The economics of 1 World Trade Center

Sentiment Trumped Numbers in Ground Zero Skyscraper


With an expected completion date of 2013, 1 World Trade Center is the most expensive skyscraper ever constructed in the United States, with a price tag currently estimated at $3.3 billion. By contrast, the spanking new Bank of America Tower in Midtown Manhattan cost about $2 billion. That is pretty much the going rate for building new skyscrapers in New York City. Just to break even, 1 World Trade Center will require rents far higher than the going rate in Midtown, much less downtown New York, where the building is located and where rents are considerably lower.


It turns out that there are plenty of people, including former New York State officials and New York City developers, who believe that 1 World Trade Center is folly. “An emotionally induced misuse of money,” said one such person. “You can only understand this as a political statement,” said another. “It makes no sense as a commercial real estate endeavor.”


When the twin towers went down, New York City lost 10 million square feet of office space. But the initial impetus to rebuild had less to do with reclaiming that lost office space and more to do with showing the terrorists that we wouldn’t be cowed. Over time, however, as the rebuilding got bogged down in disputes over design and financing, it gradually became clear that the city didn’t really need the 10 million square feet it had lost on 9/11. It had a glut of office space. Rents were falling. Especially after the bubble burst in 2007, commercial real estate developers struggled.


One World Trade Center is going to cost somewhere on the order of $1,300 a square foot to build, more than double the cost of most new skyscrapers. And because it is what’s called Class A office space, meaning that everything is top of the line, maintaining the building is also going to be very expensive. My real estate sources say they believe that the Port Authority will need to charge $130 a square foot to break even on the building.

But of course the Port Authority can’t possibly charge anything close to that — not in this real estate market or any market in the foreseeable future. The average rent for a downtown high-rise is $55 to $60 a square foot. Even if the Port Authority were able to charge higher, Midtown rents, it would still only be getting, at best, $80 a square foot.

Comment: Interesting read and some things I had never considered. In my mind they had to rebuild to make a statement. A giant hole would have been to admit defeat! An emotional topic. Thoughts

1 comment:

  1. For comparison, Twin Cities real estate rents for about $10-20 per square foot. Maybe it's time to stop subsidizing Manhattan and let finance pay its own way? (especially since there is so much you can do remotely)

    Additional benefit of not rebuilding the WTC: you could restore the street grid and greatly reduce gridlock. Keep two blocks as memorial parks approximately where the buildings stood with small plaques for each victim--and pig statues with the name of each hijacker on them.

    Whatever is done, building the WTC was a mistake in the first place, one that should not be repeated.


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