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Market Analysis

World Trade Center Tenants Disperse.
40% reoccupy Downtown, 31% sign new long term leases,
25% backfill existing space, 4% remain undecided.

New York, New York. January 16, 2002.
TenantWise.com continues to provide comprehensive information regarding the effects of the September 11th attacks upon Manhattan’s real estate and economy. TenantWise.com is an online office broker offering complete listings of all office availabilities in Manhattan, tenant representation services with a below-market fee schedule, and extensive information on the market and the lease transaction process. Full reports are available at www.tenantwise.com.

Situation Overview:

TenantWise.com research indicates that there were 185 non-governmental tenants over 10,000 sq. ft. in size (“larger tenants”) in the WTC buildings (“destroyed properties”) and the 23 damaged buildings surrounding the WTC (“damaged properties.”) Out of 34.5 MM sq. ft. in destroyed and damaged properties, the larger tenants occupied approximately 23 MM sq. ft. TenantWise.com estimates that governmental tenants accounted for an additional 1.8 MM sq. ft., and the remainder of 9.0 MM sq. ft. was occupied by smaller tenants.

At this time, 94% of the larger tenants, representing 22.1 MM sq. ft., have made decisions concerning their long-term relocation destinations. The dispersion of the affected larger tenants from both WTC and surrounding properties falls into three categories at this time. The categories are as follows: reoccupying space when it is returned to service, leasing new space, or backfilling space within a company’s existing real estate portfolio.

Reoccupy: 40%, or 9.3 MM sq. ft. of space, will be reoccupied as tenants return to damaged properties.
New Leases: 31%, or 7.1 MM sq. ft. of new space, was leased on a long-term basis
  • 4.4 MM sq. ft. was leased in Midtown
• 0.9 MM sq. ft. was leased in New Jersey
• 0.4 MM sq. ft. was leased elsewhere in New York State
• 1.0 MM sq. ft. was leased in other states or abroad
• 0.4 MM sq. ft. of space was leased Downtown.
Backfill: 25%, or 5.7 MM sq. ft., has been backfilled into other unaffected space that was unoccupied or made available within a tenant's existing real estate portfolio.
  • 2.6 MM sq. ft. backfilled in Midtown
• 2.2 MM sq. ft. backfilled in New Jersey
• 0.9 MM sq. ft. backfilled Downtown.
Undecided: 4%, or 0.9 MM sq. ft. of space is represented by tenants that have not yet made their relocation plans known.

In October, TenantWise.com predicted that the destruction and damage of office space caused by the WTC attack would have very little downward impact on office market availability rates in both Downtown and Midtown. In fact, the availability rates that were in place on September 11th have increased. 9.6 MM sq. ft. of available space has been added to the Manhattan market since September 11th. A total of 43.9 MM sq. ft. (13% of the entire Manhattan office market) is available today, and represents an increase from 11% as of the third quarter 2001, and from 8.7% in the second quarter 2001. Availability rates have risen due to lack of demand, continuing influx of new space availabilities, and the fact that less than one-third of the dislocated tenants that could lease new space in Manhattan did so.

Destroyed Property Overview

TenantWise.com has determined that on September 11, 2001, the World Trade Center had 450 tenants in 13.4 MM sq. ft. of which 71 were non-governmental and over 10,000sq. ft. in size. A summary of the status of these tenants follows:

  • 66 of the larger tenants representing 94.5% of the subject square footage in the WTC buildings have made relocation decisions.
  • Of the 66 tenants that have made relocation decisions, 43 will move a primary location to Midtown, 11 will move to New Jersey or out-of-state, and 10 will remain Downtown. 5 tenants remain undecided. The employee populations will be disbursed as some companies have decentralized operations and have secured space in several locations.
  • The group moving to New Jersey and out of state from destroyed properties alone totals 1.4MM sq. ft., or approximately 6,807 jobs.

Of larger tenants from the destroyed properties, only 7% of the represented square feet will relocate elsewhere Downtown, 20% has left New York State, and 64% has chosen Midtown.

Damaged Property Overview

TenantWise.com has determined that on September 11, 2001, the damaged properties had 158 tenants in 18.5 MM sq. ft. 114 of these tenants were non-governmental, over 10,000 sq. ft. in size, and represented 14.6 MM sq. ft. A summary of the status of these tenants follows:

  • 80 of the tenants representing 70% of the 114 larger tenants expect to reoccupy damaged space when it is repaired.
  • However, the 80 tenants represent only 63% (9.3 MM sq. ft.) of the total square footage that the largest tenants represent in the damaged properties.
  • Of the remaining 34 tenants that have made decisions but will not reoccupy, relocation plans are as follows: 2.4 MM sq. ft. and 9,800 employees will be moving out of state; 1.6 MM sq. ft. and 6,621 employees will be moving to Midtown; and 0.04 MM sq. ft. and 206 employees will be moving to a new location Downtown.
  • Most notably the tenants that will relocate either in entirety or partially to New Jersey represent 14% of the damaged square feet. The list of companies moving to New Jersey includes American Express, Citigroup/ Salomon Smith Barney, Dow Jones & Co., Frenkel & Co., Inc., Fuji Bank, Garban-Intercapital, Global Crossing Holdings, Instinet, John J. McMullen Associates, Kemper Insurance Companies, Lehman Brothers, Merrill Lynch, Morgan Stanley, New Japan Securities, N.Y. Shipping Association, and Yasuda Fire & Marine.

Of larger tenants from damaged properties, only 63% of the represented square feet is returning. 4.9 MM sq. ft., or 33%, has committed to leave Downtown.


