Square Feet: Projects Shelved in the Downturn Spring Back to Life

The developer spent the last several years studying the engineering of a deck over the rail yards on the site, and says it has found a way to build it cheaper and quicker. It will start construction later this year, with plans to deliver a two-million-square-foot office tower designed by Skidmore, Owings & Merrill on the northeast corner of the parcel by 2015. There are plans to eventually construct as many as three towers.

“We will start building the deck on spec but are confident that by the time we get around to building the tower, we will have found an anchor tenant,” said Ric Clark, the president and chief executive. While he declined to give asking rents for the tower, Brookfield has begun preliminary conversations with tenants and expects to be competitively priced with the Hudson Yards buildings the Related Companies is planning a few blocks west.

As rents rebound and vacancies fall in the New York office market, some developers like Mr. Clark who shelved projects in the recession are resurrecting their plans. Several buildings are in the pipeline, and nearly 9.5 million square feet could become available over the next few years — in addition to several million more square feet at the World Trade Center in Lower Manhattan and the Hudson Yards.

A number of factors are driving the trend. Commercial rents are rising in certain submarkets and have held steady in others. Builders who believe the market has turned are preparing sites now in the hopes their projects will come online when higher rents are firmly established.

The city’s aging office stock is another factor. Nearly 83 percent of the office buildings in Manhattan were built more than three decades ago, according to the real estate company Cassidy Turley, and just 6.6 percent have been built since 1990. Many tenants, particularly law firms and financial services companies, crave new space that can be more efficient and tailored to their needs. Finally, construction costs could fall as union contracts begin expiring over the next few months and contractors push to exclude costly labor rules.

“A year ago people were saying the market was so bad they wouldn’t contemplate ground-up construction,” said John F. Powers, the chairman of the New York tri-state region for CB Richard Ellis. “But now, there is upward pressure on rents in some segments of the market, and certainly there is no more downward pressure, so developers are beginning to run pro formas again,” he said, referring to the method of estimating a project’s cost.

In the first quarter of this year there were 15 office leases in Midtown at rents above $90 a square foot, compared with 23 for all of 2010, according to Cushman & Wakefield. At the same time the vacancy rate in Midtown has dropped to 10.3 percent, compared with 12.6 percent at this time last year.

Tenants considering locking in new space now, before rents rise further, include Time Warner Inc., the financial services behemoth UBS and the law firm Mayer Brown. According to Cassidy Turley there are 446 tenants in the market chasing less than 28 million square feet of space.

Particularly well-poised are those developers who had begun preparing before the recession and can resume construction now at points further along. Pacolet Milliken Enterprises, the sister company of the textile firm Milliken & Company, demolished the building at 1045 Avenue of the Americas, a full block between West 39th and West 40th Streets, in 2009. The company has completed the schematic design for a 350,000-square-foot office building at the now-vacant lot, and has hired the Houston-based real estate firm Hines as a consultant.

“We feel very confident about the market and the location,” said Richard C. Webel, Pacolet Milliken’s president. He said the company had been speaking preliminarily with tenants, though it had not yet hired a broker. As for timing, “based on who we have talked to, the market should be there by 2015 or 2016, if not sooner,” Mr. Webel said.

Timing is critical as the market starts to revive, experts said. “The first buildings to be up and running will be most successful in grabbing an anchor tenant,” said Robert Sammons, the vice president for research services at Cassidy Turley.

Boston Properties is banking on this as it revives construction on a 1-million-square-foot office tower at 250 West 55th Street; building stopped in 2008 after the foundation was poured. Since it is partially built, it will be a relatively short time — mid-2014 — until Boston Properties can deliver the building to tenants. Already, it is in lease negotiations with the law firm Morrison Foerster as an anchor tenant.

View the original article here

Square Feet: Government, Too, Has Trouble Selling Buildings

But the federal government did not put the building on the market until November 2009. By then, of course, the real estate market had slumped. Akridge and its partner, Rockwood Capital, a real estate investment fund in White Plains, finally bought the building last October, paying $12.5 million, less than the $14 million asking price.

In a report last October Republicans in Congress pounced on the long delay in selling the Bethesda building — and the discounted price — as an example of how the federal government has been mismanaging its real estate holdings.

The government owns or manages more than 900,000 buildings or other structures across the country — office buildings, courthouses, warehouses and other property types — making it the nation’s largest landlord. But like the former N.I.H. building, about 14,000 are no longer needed and are costly to maintain. An additional 55,000 are regarded as underutilized.

