July 9 (Bloomberg) -- Larry Silverstein reached a preliminary agreement for advertising firm GroupM to lease offices at 3 World Trade Center, marking a key step for the developer to proceed with building the 80-story lower Manhattan skyscraper, two people with knowledge of the negotiations said.
GroupM, the media buying and planning division of WPP Plc, the world’s biggest advertising company, agreed to take more than 500,000 square feet (47,000 square meters) in the tower, which is designed to be 2.5 million square feet, said the people, who asked not to be identified because the talks are private. A term sheet was signed yesterday, with a completed lease expected by the end of the year, one of the people said.
A deal would allow Silverstein, founder of Silverstein Properties Inc., to move toward obtaining financing and government subsidies to erect the skyscraper, which would be the third constructed on the 16-acre (6-hectare) site that was attacked by terrorists almost 12 years ago. One World Trade Center, being built by the Port Authority of New York and New Jersey with the Durst Organization, and Silverstein’s 4 World Trade Center will be completed by early next year.
A GroupM lease would be critical to “completion of our efforts downtown,” David Samson, chairman of the Port Authority, which owns the World Trade Center site, said in a telephone interview. “There are a lot of different pieces that need to come together in order to reach our objective of a fully built-out, fully developed and fully operational site, but this is certainly a key milestone.”
The lease would also provide a boost to lower Manhattan’s office market, where almost 10 million square feet is available, according to data released last week by brokerage Cushman & Wakefield Inc. In addition to the space nearing completion at the trade center site, Brookfield Office Properties Inc., downtown Manhattan’s largest landlord, is looking to fill offices at Brookfield Place, the complex formerly known as the World Financial Center that housed Merrill Lynch & Co.’s headquarters.
Lower Manhattan’s vacancy rate was 11.6 percent in the second quarter, compared with 10.4 percent for the entire borough, according to Cushman and Wakefield.
GroupM agreed to a 20-year lease at 3 World Trade, the people with knowledge of the deal said. The company would take the lower part of the building, including some of the 68,000-square-foot base floors that were originally designed to be trading floors for an investment banking tenant. Large securities firms have been cutting jobs and reducing their space needs in the aftermath of the 2008 financial crisis.
A call to Kelly Clark, North American chief executive officer of GroupM, wasn’t returned. Bud Perrone, a Silverstein spokesman, declined to comment. The tentative deal was reported yesterday on the website of the New York Post.
The deal would allow GroupM to consolidate its New York offices into one building. The company now has three Midtown locations, the largest being at 498 Seventh Ave., a tower in the Garment District.
GroupM would be the first non-government tenant in any of the three towers Silverstein has the right to build at the trade center site. At One World Trade Center, the tallest building in the Western Hemisphere, publisher Conde Nast Publications Inc. has agreed to take more than 1 million square feet.
Under the terms of a 2010 agreement, Silverstein must lease at least 400,000 square feet in the tower and raise at least $300 million of financing before he can qualify for $200 million each of support from the Port Authority, New York City and New York state, as well as $1.3 billion of tax-advantaged Liberty Bonds and other funding.
That deal was negotiated with former Port Authority director Christopher Ward, resolving a dispute in which Ward and then-New York Governor David Paterson took a stand against public subsidies for private offices. The authority had already taken on the building of One World Trade Center, and 4 World Trade is financed with more than $1 billion of Liberty Bonds.
The Port Authority is the anchor tenant at 4 World Trade Center, which also will house city offices. The tower has about 1 million square feet still unrented.
Early last year, Silverstein and the authority discussed capping 3 World Trade Center at 7 stories if the developer couldn’t find enough tenants to make it worth completing, according to two people with knowledge of the talks.
Under the 2010 agreement, 2 World Trade Center, to be the second-tallest tower on the site, will be built based solely on market demand, without public support.
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