest space among 11 companies that sublet offices from Merrill at 2 World Financial Center, part of Brookfield’s 8 million square-foot office park on the Hudson River waterfront.
A deal could rank among Manhattan’s largest office lease signings this year. It also would help Brookfield tackle one of its biggest challenges: what to do about expirations on the more than half of the financial center leased to Merrill, which was taken over in 2008 by Bank of America Corp. Leases on all 4.6 million square feet expire in 2013.
Signing Deloitte would “help solidify downtown as a very viable office market,” said James Emden, vice chairman for tenant representation at Colliers International, a brokerage firm not involved in the talks.
Some of lower Manhattan’s biggest financial firms, including Merrill, Goldman Sachs Group Inc. and American International Group Inc., have been vacating space. At the same time, about 4.4 million square feet of offices are under construction at the World Trade Center site, across the street from the financial center.
‘Position of Strength’
“Brookfield always thought they were negotiating from a position of strength with that particular complex in lower Manhattan,” said John Guinee, a Baltimore-based real-estate analyst with Stifel Nicolaus & Co., who rates the stock a “buy.” “And I would bet that when the details get out people will perceive this as a good deal for Brookfield.”
Goldman Sachs’s move of its headquarters to a new tower across the street from 4 World Financial “changed the epicenter of downtown from Wall Street to the West Side,” Guinee said. This gives Brookfield an advantage over landlords with older buildings in the center of lower Manhattan, he said.
Brookfield rose 32 cents, or 2.1 percent, to $15.47 at 4:03 p.m. in New York Stock Exchange composite trading, the highest price in four weeks. The shares had the biggest gain in the Dow Jones U.S. Real Estate Industry Group Index, which fell 0.8 percent.
The largest office signing this year was a 481,000 square-foot renewal by the State of New York at 60 Broad St. in lower Manhattan, according to the brokerage firm Cassidy Turley. Midtown’s biggest leases were a 415,000 square-foot renewal by New York Life Insurance Co. at 63 Madison Ave., and a 406,000 square-foot agreement by law firm Proskauer Rose LLP to move to a new skyscraper at 11 Times Square.
Jonathan Gandal, a Deloitte spokesman, said the company’s options remain open. “No final decision has been made and no contracts have been signed,” he said.
Melissa Coley, a Brookfield spokeswoman, said the company “is pleased to be in direct discussions with all the subtenants at 2 World Financial Center.”
Rent revenue from Bank of America/Merrill Lynch accounted for 12 percent of Brookfield’s total U.S. income in 2009, according to the New York-based company’s annual report. The Merrill lease expirations in 2013 include 1.9 million square feet subleased to companies such as Deloitte, Nomura Holdings Inc. and OppenheimerFunds Inc.
Brookfield controlled 93 properties totaling 70 million square feet in the central office districts of New York, Boston, Washington, Los Angeles, Houston, Toronto, Calgary and Ottawa at the end of March.
Deloitte occupies 633,000 square feet at the financial center, most of it sublet from Merrill at 2 World Financial, according to Brookfield. Nomura has about 500,000 square feet. Other Merrill subtenants include Oppenheimer with 189,000 feet, Commerzbank AG with 160,000 feet, as well as State Street Bank, the law firm D’Amato & Lynch LLP, Platinum Underwriters and Hunter Roberts Construction.
Brookfield has signed law firm Sonnenschein Nath & Rosenthal LLP to an extension through 2018 for 135,000 square feet, Coley said.
Deloitte had discussions with the owners of Worldwide Plaza at Eighth Avenue and West 50th Street to move its downtown operations to Midtown, two people familiar with those talks said last year. The advertising firm Ogilvy & Mather vacated 14 stories in that 49-story tower in June 2009.
“We have been working really hard on these 2013 expiries within our portfolio downtown,” Brookfield Chief Executive Officer Richard “Ric” Clark said June 9 during a session at the National Association of Real Estate Investment Trusts conference in Chicago. “We’re currently in negotiations trading paper with 3.3 million square feet of tenants.”
Brookfield is waiting for Bank of America to say whether it wants to keep any offices at the World Financial Center beyond 2013, according to Clark. The Charlotte, North Carolina-based bank, the biggest in the U.S. by market value, co-owns a new 2.1 million square-foot skyscraper, 1 Bryant Park, in midtown Manhattan.
Bank of America has been moving workers back to the financial center this year after previously relocating staff to Midtown, Clark said on a May 6 conference call. He called that “a positive signal.” The bank has a 49 percent ownership stake in 4 World Financial, according to a Brookfield regulatory filing.
Bank of America declined to comment, according to an e-mail from spokesman T.J. Crawford.
Deloitte ranked second in 2008 for auditing market share behind PricewaterhouseCoopers LLP, A.M. Best & Co. said in January.
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