The report was also harshly critical of government spending to operate surplus and underused buildings, including $6.5 million for the Old Post Office Building at 12th Street and Pennsylvania Avenue in Washington. The administration’s own figures estimate the annual operating expenses for those buildings at more than $1.8 billion.

Last June President Obama ordered executive agencies to accelerate efforts to dispose of unneeded buildings, and set a goal of saving $3 billion by the end of 2012. Yet various obstacles make it difficult for the government to unload buildings it no longer wants.

For one thing they must first be offered to other federal, state and local agencies. Officials also have to ascertain if the building has a community use — say, for a homeless shelter.

At times an agency may want to sell an obsolete building but cannot afford the moving costs, Jeffrey D. Zients, a deputy director of the Office of Management and Budget, said in a telephone interview. Then, too, political considerations may come into play. “Politicians love to come hold a ribbon-cutting for a new building,” Mr. Zients said. “Getting rid of a building is less rewarding.”

The Obama administration has determined that if the barriers to selling were removed, he said, the savings could be much higher — $15 billion over five years. The sum includes the dollars not spent on maintenance and energy costs as well as sale proceeds.

To speed up the disposal process the administration wants to create an independent commission modeled after the Base Realignment and Closure Commission, or BRAC, a process begun in 1988 to review Defense Department recommendations for closing military bases. The proposed commission, the Civilian Property Realignment Board, would be able to cut through much of the existing red tape, establish new procedures and come up with recommendations for selling property in bulk, Mr. Zients said.

The commission would also recommend ways the government could use its space more efficiently by, for example, consolidating space or getting agencies to move into one building.

In addition, the legislation is expected to provide incentives for federal agencies by allowing them to share in the proceeds from any sales. To reduce political influence, the commission’s recommendations would be submitted to Congress as a package and not subject to amendment — similar to the way the base closure recommendations were handled. Daniel Werfel, the controller for the Office of Management and Budget, said the commission would include people with experience in commercial real estate, government operations and community development.

The commission concept has bipartisan support, said Jeff Denham, Republican of California and the chairman of the House subcommittee on public buildings. “The goal in the short term is to sell as many buildings as possible to generate some immediate cash flow to help with the debt crisis,” said Mr. Denham, who backed a similar proposal when he was a state legislator. The longer-term goal is to improve the way the federal government handles its real estate needs, he said.

Some real estate experts wondered if a board was necessary. “Whenever government is faced with a problem, the first thing they do is appoint a commission,” said Nicholas R. Smith, an executive vice president at First Potomac Realty Trust, a publicly traded company that leases more than 700,000 square feet to the government. Mr. Smith said the process for selling federal property should simply be made less complex.

This article has been revised to reflect the following correction:

Correction: April 28, 2011

An article in the Square Feet pages on Wednesday about the federal government’s difficulty in divesting some of its real estate holdings misspelled the name of a deputy director in the Office of Management and Budget. He is Jeffrey D. Zients, not Jeffrey D. Zeints.

View the original article here

Square Feet: Projects Shelved in the Downturn Spring Back to Life

The developer spent the last several years studying the engineering of a deck over the rail yards on the site, and says it has found a way to build it cheaper and quicker. It will start construction later this year, with plans to deliver a two-million-square-foot office tower designed by Skidmore, Owings & Merrill on the northeast corner of the parcel by 2015. There are plans to eventually construct as many as three towers.

“We will start building the deck on spec but are confident that by the time we get around to building the tower, we will have found an anchor tenant,” said Ric Clark, the president and chief executive. While he declined to give asking rents for the tower, Brookfield has begun preliminary conversations with tenants and expects to be competitively priced with the Hudson Yards buildings the Related Companies is planning a few blocks west.

As rents rebound and vacancies fall in the New York office market, some developers like Mr. Clark who shelved projects in the recession are resurrecting their plans. Several buildings are in the pipeline, and nearly 9.5 million square feet could become available over the next few years — in addition to several million more square feet at the World Trade Center in Lower Manhattan and the Hudson Yards.

A number of factors are driving the trend. Commercial rents are rising in certain submarkets and have held steady in others. Builders who believe the market has turned are preparing sites now in the hopes their projects will come online when higher rents are firmly established.

