Lower Manhattan Carries Permanent Stigma: Appraisal Institute

NEW YORK CITY-Real estate values in Lower Manhattan are permanently damaged, according to three industry experts speaking at an Appraisal Institute seminar held here late last week. Given the catastrophic loss of office space, the drop off in foot traffic and the eventual stigma to be associated with whatever is redeveloped at the site, it was determined that the negative impact on building values Downtown will likely be unending.

The seminar expanded on a recently completed report, “The Impact of the World Trade Center Disaster on Real Property Values Temporary or Permanent Impairment for Financial Reporting Purposes,” written by James MacCrate, principal of MacCrate Associates LLC; Terry Vaughn Grissom, professor of real estate at Georgia State University; and Dominick Pompeo, president of the Diversified Valuation Group based here. MacCrate, Grissom and Pompeo made up the evening’s panel.

Designed to determine the mathematical value of Lower Manhattan properties before and after Sept. 11 for the purpose of reporting losses to the IRS, the report cites several research sources, including newspaper reports, industry and union reps, expert knowledge, tax receipts and government findings.

Pompeo explained several of the factors contributing to the devaluation of real estate in the area. Among them was loss of foot traffic generated by former employees, tourists, commuters and residents that walked to work. “There is going to be a permanent change to pedestrian traffic in the future,” said Pompeo, adding this will specifically affect retail properties. “This has historically been one of the strongest retail areas in the city.”

The real question, he stated, is whether or not these people will return to the area even after new transportation and buildings are in place. He said he expects the initial spurt in tourists-those wanting a glimpse of the site-will ultimately subside; regardless, “these are not the same type of tourists with the same disposable income as the previous tourists [to Lower Manhattan].”

In addition, the office tenants that will eventually reoccupy the redeveloped buildings will not offer the same economic benefits as their predecessors. “There will probably be a change in occupancy,” he maintained, noting that when the WTC was initially built it had difficulty securing tenants. Ultimately it drew a lot of government leases with lower-income employees. “These were not the same tenants that later leased space. Before Sept. 11 the tenants [at the WTC] were some of the highest paid people in the US.”

He added there will inevitably be a stigma attached to whatever gets built on the site–with businesses either afraid to lease space at all (given not only Sept. 11, but the 1993 bombing) or deciding not to lease as much space as prior tenants (learning from the losses at Cantor Fitzgerald).

“These [high-powered] companies will most likely not reoccupy the site, and again the buildings will probably be filled with government leases,” he stated, explaining this will of course bring down the price of space per sf as well as impact the surrounding retail and restaurant outlets. “There will be a decline in income with the new office population. They won’t have the same entertainment budgets.”