The Port Authority’s good deal with Condé Nast
Many congratulations to the Port Authority of New York and New Jersey, which is about to snare the most glamorous and high-profile anchor tenant possible for its flagship 1 World Trade Center property. But the Port Authority is getting more than just the whiff of high fashion here. Charles Bagli reports that Condé Nast is going to pay “an estimated $2 billion over 25 years” for 1 million square feet in the building: that’s a lot of money.
$2 billion for 1 million square feet is $2,000 per square foot. That’s an impressive average price of $80 per square foot per year. And even from day one, Condé’s getting no bargain here:
The publisher is expected to move about 5,000 employees to Floors 20 through 41 at 1 World Trade Center sometime in 2014, when its annual rent will start at a little more than $60 per square foot, or roughly the same amount it is paying today at 4 Times Square…
Its rent is somewhat higher than those in recent deals at 7 World Trade Center or the World Financial Center, according to real estate brokers.
It seems that Condé is agreeing to 2% annual rent increases here: you need an initial rent of $62.44 per foot in order to get to $2,000 over 25 years. That’s a good 20% over what Moody’s agreed to pay to anchor 7 World Trade Center next door, back in August 2007 before the financial crisis really hit.
It looks as though Condé is getting the bottom 22 floors of the building; one assumes that the 1.6 million square feet of office space in the 48 floors above Condé will go for even more, especially now that they come with added essence of Condé. And that means, in turn, that rents from 1 World Trade should pretty easily cover its $3.3 billion in construction costs.
What about the high maintenance and security costs for the building? Back in September, Joe Nocera wrote that the Port Authority would need to “charge $130 a square foot to break even on the building” — a number that the Port Authority itself said was far too high, and which didn’t make much sense to me, either. It’s unclear how much of the security costs are going to be borne by the Port Authority rather than the NYPD. But either way, there’s no reason to make Condé pay them.
I’m looking forward, then, to the World Trade Center site becoming a vibrant and exciting neighborhood, anchored by a buzzing skyscraper at its northwest corner — just across the street from Goldman Sachs — and by a beautiful transit hub a little further east. It’s taken far too long to get there from here. But better late than never, especially if the redevelopment is now starting to pay for itself.