The city’s aging office stock is another factor. Nearly 83 percent of the office buildings in Manhattan were built more than three decades ago, according to the real estate company Cassidy Turley, and just 6.6 percent have been built since 1990. Many tenants, particularly law firms and financial services companies, crave new space that can be more efficient and tailored to their needs. Finally, construction costs could fall as union contracts begin expiring over the next few months and contractors push to exclude costly labor rules.

“A year ago people were saying the market was so bad they wouldn’t contemplate ground-up construction,” said John F. Powers, the chairman of the New York tri-state region for CB Richard Ellis. “But now, there is upward pressure on rents in some segments of the market, and certainly there is no more downward pressure, so developers are beginning to run pro formas again,” he said, referring to the method of estimating a project’s cost.

In the first quarter of this year there were 15 office leases in Midtown at rents above $90 a square foot, compared with 23 for all of 2010, according to Cushman & Wakefield. At the same time the vacancy rate in Midtown has dropped to 10.3 percent, compared with 12.6 percent at this time last year.

Tenants considering locking in new space now, before rents rise further, include Time Warner Inc., the financial services behemoth UBS and the law firm Mayer Brown. According to Cassidy Turley there are 446 tenants in the market chasing less than 28 million square feet of space.

Particularly well-poised are those developers who had begun preparing before the recession and can resume construction now at points further along. Pacolet Milliken Enterprises, the sister company of the textile firm Milliken & Company, demolished the building at 1045 Avenue of the Americas, a full block between West 39th and West 40th Streets, in 2009. The company has completed the schematic design for a 350,000-square-foot office building at the now-vacant lot, and has hired the Houston-based real estate firm Hines as a consultant.

“We feel very confident about the market and the location,” said Richard C. Webel, Pacolet Milliken’s president. He said the company had been speaking preliminarily with tenants, though it had not yet hired a broker. As for timing, “based on who we have talked to, the market should be there by 2015 or 2016, if not sooner,” Mr. Webel said.

Timing is critical as the market starts to revive, experts said. “The first buildings to be up and running will be most successful in grabbing an anchor tenant,” said Robert Sammons, the vice president for research services at Cassidy Turley.

Boston Properties is banking on this as it revives construction on a 1-million-square-foot office tower at 250 West 55th Street; building stopped in 2008 after the foundation was poured. Since it is partially built, it will be a relatively short time — mid-2014 — until Boston Properties can deliver the building to tenants. Already, it is in lease negotiations with the law firm Morrison Foerster as an anchor tenant.

View the original article here

Square Feet | The 30-Minute Interview: Evan Stein

J.D. Carlisle manages about 600,000 square feet of commercial space and nearly 2,000 apartments citywide. Its developments include Morton Square, the Cielo, Gramercy Green, and the Beatrice.

Q Are you the de facto C.E.O.?

A Yes, absolutely. There’s no C.E.O. The chairman is my partner, Jules Demchick. Our chairman is responsible for assemblage of the property, financing, and usually the initial plan. Once the acquisition is done, he moves on to the marketing and we move to the development. M.D. Carlisle Construction is the vehicle that physically builds the projects. With buildings like the Beatrice you almost need to know the end of the movie before you begin.

Q Will the Beatrice, your newest and biggest project, have a happy ending?

A I hope so. I put my grandmother’s name on the building.

Q Was this your most difficult development?

A It’s by far the most expensive, and this was the most complicated. We have several uses in this building, so that takes a tremendous amount of management to understand how all the pieces work together: how the restaurant is working with our hotel, how the residential building complements the hotel. And we have a garage.

We’re certainly not in the black yet, because the building is in its infancy, but from an economic view we’re pleased with the results.

Q What is the occupancy?

A We are 99 percent. Of 300 rental apartments, we have left four penthouses that we are just allowing for occupancy May 1. All the penthouses start at $20,000, up to $23,500 monthly. We’re already getting a lot of activity on them. And the hotel’s doing well; it’s exceeding our expectations.

Q Why rentals and not condos?

A We cut our teeth on rentals. In the ’60s and the ’70s, we built probably 60- or 70-plus rental projects. The rentals are scattered all over Manhattan. Our recent history was condominiums — we had three or four projects that were a function of the times.

It’s hard to put your heart and soul into something where at the end of the day you don’t have a tangible asset anymore.

Q Would you ever consider converting the Beatrice, if, say the market soared again?

A I hope not. I’d be lying to you if I told you I haven’t been asked that before. We have several rental buildings that have gone through four or five real estate booms, but we like rentals.

