NEW YORK (Reuters) - Lower Manhattan office building values are likely to suffer as a result of damage inflicted by Superstorm Sandy that has left thousands of downtown Manhattan workers unable to return to their offices, major real estate executives said at a conference on Wednesday.
“I think there’s been value erosion downtown,” Howard Lutnick, chairman and CEO of Cantor Fitzgerald LP and BGC Partners Inc, said during the New York University Schack Institute of Real Estate Capital Markets in Real Estate conference. “It had just started to come back. The concept now of fear of flooding is going to affect values.”
About 500 of his employees are unable to return to the three floors they occupy at 199 Water Street. Lutnick expect that to continue for six weeks to two months. Meanwhile his staff has been doubling up at the company’s midtown offices and trading floors at 499 Park Avenue and its connected building at 110 East 59th Street.
Nearly one-third of the 101 million square feet of office space in downtown Manhattan either was closed, powered by generators or had no heat due to the flooding Sandy inflicted last week, said Jones Lang LaSalle Inc. There was no correlation between the age of the building and the damage suffered, the real estate services company said.
Lutnick, unfortunately, knows about disasters. The company occupied floors 101 through 105 of One World Trade when it was destroyed on September 11, 2001. Cantor Fitzgerald lost 658 of its 960 employees who worked there.
“All disaster recovery plans are a disaster,” he told about 475 real estate investors, bankers and students at the conference.
Cantor Fitzgerald’s lease at 199 Water Street expires in about 15 months, he said, and the company has yet to decide whether to renew it. Lutnick said downtown landlords may have to make more concessions and ultimately take in less rent to convince tenants to stay.
“They’ll have to offer more value to get them to stay,” he said.
The destruction and prolonged building closings and heating and electrical interruptions will take their toll on property values, Darcy Stacom, CBRE Group Inc vice chairman, said later at the conference.
“Will investors think about this when they look at buildings in hard-hit areas? Yes,” she said.
The repercussions from Sandy could reach well past downtown. Part of Hudson Yards, the office and housing development planned for midtown’s far west side, is also in the flood zone. That could prompt some changes to the plans.
“It is a subject that we and our partner will definitely be talking about,” said Andrew Trickett, senior vice president, U.S. region, for Oxford Property Group, the real estate arm of Canadian pension fund Ontario Municipal Employees Retirement System. Oxford is Related Companies’ equity partner in Hudson Yards.
Stephen Ross, Related’s chairman, said if Hudson Yards had been built already, it would not have had many problems.
“We have plans for backup generators for the entire project,” he said of the planned 6 million square feet of office space, 5 million square feet of housing, and 1 million square feet of retail space.
It will take public and private money to prevent another disaster, real estate experts said, and will require regulatory and zoning changes determining how things are built and where they are located.
It will take even more money to prevent storm surges and rebuild the city’s old infrastructure.
“If they could do it in New Orleans, they certainly can do it in New York,” Ross said, referring to the infrastructure built after Hurricane Katrina.
The rebuilding could stir demand for professions and trade workers who were hit hard by the recession that dried up financing for development projects.
“Construction workers who have been sitting on the bench for five or six years, they’ll be in demand,” said William Rudin, chief executive and vice chairman of Rudin Management Co Inc. “They’ll be able to get back to work, so will the architects, the engineers, the contractors. You go down the line, one of our strengths is that we have these industries here.”
Reporting by Ilaina Jonas; Editing by Phil Berlowitz