AmEx lease breaks the ice at 7 WTC.

Although it amounts to little more than a mere chip of space amid a vast 1.7 million square feet, the recent 20,000 s/f taken by American Express Financial Services at 7 World Trade Center has been hailed by some real estate experts as potentially a landmark icebreaker for a building near completion yet conspicuously lacking in tenant commitment.

"That a big, well known firm like American Express has the comfort for this kind of commitment will make a lot of other potential tenants feel good about 7 World Trade Center," Cushman & Wakefield's executive managing director Ken Krasnow said of the leasing deal, which reportedly is for a 15-year term. "Space wise, is this deal significant? No. But psychologically it does have a positive effect."

Trammell Crow's New York area president Richard Bernstein had a similar opinion regarding the importance of the deal. Harking back to experience he gained years ago when he helped lease 55 Water Street, just after the 3.8 million s/f downtown goliath had been repositioned and had large vacancy, Bernstein indicated that the initial deal for a building oftentimes can be a catalyst for further activity.

"What drives the market often is perception," Bernstein said. "There is always an apprehension. The AmEx deal is a great deal, though, because it puts some wind in the sails. I signed Chubb for over 100K s/f at 55 Water and, within 90-100 days, the entire building was nearly full. I think that first deal did a lot to help spur interest and commitment."

Although developer Larry Silverstein undoubtedly constructed the building with the expectation that large users would gobble up its chunks of space, Krasnow indicated that the downtown market, after a select few sizable deals in the first half of the year, is currently being driven by small to midsize deals, much like the recent AmEx taking. The building consequently may continue to be leased piecemeal in this manner.

What is attractive about this type of leasing climate is that 7 World Trade Center, which is expected to become downtown's topflight space, may begin to attract the kind of Small, but high-end tenants some of Midtown's best buildings have been so adept at drawing.

Hedge funds and private equity funds, known for their expensive taste in space, have flocked to buildings like the General Motors building, 9 West 57th Street, Carnegie Hall Tower, 590 Madison Avenue, and 570 Lexington Avenue. Their activity has helped buildings like these secure $100 plus rents per s/f, even during the current period of slowly improving fundamentals.

"American Express could have gone anywhere in the city," Krasnow said. "The fact that they decided to take space at 7 is very encouraging."

7 World Trade Center's leasing problems have been endemic to all of downtown, where rents continue to drop despite an overall tightening of city fundamentals. Midtown--which has seen lowering vacancy and increasing rents, especially for its class A space--is considered, in some respects, the gatekeeper to Lower Manhattan's fortunes because oftentimes top tier tenants take its space only because it offers irresistibly lower rents or Midtown doesn't have appropriate available space.

Not only does the delta between rents and availability need to be wide for the interest to revive, says Bernstein, but there also needs to be the sense among potential tenants that the market has hit bottom and will soon rebound, therefore putting a timetable on the availability of bargain deals.

"We need to see some pressure in Midtown," Bernstein said. "And we need to see a few quarters of stability downtown to really give the sense that rents have dropped as low as they can go and will start to go back up.

"When people see what they think is the floor of pricing, that's when deals start getting done. It's when they perceive that rents are going to increase and leasing is going to pick up that they start to commit."

While they have been praised for their ability to stimulate the downtown market, the recently passed subsidies and tax abatements for buildings constructed at Ground Zero probably weren't a major factor in the deal with American Express Financial Services, says downtown C&W broker, Andrew Peretz.

"You don't buy a BMW because it's become $100 cheaper," Peretz said.

"People come to downtown to save real dough."