Lessons Of 9/11 Echo (And Frustrate) As CRE Grapples With Another Existential Crisis
After she saw the second plane hit, office broker Mary Ann Tighe decided to walk across town to Marsh & McLennan’s Sixth Avenue office and sit down with a client.
The company had an office in Midtown, but it also had space in each of the twin towers, with nearly 2,000 employees there on that day. Tighe, CEO of Tri-State at CBRE, knew the space well — she had put Marsh & McLennan in the buildings, along with a number of other tenants.
At around 5 p.m. she walked back across the city, watching as people came up from Lower Manhattan, covered in ash and in shock. When she reached Second Avenue, she saw Larry Silverstein, the towers’ developer, by chance on the street and she started to cry.
“Larry put his arms around me and said, ‘Sweetheart, we're going to rebuild,’” Tighe said in an interview about the terrorist attack's immediate impact on the city. “It was a period of intense misery, confusion. People were just sort of stunned and not knowing, what came next?”
Ultimately, Marsh & McLennan lost 295 employees on Sept. 11, 2001.
Over the past 18 months, as Covid-19 wreaked havoc across the globe, New York real estate players have recalled the dark days of 2001 — and the collective will to bounce back — as a beacon of hope as the city grapples with a new recovery challenge.
When people left New York City in droves during the worst of the pandemic, some recalled post-9/11 predictions that young people would not want to live in the city again due to terrorism. And after companies put office leasing on hold to keep their workers safe — and fears that the city could die pervaded — industry leaders calmly pointed to the widespread reaction after 9/11 that no one would ever take space in a skyscraper again.
None of that came to fruition. Moving trucks are currently bringing people back to New York City and skyscrapers remain attractive for companies large and small.
The city is alive, but as the months have gone by, even the most strident New Yorkers have begun to view New York’s return after this crisis as unique and requiring a different path than the one taken post-9/11.
“9/11 was a finite event. It happened, and then we started recovery the next day,” Empire State Development Executive Vice President for Real Estate and Development Holly Leicht said. “Here, I think the unknown and ongoing nature of the pandemic complicates the recovery.”
In 2001, the span of the trauma inflicted onto the city was shorter but left a more visual reminder: an empty pit where two towering bastions of business and development used to be. This pandemic has inflicted no physical wound on the built environment of the city but what has set in instead is a seismic, existentially profound shift in how people use it.
It is no surprise the industry has sought comfort from the city’s post-9/11 recovery — the story of Lower Manhattan has become one of real estate’s biggest comeback stories. A year after the attack, just 6% of the companies that had been displaced from the World Trade Center had returned to downtown, according to a New York City Comptroller report from 2002.
"What's changed in our mind is the risk of concentrating people in a single location is perceived as an entirely different risk than it was prior to Sept. 11," then-Morgan Stanley CEO Philip Purcell told The Wall Street Journal back in 2002.
The company was in the process of setting up a trading center in Harrison, New York, in order to spread out. Cantor Fitzgerald, which lost more than 600 employees on 9/11, moved some of its surviving workers to London — illustrating how its workforce did not want to be downtown at the time, the comptroller noted.
“The site itself became a place that people did not want to visit for more than a decade,” said CBRE’s Tighe, who became Silverstein’s leasing agent at the World Trade Center in the early 2000s.
“In 2011, we began — just began — to get brokers to come and look, and they would say to us, ‘I can't get my customers to come … When we used to get law firms to come the partners would say, ‘You know my wife is so concerned about us coming to this location.'”
That ‘“irrational” fear lingered for 15 years, Tighe said, even as work on the 16-acre site was underway.
Today, the location features the memorial — two fountains inscribed with the names of the victims of the attack — surrounded by millions of square feet of office space, as well as the famed Oculus encasing 350K SF of retail space and a massive train station connecting the multiple city subway lines with the PATH rail system.
Durst Organization and Port Authority’s One World Trade, one of the world’s tallest buildings, opened in 2014. Silverstein Properties’ 7 World Trade had already opened in 2006, followed by 4 World Trade, which opened in 2013 and 3 World Trade, which opened in 2018. The final piece, 2 World Trade, is now set to be designed by Foster + Partners, and though it doesn’t have an anchor tenant, Silverstein Executive Vice President Jeremy Moss said the firm is in a perfect position to move forward.
Even as buildings went up, shifts in perception were crucial.
“Condé was the first one to actually cause people to say, ‘Oh, my God, if they are going down there, I have to take a look,’” Tighe said.
The deal for Condé Nast to anchor One World Trade was announced in 2011 and saw the company taking 1M SF to anchor the building.
“For 20 years we have been talking about diversifying the economy in Lower Manhattan,” Robert Yaro, the then-president of the Regional Plan Association told The New York Times a decade ago, describing it as an “extraordinary breakthrough.”
Condé Nast is now trying to sublease some of its space at the building.
On that clear late summer day in 2001, Lower Manhattan was almost exclusively an office neighborhood. During the late 1990s, and into the 2000s, it emptied out at 6 p.m., as most of the hundreds of thousands of people who worked there left and went home.
“I think there was a broad understanding that Lower Manhattan had struggled a bit as a business district and that the way the economy had been changing people wanted a mix of uses,” Center for an Urban Future Executive Director Jonathan Bowles told Bisnow. “Businesses wanted to be in places where there was street life, where there were places to go out at night and I think lower Manhattan to a large extent had been missing some of those mixes of uses … and I think there were already efforts afoot to change that.”