Q What’s your assessment of the New York market now?

A In the long-term perspective we’re very bullish, but you’re going to have short-term challenges — whether they be economic, political or availability. There are still tremendous opportunities here, and we’re seeking them out.

Q Do you have any other projects in the works?

A We do have three or four projects that we’re excited about. Unfortunately, we can’t talk about them because we’re under confidentiality agreements.

They’re going to be some rental, some condo; three are ground-up and one is a gut renovation. We’re looking at a couple in the outer boroughs at this point in time, and certainly in Manhattan.

Q So why doesn’t J.D. Carlisle have a Web site?

A We get asked that a lot. We’re low-profile people; we don’t usually have to advertise who we are.

Q You knew at an early age that you wanted to be involved in real estate, didn’t you?

A Yes, because my hero was my grandfather, who founded this business — my maternal grandfather, Beatrice’s husband.

He has been my hero since the minute I could understand who he was, and I would have done anything to be with him — to be him. When I was graduating from college, he asked if I would consider coming to work with him. I jumped at the opportunity and 17, 18 years later, here’s where we are. He’s since retired.

Q What was your first job there?

A I went to school for accounting so I started off computerizing their accounting systems, and I got bored very, very quickly. I made the request for an assistant superintendent’s job. I went to work with a hard hat climbing into the demolition. Just being on a construction site every single day helps me to understand how things wind up working, all the nuances that you need to understand.

Q Do you live in any of your buildings?

A I live in Morton Square. One of the advantages of developing is you get a good price.

View the original article here

Square Feet: Government, Too, Has Trouble Selling Buildings

But the federal government did not put the building on the market until November 2009. By then, of course, the real estate market had slumped. Akridge and its partner, Rockwood Capital, a real estate investment fund in White Plains, finally bought the building last October, paying $12.5 million, less than the $14 million asking price.

In a report last October Republicans in Congress pounced on the long delay in selling the Bethesda building — and the discounted price — as an example of how the federal government has been mismanaging its real estate holdings.

The government owns or manages more than 900,000 buildings or other structures across the country — office buildings, courthouses, warehouses and other property types — making it the nation’s largest landlord. But like the former N.I.H. building, about 14,000 are no longer needed and are costly to maintain. An additional 55,000 are regarded as underutilized.

The report was also harshly critical of government spending to operate surplus and underused buildings, including $6.5 million for the Old Post Office Building at 12th Street and Pennsylvania Avenue in Washington. The administration’s own figures estimate the annual operating expenses for those buildings at more than $1.8 billion.

Last June President Obama ordered executive agencies to accelerate efforts to dispose of unneeded buildings, and set a goal of saving $3 billion by the end of 2012. Yet various obstacles make it difficult for the government to unload buildings it no longer wants.

For one thing they must first be offered to other federal, state and local agencies. Officials also have to ascertain if the building has a community use — say, for a homeless shelter.

At times an agency may want to sell an obsolete building but cannot afford the moving costs, Jeffrey D. Zients, a deputy director of the Office of Management and Budget, said in a telephone interview. Then, too, political considerations may come into play. “Politicians love to come hold a ribbon-cutting for a new building,” Mr. Zients said. “Getting rid of a building is less rewarding.”

The Obama administration has determined that if the barriers to selling were removed, he said, the savings could be much higher — $15 billion over five years. The sum includes the dollars not spent on maintenance and energy costs as well as sale proceeds.

To speed up the disposal process the administration wants to create an independent commission modeled after the Base Realignment and Closure Commission, or BRAC, a process begun in 1988 to review Defense Department recommendations for closing military bases. The proposed commission, the Civilian Property Realignment Board, would be able to cut through much of the existing red tape, establish new procedures and come up with recommendations for selling property in bulk, Mr. Zients said.

The commission would also recommend ways the government could use its space more efficiently by, for example, consolidating space or getting agencies to move into one building.

In addition, the legislation is expected to provide incentives for federal agencies by allowing them to share in the proceeds from any sales. To reduce political influence, the commission’s recommendations would be submitted to Congress as a package and not subject to amendment — similar to the way the base closure recommendations were handled. Daniel Werfel, the controller for the Office of Management and Budget, said the commission would include people with experience in commercial real estate, government operations and community development.

