1st NYC office building boom since '80s

Manhattan developers are planning the city's biggest decade of office construction since the 1980s, betting on an extended rise in demand for modern space even with no tenant commitments and financing more limited.

More than 25 million square feet of projects are under construction or may be built in the next nine years, according to brokerage Cassidy Turley. Developers including Related Cos. and real estate investment trusts Boston Properties Inc. and Vornado Realty Trust are in talks with potential tenants as they step up plans for towers. Some, including Vornado, may proceed without lease agreements.

Builders and brokers say Manhattan is ready for the boom, citing corporate appetite for the latest in comfort, energy efficiency and technological capability in an area where more than 60 percent of buildings are at least half a century old. The risks for developers are that they are competing for tenants and may have to put up more money as banks are reluctant to fund new projects just three years after the credit crash.

"We're getting to the point where new construction is logical and the developers are ready to come out of the ground," said Robert Sammons, Cassidy Turley's vice president of research. Property companies that stockpiled money during the recession now want to be "ahead of the curve," he said.

Manhattan's Far West Side, the area roughly between Pennsylvania Station and the Hudson River, may be one of the biggest areas for development as Related and Brookfield Office Properties take the first steps to attract tenants and start construction on a potential 10 million square feet of offices.

Vornado has two midtown projects in the works. One is 15 Penn Plaza, a 2.8-million-square-foot tower planned for the site of the Hotel Pennsylvania, across Seventh Avenue from Penn Station.

Vornado chairman Steven Roth said in an April 15 letter to investors that the company won't start that project without a major tenant.

He said at a luncheon last month that the other project, a 1.5-million-square-foot tower planned atop the Port Authority Bus Terminal at 42nd Street and Eighth Avenue, may start without a signed tenant.

Roth isn't the only New York developer considering building "on spec." Edward Minskoff, who as an executive of now-defunct Olympia & York Developments helped build downtown's World Financial Center, said he will erect a 413,000-square-foot, 13- story office building at 51 Astor Place, across from the Cooper Union engineering school, from whom he leases the ground.

Minskoff declined to give the cost of the building or detail its financing.

"We'll go conventional financing and my personal equity," he said. "It'll be one of the big major banks that are sophisticated and understand how to finance construction loans."

Brookfield, owner of downtown's World Financial Center, is seeking to start its 5.4 million-square-foot Manhattan West project a block east of the Hudson Yards site. The New York- based company shut down preliminary work on the project in 2008. The company envisions two towers, one of them exceeding 1,200 feet in height.

"We could have the first tower up and a tenant in by 2015," chief executive officer Richard Clark said on a conference call last month. "Our hope is as we turn the year, we'll be able to get out there and start to do the work."

Developers stretching to make office projects happen are "making a good bet," said Douglas Hercher, who brokers capital for commercial-property deals as executive vice president and principal for Cushman & Wakefield Sonnenblick Goldman.

"They're looking at it and saying that, given where land prices are today and construction costs are today, we can build cheaper than we can buy," he said. "And we'll be well-positioned if we build brand new state-of-the-art office in great locations. When those buildings open in three to four years, we'll be sitting pretty."