After conducting the initial interview, we were able to get some additional insight from Larry Silverstein on Silverstein Properties' current portfolio performance and new acquisitions.
Following the events of 9/11, big city officials and many urban office owners nationally, but particularly in New York City, feared office tenants would flee urban centers. Their fears were never realized. Rather, the disaster brought urban dwellers together and boosted their sense of community. Employers in city centers stayed put and invested in creating office environments that appealed to the young workers who were increasingly moving to cities.
Since the COVID-19 pandemic began, however, some urban dwellers have begun moving to the suburbs, and some employers have been looking into setting up work centers or satellite offices in suburban communities near where many of their workers live.
As the man who bought the World Trade Center just months before the terrorist attacks and the owner of other iconic office buildings in New York City, Larry Silverstein, chairman of Silverstein Properties, has witnessed first-hand the toll a devastating disaster can take on human life, the economy and the urban office sector. So NREI asked Silverstein for his opinion on how urban office markets, including New York City, might be affected by the pandemic in the long term, the effect COVID-19 is having on his company’s office assets, and how Silverstein Properties is preparing for the return of its office tenants.
NREI: In what ways is the COVID-19 pandemic’s impact on the office sector similar to post-911, and in what ways is it different?
Larry Silverstein: Many residents and companies left downtown Manhattan in the immediate aftermath of the 9/11 attacks out of necessity. And then for months, the prevailing wisdom was that even more would abandon the district, and no one would come back. People were actually saying “Will the last person leaving Lower Manhattan turn out the lights!”
And as post-9/11 showed, that sort of thinking was nonsense and sells New Yorkers short. The same qualities that drove the world’s top companies and creative talent to Lower Manhattan then and before this outbreak will continue to lure them here long after we have all returned to work.
Despite the pandemic, the city’s fundamentals remain strong. The world’s leading companies still want to be here, along with the country’s stock exchanges. We are the media, fashion and finance capital of the world, and the world’s biggest technology companies are continuing to lease massive amounts of space here.
We have some of the world’s top museums, which are starting to reopen. Hopefully, they will be followed by the return of our live music venues and theaters. New York is home to some of the country’s leading sports teams and their stadiums. There are more than 27,000 restaurants [in New York].
Most importantly, New York remains home to eight million people. For four hundred years, people from all over the world and representing every walk of life have come to New York to build a better life, to follow their dreams, to achieve fame and fortune. That dynamic won’t be changing any time soon!
NREI: How do you think the pandemic will impact the Manhattan office market and the U.S. office sector in general post-COVID-19?
Larry Silverstein: This city has and will continue to house the smartest, hardest working, most talented, and ambitious people in every facet of professional and personal life. If you want to be competitive, if you want to be creative, if you want to be successful at the highest levels, you need to be in New York. Whether you are into the arts or theater, dance and music, or the disciplines of real estate, finance, technology, healthcare, philanthropy or law, this is the place to do it.
Once a vaccine is developed and distributed globally, the world will start to get back to where it was prior to the virus. No, it won’t happen overnight, but will it happen six months, 12 months from now. Scientists around the whole world are focusing on finding a solution, so I think we just have to hang in there, use common sense, wear our masks, wash our hands and socially distance until then.
And just like in 2001, most of those who initially left the central city will come back, and those that don’t will ultimately be replaced by a new generation of bright, ambitious and talented people.
NREI: What is Silverstein Properties doing to prepare for long-term changes in the office sector, which were influenced by the pandemic?
Larry Silverstein: As New Yorkers gradually return to the workplace, I believe they will bring with them an even greater appreciation of the important role that world-class office space plays in a person’s health, wellbeing, productivity and creativity. We’ve been here before. After 9/11, we set a new standard for life safety, security and sustainability with 7 WTC.
Designed by my good friend David Childs, of Skidmore, Owings & Merrill, 7 WTC was the first LEED-certified office tower in New York City history. It is one of the safest buildings ever built, and a model not just for all the other WTC buildings, but also for the modern American skyscraper.