Tax incentives provided to businesses and developers to rebuild downtown propelled a residential boom and drove more companies to lease office space. Office tenants that paid over $200K per year in rent were excused from their rent payments for five years and companies received $3K per year per employee that moved from outside of the city to lower Manhattan.
Before the attacks, about 23,000 people lived in Lower Manhattan and five years later that number increased to about 37,000, a 61% increase, according to a 2006 National Association of Realtors report. Between 2000 and 2019, the number of Lower Manhattan residents tripled to 64,000, per the Downtown Alliance.
“The recovery that we've made is really remarkable. And it is a testament to that public-private partnership and the leadership which for our organization came from Larry Silverstein and his unyielding commitment to rebuild the World Trade Center and to support the recovery of Lower Manhattan in the city after 9/11 despite many, many people trying to discourage and dissuade his efforts,” Silverstein’s Moss said.
“[The previous perception was] nobody was ever going to work above about the sixth floor. That was something I remember hearing people say and they expressed it as though it were gospel. Clearly, that's been proven wrong, because subsequent to 9/11, we've built some of the tallest residential and commercial office buildings that have ever existed in New York City.”
Even the most successful elements of the city and downtown that emerged after 9/11 are facing challenges. Though residential development turned the Financial District into more of a 24-hour area, the neighborhood is now dealing with a major oversupply of condominiums — with concerns brewing that people will be less drawn to the area if their offices are no longer there.
“Availability as of the end of July was 18.3%. That is a record high. That is higher than it was during the Global Financial Crisis, which peaked at about 16.7%. That is higher than it was in the aftermath of 9/11. And that's when it peaked at about 16.8%,” Colliers Senior Managing Director Franklin Wallach said. “However, the ability of downtown to recover is much stronger today than it was 10 to 20 years ago because once again the buildings are not solely relying on, you know, financial company X or law firm Z.”
While the area’s ability to attract technology tenants was seen as a breakthrough for the Financial District and the World Trade Center — many of the firms are leading the charge by allowing people to unchain themselves from their desks.
The Condé Nast lease that was a decade ago considered a breakthrough has become something of a milestone for tenants and landlords alike, with Condé withholding rent and shopping part of its space on the sublease market.
These are all complex challenges that will take time to sort through. The work-from-home revolution has fundamentally changed a sector of the New York City economy that breathes life into many others. Over the past year and a half, office vacancy surpassed its height after the attacks. Even with leasing volume slowly ticking up, availability throughout the city is at 16.9%. Most companies are looking toward a hybrid workplace, where half the week is spent in the office and half the week is spent outside of it.
“One thing that's similar that we learned from 9/11 is that recovery does happen, that we are resilient, but that it does take time. The success that we have enjoyed downtown certainly didn't happen overnight,” Alliance for Downtown New York President Jessica Lappin said. “It took a lot of patience and vision and dedication. I think we have to take from that as we think about our next phase moving forward.”
In the long term, Lappin said the prediction that people will not return to the office will prove to be as wrong as the predictions made in 2001 that no one would ever work in a skyscraper again were. But it’s not yet clear the long-term impact of the work-from-home revolution on office districts throughout Manhattan.
Real estate players point to a different political climate in New York City today than after 9/11.
“I think it was a leadership vacuum. [After 9/11] we had Giuliani and Bloomberg … They were champions of the city. And that helps us enormously,” Tighe said. “I think a lot of the issues that are dogging us in the pandemic era are not necessarily health issues.”
RXR’s Scott Rechler tried to encourage companies to bring their workers back to the city last year as a way of supporting the city during the pandemic. But he said he has found when compared to the hopefulness amid the sadness following 9/11, the mood during the Covid-19 recovery has been very different.
“Post-9/11, we were able to come together as a community, in person, to each other. Part of what was different with Covid was to help each other we had to stay apart,” he said.
After 9/11, there was a sense of patriotism and of civic responsibility, he said. New Yorkers accepted increased security and a new level of risk, but during the pandemic, Rechler said, he detected less commitment to own the challenges and move forward.
“I think part of it is the leadership. From the federal level, not just New York," he said. "But I think some of it is the lack of willingness to make tough calls like we did post-9/11 — relative to mandating vaccines.”
“Today, we are grappling with a new threat almost every few months, either because of government incompetence … or because by nature all viruses mutate,” Hotel Association of New York City President Vijay Dandapani said.
And for ESD’s Leicht, most in the city are only beginning to comprehend the recovery that lies ahead.
“I think we're all trying to sort of gauge this a little bit and I think it is early to know exactly what the permanent impact is,” Leicht said. “In the immediate, the dust is still settling.”
Right now, the city is still sitting at a precipice of recovery.
“What you've been seeing up through now are the emergency programs,” she said. “We are exactly at that moment where we have to start making a shift … from emergency mode to recovery mode.”
The recovery moving forward is likely to look different simply because New York was in a different place in its economy and in society when the pandemic hit.
With that, the focus this time around will likely be around rebuilding in a way that lifts everyone up, Bowles said.
“It's not enough just to come back economically … There's an absolute consensus building in New York that we need to have a more equitable recovery,” he said. “We need to make sure that this recovery is inclusive and that the city builds back in a way that creates a more equitable city.”
The focus is on specifically addressing the housing affordability crisis, with a focus on building more affordable housing, Lappin said.
Big picture, there needs to be a focus on placemaking during this recovery, Leicht said.
“Thinking about the big spaces — like the Trade Center, Penn Station — is super important but not at the expense of also thinking about smaller interventions in neighborhoods and, critically, how those neighborhoods link together,” she said.
“How are we thinking about how people interact between the bigger destinations and neighborhoods and smaller spaces? That integration and interconnectivity is really critical.”