Availability Rates Tripled Since Year-End 2000:
Availability rates have moved upward since September 11th, and TenantWise.com data indicates that they will not decrease for some time, despite future lease commitments to be made by displaced tenants. Availability rates for all of Manhattan for the end of 2Q, 3Q and 4Q 2001 were 8.7%, 11%, and 13%, respectively. Since year-end 2000, when Manhattan availability was 4.4%, rates have almost tripled.

The increase in the Manhattan availability rate over the last year has several causes. The overall economic downturn since 2000 resulted in layoffs, cutbacks and reduction in office occupancy throughout the year. New York City lost an estimated 94,700 jobs in October and November (source: State Comptroller 12/20/01 press release.) Through year-end, the estimate is 125,000 jobs. Although one might expect that substantial leasing activity would have been generated by WTC tenants, this did not occur. Four trends reflect why the decisions of WTC area tenants who made a decision to relocate did not cause a decrease in the availability rate: 1) tenants that represent 5.7 MM sq. ft., or 25% of the destroyed and damaged square feet, backfilled existing vacant space and removed that potential demand from the market; 2) 1.9 MM sq. ft., or 8% of the destroyed and damaged property, is relocating to New Jersey or out of state; 3) many tenants leased less square footage than originally held (see below); and, 4) many companies decentralized operations into a few or several locations, both in and outside of New York (see below).

Decentralization Of Operations:
From TenantWise.com’s analysis of the largest tenants, 22 tenants representing a total of 13.2 MM sq. ft. from the destroyed and damaged properties have strategically planned to decentralize operations. Many have secured space both in Manhattan and outside of the city. Among the larger of these tenants are American Express, Morgan Stanley, Lehman Brothers, Cantor Fitzgerald Securities, Dow Jones & Co., Empire Blue Cross, Royal Bank of Canada and Salomon Smith Barney.

Envelope Reduction And Lost Jobs:
Of 185 total tenants over 10,000 sq. ft. from destroyed and damaged properties, 173 tenants that have announced relocation destinations represent leases for smaller square footage commitments than previously occupied. The total occupied envelope for tenants over 10,000 sq. ft. has been reduced by 1.1 MM sq. ft. This represents equivalent space for 3,418 jobs and represents a reduction in square footage commensurate with the reduction in work force due to recent layoffs.

Move Back Not On Schedule:
While 80 of 114 tenants from damaged properties that have the option to return Downtown have said that they are returning to their spaces once buildings reopen, many are not moving quickly to do so. For example, One Liberty Plaza reopened on October 24th for tenants to return. 23 of 35 larger tenants from One Liberty, or 65%, report that they expect to return to the building. These 23 tenants represent 1.4 MM sq. ft., or 67%, of the 2.1 MM sq. ft. building. Through conversations with tenants, TenantWise.com learned that only 13 tenants have currently fully returned to their space at One Liberty, representing a total of 0.4 MM sq. ft. So while 65% of the tenants have acknowledged plans to return, only 18% of the space is currently occupied today.

Backfilled Space After 9/11 Indicated Weakness In Market On 9/10:
An indication of the weakness in the office market prior to the attack is the amount of space that companies were holding in portfolio, but not occupying. After 9/11, companies were able to backfill employees from the affected buildings into existing space totaling 13.8 MM sq. ft. If this amount of space had been put on the market by 9/10, total availability across Manhattan at that time would have been 39.5 MM sq. ft. Therefore, the availability rate at second quarter 2001 would have been 11.6%, almost 3 points higher than the reported rate at the time of 8.7%.

Job Count Totals:
Of the 185 tenants surveyed that represent approximately 23 MM sq. ft, an approximate total of 87,438 jobs have been dispersed as follows:

  • 16,619 jobs have moved to New Jersey or elsewhere;
  • 27,190 jobs have moved to Midtown;
  • 38,716 jobs are staying Downtown;
  • 1,495 jobs are staying elsewhere in New York State; and;
  • 3,418 jobs are with undecided companies
Projection Regarding All Tenants

TenantWise.com has made assumptions about government and smaller tenants’ relocation destinations and has predicted the relocation of all tenants representing the total 34.5 MM sq. ft. from damaged and destroyed properties. TenantWise.com assumed that government tenants will remain in New York City with 100% reoccupancy of those that are able to return to a damaged property. The government tenants that were in destroyed properties were assumed to relocate 75% to Downtown and 25% to Midtown. TenantWise.com also assumed smaller tenants will likely follow the patterns of larger tenants from destroyed and damaged properties. After deducting 0.7 MM sq. ft. related to the square footage occupied by those who lost their lives in the tragedy (approximately 2,700 individuals), the analysis below reflects the dispersion of tenants from the net of 33.8 MM sq. ft.:

Reoccupy: 46%, or 15.4 MM sq. ft. of space, will be reoccupied as tenants return to damaged properties.
New Leases: 30%, or 10.3 MM sq. ft. of new space, will be leased on a long-term basis
  • 6.2 MM sq. ft. will be leased in Midtown
• 1.3 MM sq. ft. will be leased in New Jersey
• 0.5 MM sq. ft. will be leased elsewhere in New York State
• 1.3 MM sq. ft. will be leased in other states or abroad
• 1.0 MM sq. ft. will be leased Downtown.
Backfill: 24%, or 8.0 MM sq. ft., will be backfilled into other unaffected space that was unoccupied or made available within a tenant's existing real estate portfolio.
  • 3.4 MM sq. ft. will be backfilled in Midtown
• 3.3 MM sq. ft. will be backfilled in New Jersey
• 1.3 MM sq. ft. will be backfilled Downtown.

For further information contact:
M. Myers Mermel
Chief Executive Officer
(212) 943-7777
Caroline McLain
Chief Financial Officer
(212) 943-1902

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