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Shopping Centers Today -> May 2001
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WORLD TRADE CENTER LEASE STILL UP FOR GRABS
By Donna Mitchell
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| Source: Salomon Smith Barney. |
Three months ago, Vornado Realty Trust appeared to be the best candidate to take over the lease on one of the world’s best-known office properties — the World Trade Center in lower Manhattan, which also includes a highly productive concourse mall.
Vornado’s current portfolio includes 20 New York City office buildings plus 55 shopping centers in the Northeast and Puerto Rico, and a successful deal would have added the World Trade Center to that mix. But an apparent combination of tax issues and aggressive negotiation tactics by Vornado Chairman Steven Roth soured talks and killed the deal — which was based on a winning bid of $3.25 billion — despite a few extra days tacked on to the negotiation period in hopes of reaching an agreement.
The Port Authority of New York and New Jersey has since been negotiating with New York City-based Silverstein Properties, the runner-up bidder that is partnered with mall REIT Westfield America, Los Angeles, for this deal. Westfield America was brought in on the transaction because of its expertise with retail real estate, according to Steve Salomon, a spokesman for Silverstein Properties. Westfield America officials declined to comment.
At press time in early April, the Port Authority had not set a deadline to reach an agreement.
The World Trade Center would be a choice catch for two reasons. First, the office complex is the largest in the United States. With the 110-story Twin Towers and two nine-story office buildings totaling 10 million square feet, it is regarded as prime downtown real estate.
Secondly, the 350,000-square-foot concourse mall, called The Mall at the World Trade Center, is steadily coming into its own as a shopping destination. The mall benefits from the foot traffic of about 200,000 people passing through the World Trade Center everyday, whether they are among the estimated 40,000 people who work in the complex or commuters on nearby rail and bus lines. Featuring Gap, The Limited, J. Crew and Banana Republic, the concourse mall’s sales per square feet should reach $900 by the end of 2001, according to Allen Morrison, spokesman for the Port Authority. That figure would put The Mall at the World Trade Center on par with highly successful centers like the high-end Bal Harbour Shops in the Miami area or the Forum Shops at Caesars Palace in Las Vegas.
It is still unclear what triggered the discord between Vornado Realty’s Roth and the commissioners of the Port Authority. Vornado officials declined to comment on the failed talks for this article. One source pointed to the looming tax bill for any private owner of the World Trade Center. Currently, the Port Authority enjoys a huge tax break whereby it gives New York City a yearly $25 million payment in lieu of taxes, according to Morrison. But New York City officials have estimated that $100 million in property taxes should be paid each year for the World Trade Center, and will aggressively pursue those funds when the property falls into private hands.
The New York Daily News reported that city Finance Commissioner Andrew Eristoff wrote a letter to Roth, telling him that once the deal closed, Vornado would be responsible for the property’s full tax load.
“It gave Steve an excuse to try to wiggle, to change the terms of the deal, which the Port Authority [commissioners] did not appreciate,” one broker familiar with the situation told SCT. Of Roth’s maneuvering, the source added, “it’s kind of the way he negotiates with everybody.”
Others said that Roth tried to make changes to the length of the lease, based on what he thought the tax treatment would be under Vornado Realty’s ownership.
Woody Heller, a managing director in the capital markets group for the property firm Jones Lang LaSalle in New York City, said transactions similar to the one involving the World Trade Center, Vornado Realty and the Port Authority are enormously complicated.
“It is inherent in virtually every agreement to negotiate the final documents and agree to final details. We don’t know what stage the documents were at when Vornado was selected, therefore, it would be premature to pass judgment,” Heller said.
As for the Silverstein/Westfield partnership, Salomon said, “They are obviously very excited about the opportunity. It’s one of the signature office developments in the world.”
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| The Retail REIT Index was designed by Salomon Smith Barney for SCT. Starting this month, it will be calculated using total returns (including dividends) rather than solely stock price movements. A total return index more accurately reflects the true performance of REITs, given that dividends comprise a substantial portion on the overall return. The stock price movements were calculated starting at a base of 100 on Dec. 31, 1995. For the period ending March 28, the regional mall index is at 176.99, up 1.75%; the strip center index (including power, neighborhood and community centers) is at 170.53, up 1.2%; and the factory outlet index is at 115.20, down 0.94%. The index is updated monthly. |
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