July 8 (Bloomberg) -- The Durst Organization won the right to be an equity partner with the Port Authority of New York and New Jersey in 1 World Trade Center, the 1,776-foot tower under construction at the Ground Zero site in lower Manhattan.
Durst will begin exclusive negotiations with the Port Authority to oversee leasing of the 2.6 million square-foot (241,548 square-meter) tower and invest at least $100 million of equity in the project, Stephen Sigmund, a spokesman for the agency, said in an e-mail yesterday. Durst, led by developer Douglas Durst, was chosen over Stephen Ross’s Related Cos.
For Douglas Durst, 65, the selection represents a turnaround from 2007, when he said the project, then known as the Freedom Tower, “isn’t economically feasible under the present circumstances.” Since then, the credit crisis caused competing skyscraper projects in the city to be postponed, which Durst has said will help 1 World Trade be successful.
“Looking at all the angst we’ve gone through with commercial real estate over the last couple of years, one thing that hasn’t been a problem is overbuilding,” Lawrence Longua, director of the REIT Center at New York University’s Schack Institute of Real Estate, said today in a telephone interview. “The discipline in the industry that’s been imposed by the credit crunch is such that I don’t think that buildings are going to be built unless they’re not only mostly leased but almost entirely leased.”
“If I were Durst, I wouldn’t worry about any massive amount of competitive space that’s going to come on-stream,” he said.
Jordan Barowitz, a spokesman for the three-generation family real estate firm, said in January that the company’s philosophy is that “it’s always best to build during a downturn so you can come to market when the economy improves.”
The Port Authority will negotiate with Durst to complete an agreement during the next 30 days, the agency said in a statement.
“We are very proud to have been selected,” Jonathan “Jody” Durst, Durst Organization president and Douglas Durst’s cousin, said in an e-mailed statement. “The World Trade Center site is, perhaps, the most complex building project ever undertaken.”
The selection came after a six-month competition that initially included bids from Boston Properties Inc., Vornado Realty Trust, Brookfield Properties Corp. and Hines Interests.
“While we are disappointed and thought we offered a great vision for this iconic destination development and lower Manhattan, we wish the Port Authority and their new partner well,” Related’s Ross said in an e-mailed statement.
The authority expects Durst to assist it with the tower’s construction, and to “take primary responsibility” for leasing, property management and tenant installations. In exchange, Durst will receive an unspecified return “tied to its equity interest and performance of the building,” the agency said in its release.
One World Trade is now a steel frame rising about 270 feet above the ground -- the equivalent of the 28th floor of a planned 104 stories, according to the authority. It is scheduled to be completed in 2013, about 12 years after terrorists destroyed the twin towers at the site.
The authority “bit the bullet” and went forward with the $3.2 billion project in the face of the 2008 credit collapse, Longua said.
Together with 4 World Trade Center, a 975-foot tower on the southeast corner of the site, the two buildings would add about 4.4 million square feet to the 86 million square-foot downtown office market. Larry Silverstein is developing 4 World Trade, and has rights under a lease with the authority to develop two more towers at the site.
Lower Manhattan office rents fell 2.9 percent in the second quarter to $37.81 a square foot, the seventh consecutive quarterly decline, according to Cushman & Wakefield data. Downtown is facing additional empty office space as companies including Goldman Sachs Group Inc., Bank of America Corp.’s Merrill Lynch unit and American International Group Inc. shift workers to new locations.
Federal and New York state agencies have committed to taking about 1.1 million square feet in the tower, the agency said. Beijing Vantone Real Estate Co., a Chinese property developer, last year signed 1 World Trade’s first lease, for 190,810 square feet.
Early 20th Century
Durst is the builder of Bank of America’s 1 Bryant Park in midtown Manhattan and the adjacent 4 Times Square, where Conde Nast Publications Inc. has its headquarters. The company’s roots go back to the early 20th century, when immigrant Joseph Durst, Douglas Durst’s grandfather, bought an office building on 34th Street, according to the company website.
Conde Nast, publisher of Vogue, Glamour and GQ magazines, has held talks with the Port Authority about renting as much as 1 million square feet at 1 World Trade, a person familiar with the talks said in May.
Being the publisher’s current landlord gives Durst “a leg up” against other suitors if the company decides to move, Longua said.
Maurie Perl, a Conde Nast spokeswoman, declined to comment.
In 2007, with Empire State Building operator Anthony Malkin, Douglas Durst sponsored a full-page newspaper ad saying the Freedom Tower should have been the last building started instead of the first, and that hastily designed security measures would make it cumbersome for tenants.
The ad also recommended changing the Freedom Tower name back to the World Trade Center designation, which the agency subsequently did.
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