I believe that health, wellness, sustainability and energy efficiency will continue to drive the design of office buildings well into the future.
NREI: How is Silverstein preparing its office buildings for returning tenants?
Larry Silverstein: My team and I have been working hard over the past six months to prepare for the return of our tenants’ workers to their offices. We are in constant communication with government agencies, healthcare leaders, industry associations and our tenants. From those discussions and based upon 60 years’ experience in this business, we have produced a detailed set of plans and procedures that will ensure their safe and confident transition back to the workplace.
This roadmap covers everything from cleaning and social distancing protocols to a suite of brand new services that will make the transition easier for everyone. Our priority is our tenants’ health and safety, as well as their guests’, and our own building staff’s, vendors’ and contractors’.
Our operations department has been working around the clock keeping our buildings open, well-maintained, clean and safe. Guided by the recommendations from the Centers for Disease Control and the New York City Department of Health, we are undertaking daily enhanced cleaning and disinfecting procedures at all touchpoint and common areas, including main lobbies, elevators and bathrooms.
All of our building staff, from the security guards to our cleaning contractors, are required to wear personal protective equipment at all times. We have installed social distancing signage and guidelines throughout all of our lobbies, elevators and other shared spaces.
We are encouraging our tenants to consider staggered arrival and departure times to enable their employees to better navigate the various transportation options, and the number of people they will encounter on their way to work and on their way home.
Silverstein Properties doesn’t just own and manage our office buildings, we are also a tenant in our 7 WTC building. And you can be sure that everything I’m doing to safeguard myself, my family members and my employees, I’m also doing for our tenants and their colleagues.
We have divided our workforce into two groups, and are using an office planning software called Dojo to make sure each employee sits at a safe distance at their own desks. (Dojo optimizes seating arrangements to ensure proper social distancing and organizes workers into collaborative groups for improved productivity and safety.) We are also using Backtrack, a contact-tracing software, to monitor our employees’ health status.
Our Inspire app is also available to all tenants. It provides real time building updates, health information, food delivery options, and safe distancing seating plans. It also includes an occupancy calendar, wellness activities, antibody testing facility locations, and a CDC chatbot.
NREI: How many Silverstein office buildings are in use right now, to what level are they being used, and what do you expect in the way of occupancy in the coming months?
Larry Silverstein: All of our buildings have been open and fully operational since March. We expect our tenants to continue transitioning their employees back to the office over the coming months.
NREI: Has the pandemic impacted rental rates and/or collection of rent payments or your mortgage commitments?
Larry Silverstein: The pandemic has not impacted our commitments to lenders.
NREI: Are many of your tenants downsizing their office space, and if so, how has that impacted the amount of sublet space since the pandemic began?
Larry Silverstein: For the most part, our office tenants have not downsized their office space. Some tenants are thinking about how to adapt or change their space to accommodate social distancing, which would actually lead to them using more space, not less. Consequently, we have very little sublet space in our buildings.
NREI: Is tenant sublet space competing with your own rentable space, and if so, how is that impacting asking rents?
Larry Silverstein: We are not seeing sublet space competing with our own rentable space.
NREI: Office experts have told NREI that the flight to quality is intensifying as tenant leases come up for renewal and/or tenants downsize their space, which will have a negative impact on older class-A and -B office assets. How is this trend impacting your new and older assets?
Larry Silverstein: We operate mostly class-A office space and a range of companies have shown interest in the vacant space available in our buildings.
NREI: Can you talk about some of the recent deals your company signed? Who are the tenants and how did the terms compare to pre-pandemic terms?
Larry Silverstein: We closed on a property in downtown Seattle’s Denny Triangle submarket in July and executed a purchase and sale agreement for the U.S. Bank Tower in downtown Los Angeles’ Financial District.
