Specs and the city!

The lowdown on NYC developers’ bravery

A specter

is stalking the city’s commercial real estate market — the specter of spec.

Constructing offices without pre-signed tenants, known as “speculative” building, has long been the bane of developers and landlords who weren’t the ones doing the building.

Too much new, vacant space at the original World Trade Center and in Times Square in the late 1980s glutted the market and depressed rents everywhere.

But spec is sneaking back. Millions of square feet of new “product” are in the construction and planning stages without presigned tenants.

“My hat goes off to anybody building on spec,” said Douglas Durst.

Although he famously launched 4 Times Square — since rebranded as One Five One West 42nd St. — before he landed Condé Nast as its anchor tenant in the late 1990s, he sounded as though he wouldn’t try it again.

“Only the very brave do it,” Durst said. “The risks of building are tremendous and the risks of building on spec are infinity times that.”

Yet, Brookfield Property Group plans to build Two Manhattan West (1.9 million square feet) even before inking any deals. BPG Chairman Ric Clark told us, “With the first 4 million square feet of office space at Manhattan West already 92 percent leased, combined with enormous demand for Two Manhattan West we’ve seen already, we are eager to bring the building on-line as quickly as possible.”

On Monday, Larry Silverstein (right inset) said he might launch long-stalled Two World Trade Center’s (right) 2.8 million square feet without pre-signed tenants as well.

“I think we’re in an increasingly good spot, in a good position” to do that, he told Bloomberg.

According to CBRE, of Manhattan’s total 15.3 million square feet of offices under construction right now, some 3.07 million square feet are speculative — a surprising 20 percent. One reason the phenomenon’s been overlooked is that it’s scattered.

Some 1.17 million square feet of the new spec supply are in eight “boutique” buildings — of which Trinity Real Estate’s 68-74 Trinity Place (310,000 square feet) is the largest.

In Brooklyn, meanwhile, Tishman Speyer’s 10-story The Wheeler, going up on Fulton Street, has 622,000 square feet of first-class space up for grabs.

Several large, proposed Manhattan projects also have spec potential, including Harry Mack

lowe’s supertall Tower Fifth near St. Patrick’s Cathedral and TF Cornerstone and MSD Partners’ redevelopment of the Grand Hyatt Hotel on East 42nd Street, which would mostly be for off ices.

Both projects need public approvals. The developers sound

like they’d otherwise start digging tomorrow but have said nothing about tenants. They didn’t get back to us on whether they’d build without them.

Some projects that aren’t fully spec are almost-spec. SL Green’s One Vanderbilt near Grand Central Terminal is now more than 52 percent leased ahead of its August 2020 opening. Yet SLG had pre-leased a mere 200,000 square feet of a total 1.52 million to TD Bank when it started building.

The willingness to roll the dice derives from two different circumstances — demand by major tenants for newly minted, state-of-the-art product and what CBRE debt and structured finance team co-head

James Millon called “more patient capital” from foreign investors such as Qatar’s QIA, a financial partner with Brookfield at 2 Manhattan West (right, with inset of Ric Clark).

“For investors like these coming into Manhattan — the most liquid real estate market in the world — their hold-horizon period is longer- term,” according to Millon.

“They’re not hedge funds,” Millon added. “They can have this investment through various cycles.”

But industry power players downplayed the spec phenomenon in different ways when we asked them about it — maybe because the subject is still a hot potato.

CBRE’s Mary Ann Tighe, who reps 550 Madison, noted that even if all of the potentially spec projects go up, their completions would be stretched out over several years, so their market impact would more than likely be negligible.

She added, “New office buildings [with or without tenants] represent a tiny percentage of the [414-million-square-foot] office market and for good reasons,” including lack of “viable” land, political and neighborhood resistance and sky-high construction costs.

She said that “a spec building is a multibillion-dollar gamble and few [developers] have the credibility and staying power for risk on that scale.”

Even so, she said that most tenants of more than 50,000 square feet needing to move choose to relocate to all-new buildings or to major makeovers such as 550 Madison Ave. and 1271 Sixth Ave. “Going spec is rare but usually rewarded unless a development hits during a severe financial downturn,” she said. JLL regional President Peter Riguardi said the notion of a “wave” of spec development “is more smoke than fire.” He suggested that “some developers say they’re going to do it, to generate interest in projects and get a buzz going” — although he said he wasn’t including 2 Manhattan West in that. The fate of Two World Trade Center, the missing link in the great downtown complex, might be the most intriguing situation. We couldn’t reach Silverstein to expand on his comments. But, “Larry is a man of his word,” said Durst, who’s the operating partner in One World Trade Center and competes for tenants with Silverstein’s Trade Center towers.