Real Estate Forum

NEWS FRONT
WTC’s Downtown Influence Spreads Beyond Office

NEW YORK CITY—As One World Trade Center surpasses the Empire State Building in height, the project’s significance to Lower Manhattan’s office sector is indisputable. But it’s also helping Downtown become a retail success story.

“The number of commuters and tour-
ists coming through here is staggering,”
Chase Welles, retail chair at the Real
Estate Board of New York, tells Real
Estate Forum. “The World Trade Center
is the most visited place in New York after
the Met in its first year. About 200,000
people a day go through the WTC site,
and 300,000 people go through the Fulton
Street corridor. Those numbers are just
not arguable.”
As a result of the growth in tourism,
employment and 60,000 new residents,
spending in Lower Manhattan is now an
estimated at $4.7 billion annually, accord-
ing to the Alliance for Downtown New
York. In turn, 90 new retailers opened in
2011, and at least 13 more are coming
soon, the Alliance says.

Retail rents are also going up. According to CBRE, Downtown rates have gone from $131 per square foot in the third quarter of 2011 to $157 per square foot in the fourth, a sign that the neighborhood— from Battery Park to Chambers Street—is rising once again.

In the office sector, as large blocks of space continue to get gobbled up in Midtown and Midtown South, large transactions are helping to boost net-effective office rents Downtown. According to Studley’s 2012 Effective Rent Index, total rent posted its first gain in Lower Manhattan since 2007, spiking by 18.1% to $41.34 per square foot, spurred by a 49.9% spike in net rent to $18.42.

However, there’s more to the story
behind that spike. Erik Schmall, execu-
tive managing director at Studley, tells
Forum that the increase was “driven
solely by the Conde Nast deal that was
done Downtown,” noting that the luxury
magazine publisher’s landmark one-mil-
lion-square-foot-plus lease at One WTC
is already having a material impact on
the surrounding neighborhood. “I don’t
know if this would be a positive number
if it were not for this deal.”
While other brokerage shops have said
that Conde’s announcement hasn’t
dragged asking rents up or down, Schmall
says the mega transactions impact the net
effective index in a much bigger way. “All
the larger deals—like Oppenheimer and
Conde—were done at rental rates in pre-
mium buildings, as opposed to some of
the deals we did in other buildings,” he
explains. Schmall notes that although
Lower Manhattan offers a “significant
discount from Midtown,” much of the
older office product is still struggling to
lease up.—Jacqueline Hlavenka

Pension Reform Benefits All New Yorkers

The new pension reform plan announced by Gov. Andrew M. Cuomo, Assembly Speaker Sheldon Silver and Senate Majority Leader Dean Skelos as part of the state budget negotiations will greatly benefit New York City and the entire state. The passage of this sweeping pension reform plan will save state and local governments more than $80 billion over the next 30 years.

In particular, pension reform will save New York City $21 billion. Our legislative leaders have shown extraordinary determination and deserve immense credit for addressing the critical fiscal challenges facing state and local government.

Gov. Andrew Cuomo, Mayor Michael Bloomberg, the Committee to Save New York, the Real Estate Board of New York and many other organizations have made pension reform the most important issue facing our state and city and one that needs to be addressed this year. The chorus of voices for reform as well as the compelling and irrefutable evidence of the seriousness of the problem created an atmosphere for courageous action.

The pension reform package, which creates a new pension tier (Tier VI), is an important achievement for all New York taxpayers.

The savings from pension reform will not only permit the state and the city to pay for aid and services for its citizens, but will also make vital capital investments in our infrastructure possible. Investment in critical infrastructure projects, from roads and bridges to our transit network, will provide the foundation to retain jobs and to attract new businesses. This activity will be good for our economy and will expand our tax revenue.

Not a single current government worker or retiree will be affected and not-yet-hired city employees will receive pensions that taxpayers can afford. The retirement age will increase to 63 from 62 and new employees become vested after 10 years of service. The new formula will lower the pension from 60% to 55% of the average salary for the past five years.

As part of pension reform, new worker contribution rates will increase for higher-in-come employees, but will remain lower than the large majority of similar systems around the country. For example, employees making $45,000 or less will contribute 3%, while those earning up to $55,000 will contribute 3.5%; between $55,000 and $75,000, 4.5%; and from $75,000 to $100,000, 5.75%. Those earning more than $100,000 will contribute 6%.

Provisions were also adopted to prevent the padding of pensions in the last years of employment, which has driven up pension costs. For instance, the agreement changes the time period for final average salary calculation from three to five years. It also limits how much overtime can be used to determine an employee’s pension.

Tier VI puts in place anti-spiking measures which caps growth in salary used to determine pension allowances at 10% for all employees statewide. It also removes lump sum payments of unused sick and vacation time from the calculation of final average salary.

These reforms will take major steps toward controlling government spending, alleviating the growing burden on taxpayers and permitting the state and the city to use its limited resources in a manner that benefits all New Yorkers.

By Steven Spinola

Steven Spinola is president of the Real Estate Board of New York. He may be contacted at sspinola@rebny.com. The views expressed here are the author’s own.