The Wall Street Journal-20080116-At Ground Zero- Optimism Returns- Westfield Again Envisions a Valuable Retail Site
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At Ground Zero, Optimism Returns; Westfield Again Envisions a Valuable Retail Site
In 2003, the pitched battles over the redevelopment of the World Trade Center site finally got to be too much for Westfield Group. The Australian company that had owned the retail space in the complex sold out for what it had invested and walked away from the financial, political and emotional quagmire.
But now Westfield is back, a sign that many of the worst fights are over; retail in the area is booming and signs of progress are finally beginning to emerge from the gaping hole that has scarred downtown Manhattan since the Sept. 11, 2001, terrorist attacks.
This month, Westfield and the Port Authority of New York and New Jersey, which controls the site, agreed to a $1.45 billion partnership to develop and operate about 500,000 square feet of shops and restaurants at the site. The Sydney-based company says now that the squabbling parties have finally coalesced around a plan, it once again believes that it can develop some of the most valuable retail space in the world.
"We're back in there because we actually believe it's going ahead and that the buildings will be built, the space will get leased and people will come back down there to work," said Peter Lowy, Westfield's chief executive officer.
Milestones include the 2006 ground-breaking for a memorial that will occupy the former footprints of the Twin Towers. Steel for the first office building on the site, dubbed the Freedom Tower, is scheduled to rise above street level during the first half of this year. Fights have been resolved over such things as how much insurance companies will pay for damage from the attacks and the role to be played by Silverstein Properties Inc., owned by developer Larry Silverstein, who bought the long-term lease of the office buildings on the site six weeks before planes piloted by terrorists felled the towers. The Port Authority and Mr. Silverstein's latest plans call for construction of the buildings to conclude in 2011 and 2012.
Even so, the project has become infamous for its delays. All told, the reconstruction entails erecting five office towers, the memorial, a museum, a performing arts center and a transit hub on 16 acres in the middle of one of the busiest cities in the world. "You're dealing with the most complex construction project in the world," said Michael Francois, the Port Authority's director of development. The unforeseen obstacles that contractors encountered under the site include the remnants of an old railroad station and harder-than-expected rock formations.
Indeed, the Port Authority announced in December that the memorial complex won't be done until the 10th anniversary of the attack, two years later than originally planned. Development of the office towers may well be slowed by tightening of the credit markets or a recession. Since Jan. 1, the Port Authority has been incurring daily penalties of $300,000 for failing to complete on time underground work at the sites of Mr. Silverstein's three buildings and turn them over to him. Some of those involved in the project are privately predicting that some of the many construction projects on site might not be completed until 2013 or 2014.
Meanwhile, Westfield is pushing ahead. Mr. Lowy envisions a mix of retailers at the site to serve luxury shoppers, commuters and downtown Manhattan's burgeoning base of full-time residents. Some of the project's design and function will be influenced by Westfield's experience with massive retail projects in London, Sydney and San Francisco. It will probably include a dining terrace such as that in Sydney's Westfield Bondi Junction, which features smaller versions of sit-down restaurants with open-air kitchens. It also might include a gourmet grocery store with much of its space dedicated to prepared foods, much like the Bristol Farms store in Westfield San Francisco Centre.
A large chunk of the retail space -- roughly 80,000 square feet -- will be located in the site's transit hub, which will connect 11 subway lines. Most of the project's street-level space will host high- end shops, the kind that have found a ready market downtown in recent years. Once tenants are signed and stores open, the project will attract some of the highest rents in the country, Mr. Lowy predicts.
But Westfield will cater to a downtown Manhattan much different than the one before the terrorist attacks. There will be 28,171 apartments and condominiums by the end of this year, more than double the number in 2000, according to the Alliance for Downtown New York. Eight hotels with 1,600 rooms are under construction and 10 more hotels are slated to begin construction soon.
Downtown retail space, which generated sales per square foot of $800 to $1,000 and asking rents of $200 per square foot before the attacks, now is more lucrative. These days, because of the residential influx, downtown retail space carries asking rents of $350 to $500 per square foot, says Faith Hope Consolo, chairman of retail leasing at Prudential Douglas Elliman in Manhattan. Luxury retailers that recently opened stores downtown include jeweler Tiffany & Co. and men's clothier Thomas Pink; those scouting for space include jeweler Cartier and handbag merchant Ghurka.
"Depending on the timing of when it comes online and the demand, people could bid 20% above the asking price for this space," Ms. Consolo said of the center's shops.
The optimism contrasts with the frustration that drove Westfield from the project in 2003. The company deemed early concepts for the rebuilt office towers lacking in the street-level space and pedestrian access that it needed to boost sales and attract tenants. Office lobbies, Westfield argued, should be on the second and third floors rather than hogging valuable street frontage. Additionally, the company balked at early plans to extend as many as four roads through the site, reasoning that vehicle traffic would impede pedestrians' access to shops.
Another issue: there was some public sentiment at the time that stores and restaurants shouldn't be built on the site where more than 2,700 lost their lives.
Yet Westfield kept a hand in the project. Part of its exit deal gave the company the right to negotiate with the Port Authority first once it finally decided on its retail plans. Westfield also has been advising the Port Authority on retail at no charge since it left, perhaps with an eye toward thwarting any rivals angling for the job.
The resulting design partly addresses Westfield's desires, but not fully. The company gets only minimal street frontage -- roughly 37,000 square feet -- but it also gains considerable space in the transportation hub.
"There's clarity. That was our primary reason for coming back," Mr. Lowy says.