The commission concept has bipartisan support, said Jeff Denham, Republican of California and the chairman of the House subcommittee on public buildings. “The goal in the short term is to sell as many buildings as possible to generate some immediate cash flow to help with the debt crisis,” said Mr. Denham, who backed a similar proposal when he was a state legislator. The longer-term goal is to improve the way the federal government handles its real estate needs, he said.

Some real estate experts wondered if a board was necessary. “Whenever government is faced with a problem, the first thing they do is appoint a commission,” said Nicholas R. Smith, an executive vice president at First Potomac Realty Trust, a publicly traded company that leases more than 700,000 square feet to the government. Mr. Smith said the process for selling federal property should simply be made less complex.

This article has been revised to reflect the following correction:

Correction: April 28, 2011

An article in the Square Feet pages on Wednesday about the federal government’s difficulty in divesting some of its real estate holdings misspelled the name of a deputy director in the Office of Management and Budget. He is Jeffrey D. Zients, not Jeffrey D. Zeints.

View the original article here

Square Feet | The 30-Minute Interview: Evan Stein

J.D. Carlisle manages about 600,000 square feet of commercial space and nearly 2,000 apartments citywide. Its developments include Morton Square, the Cielo, Gramercy Green, and the Beatrice.

Q Are you the de facto C.E.O.?

A Yes, absolutely. There’s no C.E.O. The chairman is my partner, Jules Demchick. Our chairman is responsible for assemblage of the property, financing, and usually the initial plan. Once the acquisition is done, he moves on to the marketing and we move to the development. M.D. Carlisle Construction is the vehicle that physically builds the projects. With buildings like the Beatrice you almost need to know the end of the movie before you begin.

Q Will the Beatrice, your newest and biggest project, have a happy ending?

A I hope so. I put my grandmother’s name on the building.

Q Was this your most difficult development?

A It’s by far the most expensive, and this was the most complicated. We have several uses in this building, so that takes a tremendous amount of management to understand how all the pieces work together: how the restaurant is working with our hotel, how the residential building complements the hotel. And we have a garage.

We’re certainly not in the black yet, because the building is in its infancy, but from an economic view we’re pleased with the results.

Q What is the occupancy?

A We are 99 percent. Of 300 rental apartments, we have left four penthouses that we are just allowing for occupancy May 1. All the penthouses start at $20,000, up to $23,500 monthly. We’re already getting a lot of activity on them. And the hotel’s doing well; it’s exceeding our expectations.

Q Why rentals and not condos?

A We cut our teeth on rentals. In the ’60s and the ’70s, we built probably 60- or 70-plus rental projects. The rentals are scattered all over Manhattan. Our recent history was condominiums — we had three or four projects that were a function of the times.

It’s hard to put your heart and soul into something where at the end of the day you don’t have a tangible asset anymore.

Q Would you ever consider converting the Beatrice, if, say the market soared again?

A I hope not. I’d be lying to you if I told you I haven’t been asked that before. We have several rental buildings that have gone through four or five real estate booms, but we like rentals.

Q What’s your assessment of the New York market now?

A In the long-term perspective we’re very bullish, but you’re going to have short-term challenges — whether they be economic, political or availability. There are still tremendous opportunities here, and we’re seeking them out.

Q Do you have any other projects in the works?

A We do have three or four projects that we’re excited about. Unfortunately, we can’t talk about them because we’re under confidentiality agreements.

They’re going to be some rental, some condo; three are ground-up and one is a gut renovation. We’re looking at a couple in the outer boroughs at this point in time, and certainly in Manhattan.

Q So why doesn’t J.D. Carlisle have a Web site?

A We get asked that a lot. We’re low-profile people; we don’t usually have to advertise who we are.

Q You knew at an early age that you wanted to be involved in real estate, didn’t you?

A Yes, because my hero was my grandfather, who founded this business — my maternal grandfather, Beatrice’s husband.

He has been my hero since the minute I could understand who he was, and I would have done anything to be with him — to be him. When I was graduating from college, he asked if I would consider coming to work with him. I jumped at the opportunity and 17, 18 years later, here’s where we are. He’s since retired.

Q What was your first job there?

A I went to school for accounting so I started off computerizing their accounting systems, and I got bored very, very quickly. I made the request for an assistant superintendent’s job. I went to work with a hard hat climbing into the demolition. Just being on a construction site every single day helps me to understand how things wind up working, all the nuances that you need to understand.

Q Do you live in any of your buildings?

A I live in Morton Square. One of the advantages of developing is you get a good price.

View the original article here