Doing the Woolworth Building Math

Seven years ago, when the New York residential real-estate market was positively depressed by today's standards, plans were announced to convert the top 25 floors of the iconic Woolworth Building into magnificent full-floor apartments with 360-degree views and amenities including a cigar lounge and a screening room. Those plans have now been scrapped. "In another sign that the office market is hotter than the condo market, the Woolworth tower is being converted back to commercial space," says Kate Pickert.

Alison Gregor has some numbers. The highest rents in midtown can reach $150 per square foot, she says, in boutique office buildings such as 712 Fifth Avenue (amazing views) or the Seagram Building (iconic status). The Woolworth Building has both of those, but it's downtown, which means it lacks easy access to "fashionable shops, luxury hotels and Fifth Avenue residences".

So how much might the Woolworth Building's boutique offices go for? After all, increasing numbers of hedge-fund managers now live in Tribeca rather than on Fifth Avenue, and might value a downtown location more highly.

The top floors of the building, with 360-degree views that include the Empire State Building, the Statue of Liberty and more distant landmarks, may achieve initial rents of $60 to $75 a square foot, said Peter Riguardi, president of the New York region of Jones Lang LaSalle...
Currently, the most expensive office space downtown is in the newly built 7 World Trade Center, which is achieving rents as high as $80 a square foot, brokers said.

It's not clear that rents in the $75 range are a better bet than luxury residences. If you can sell an apartment for $2,000 per square foot, and you invest the proceeds in Treasury bonds yielding 4.86%, that's an income of $97 per square foot right there. And $2,000 per square foot is positively cheap compared to the prices being paid for Richard Meier's buildings in the West Village, or the proposed Santiago Calatrava residences on the East River.

The difference, of course, is that if you're renting out an office, you still own it – which means that you get all the benefit of capital appreciation, rather than selling it to a condo owner. So I see the developers' plans as a bet that property prices will continue to rise, especially in the neighborhood of the new World Trade Center. The switch from residential to commercial, I think, is less about the latter being more attractive than the former. It's more of a way of keeping ownership of a prime downtown property which, by midtown standards, has a lot of possible upside.