The Seattle acquisition includes an infill site zoned for a 500,000-square-foot residential tower with 400 units, up to 484-feet high; an L-shaped parking lot; and [a] four-story, 26,000-square-foot building with a restaurant on the ground floor and offices above. We plan to build the residential tower on the parking lot. The deal includes lease-back of the restaurant, which is owned by the seller, Sugar Mountain.
We are very excited about this acquisition, which was quietly marketed, as it offers a host of attractive features, including proximity to mass transit, the 105-acre Denny Park, a vibrant retail district with a Whole Foods, and world-class companies with growing footprints. It is located in the heart of downtown Seattle’s recent development boom and surrounded on all sides by new luxury residential buildings that have set a new market standard for urban living. It is also adjacent to Amazon’s newly constructed, 3-million-square-foot global headquarters and another two buildings that are under construction.
We plan to continue expanding across the West Coast and growing our development pipeline. Downtown Seattle is extremely appealing for its incredible growth and livability and provides an opportunity to build upon our experience in intelligent and creative ways.
With these transactions, we are truly becoming a national company. In recent years, we also developed a Four Seasons Resort in Orlando at Walt Disney World and acquired a trophy office building in Philadelphia. We also expect to soon begin construction on a multifamily project in Las Vegas.
NREI: Is your company in any new negotiations right now?
Larry Silverstein: We are talking to a number of prospective tenants at the moment that I can’t talk about until the leases are signed, but we recently welcomed the Nathan Cummings Foundation to 120 Wall Street in downtown Manhattan. This non-profit, grantmaking foundation, which focuses on justice for people and the planet, signed a 12-year lease for nearly 14,000 square feet. This Art Deco building, which houses other non-profits, provides qualified 501(c)(3) and 501(c)(6) organizations access to a full real estate tax abatement program.
NREI: Is there anything else you want to say?
Larry Silverstein: I have always been bullish on the future of Lower Manhattan and New York City. But I’ve been far from alone on that. The progress that we’ve made here is a testament to a great many important voices willing to bet on New York. Over the past 19 years, many of us worked tirelessly to transform the WTC from the devastation of 9/11 into the pride of New York.
We opened 7 WTC five years after 9/11. The building quickly filled up with a diverse group of companies, including branding, technology and media companies, as well as law and financial services firms. It has clearly been a tremendous architectural, artistic and commercial success. That success set the stage for the rest of the WTC site and for a reborn Downtown Manhattan.
The story of how New York bounces back, how New York shows resilience, and how New York recreates itself is also playing out next door on the 16-acre WTC site.
We began by working with Daniel Libeskind to create a master plan that addresses many different goals. It knitted together a fitting and moving tribute to those that lost their lives, a bustling street level experience with grand open spaces and a majestic train station, as well as new office buildings and stores.
Of course, we all agreed that our primary responsibility was to commemorate those we lost. The 9/11 Memorial Park opened on the 10th anniversary in September 2011.
While the memorial had to be a main focal point, we also needed to restore the commerce that has defined the lower tip of Manhattan throughout the city’s history. Two years after the 10th anniversary, we completed 4 WTC, the first new building to open on the original 16-acre WTC site. Designed by the Pritzker prize-winning Japanese architect Fumihiko Maki, the building is a model of technology, efficiency and sustainability, and also received rave architectural reviews.
That building was followed by the Museum, One WTC, and the Oculus. And in June 2018, we opened the spectacular 3 WTC. That tower was designed by Pritzker prize-winning architect Richard Rogers. It features floor-to-ceiling glass, and all the corners and each floor plate of the tower are column-free, which is key for cutting-edge companies in brainpower-driven businesses like technology, advertising and branding, as well as law and financial service firms.
Just like 7 and 4 WTC, 3 WTC is a LEED Gold-certified office tower. These highly sustainable green buildings have exceedingly low carbon footprints and provide a quality of space that’s unmatched anywhere in the country. They have attracted many leading companies from around the world, including Moody’s, Condé Nast, Spotify, McKinsey, Uber Casper, IEX, Zola, GroupM, Moet Hennessy and many others.