By Daniel Geiger
On stage together for the first time, the real estate executives Steve Ross and Steve Roth expressed confidence in the prospect of new development in Manhattan over the near term.
Ross, chief executive of the real estate firm the Related Companies, and Roth, who is the head of Vornado Realty Trust – among the most powerful real estate investment and development companies in the city – spoke together at a luncheon hosted by the Real Estate Board of New York in midtown on Tuesday.
The pair came to be known as the “Two Steves” during their joint effort to accomplish a vast redevelopment of Penn Station before the recession, including an ultimately unsuccessful plan to relocate Madison Square Garden into the Farley Post Office building in order to create room for a vast retail complex in its place.
Both men now preside over other large scale development projects.
Ross has control of the west side’s Hudson Yards, a site where he plans to build millions of s/f of commercial, residential, retail, and public space. Vornado meanwhile, has plans for two large office towers in the city, one of which Roth proclaimed Vornado, which is a publicly held real estate investment trust, would build speculatively.
During the talk, which REBNY said was the first time the two executives had appeared together in a public speaking event, the men spoke as if they would break ground soon on their projects.
“We anticipate starting the platform next year, and that we’ll have a significant amount of leasing this year from tenants,” Ross said of the Hudson Yards, which requires a roughly $1 billion platform be built first so that the development can be constructed over the working tracks below.
“The obsolescence of the existing space and [companies] looking to consolidate within New York are finding the attractiveness of Hudson Yards. They’ll have the completion of the No. 7 subway line tying in Grand Central…along with the great success of the High Line. You put it together and it really is an attractive environment for future development,” he added.
Speaking with reporters after the talk, Ross said that he would have “3.5 million s/f leased by next year.” Though he cautioned that that estimate might be optimistic.
“I also said last year I’d win the Superbowl,” said Ross, who is majority owner of the Miami Dolphins football team, which didn’t make the playoffs last season.
Roth, whose Vornado is known as a patient and cautious investor, sounded uncharacteristically bullish on the market and said that the company would potentially build 20 Times Square, a 1.5 million s/f office tower it is planning to raise over the Port Authority Bus Terminal on 42nd Street and Eighth Avenue, without any prior tenant commitments. Vornado is also planning to build a 3 million s/f office building called 15 Penn Plaza where the Pennsylvania Hotel is currently located, though Ross said that the company would not proceed on that development without a tenant to anchor the project.
Roth proclaimed that 15 Penn Plaza had recently gained new prominence, alluding to the attention the development drew when rival landlord, Anthony Malkin complained that the tower would blight views of the nearby Empire State Building, which Malkin owns. Neither the City Planning Commission nor the City Council, which tussled with a recalcitrant Malkin over his refusal to light the Empire State Building in honor of Mother Theresa last year, took up Malkin’s opposition to the Vornado project, which can now proceed as of right.
“Thanks to prominent adjacent owner in the neighborhood, we now have in 15 Penn Plaza the most famous 3 million s/f unbuilt building in America,” Roth joked at Malkin’s expense.
Both Ross’s and Roth’s development plans appeared to rest on their conviction that new buildings will be in high demand among tenants because Manhattan’s existing stock of office properties is increasingly antiquated and lack the amenities, infrastructure, and green building features that are most sought after by modern corporate space users.
“The buildings are hanging on by their fingernails from being technologically obsolete,” Roth said. “Three quarters of them are undersized for what is needed for contemporary industry.”
Even a few months ago, new development in Manhattan appeared like a far off prospect because the market was still grappling with vacancy and lower rental rates brought on by the recession and the financial crisis. But that picture has begun to change.
At a meeting with the media to discuss the office market on Tuesday, Cushman & Wakefield said that upper tier rents in the $90s or $100s per s/f, which had were common during the boom, were becoming increasingly prevalent again in midtown. The rents were a sign according to Cushman’s chief operating officer Joseph Harbert that development, which needs to receive rates that high in order to justify the high costs of building in Manhattan, would become financially feasible again.
Neither Ross nor Roth are the first developers with plans to break ground. The World Trade Center site, whose millions of s/f of space once seemed like a daunting challenge to fill, was viewed by both men as a competitor to their respective projects.
“They’re first class buildings and they have a huge tax advantage built into the structure of the deal,” Roth said. “Those buildings will get attention. Do we wish there was no new supply other than our own? Yes. That’s not going to happen. But we believe the WTC project will be successful for sure.”
Ross differentiated Hudson Yards from the World Trade Center site because he said some tenants will prefer to be in midtown, where the yards are located.