Brookfield launches new WFC campaign.

Brookfield Financial is about to launch a new leasing campaign in an effort to fill up the World Financial Center, industry sources say.

Brookfield maintains that it has only one large block of space left at the property--the 1.1 million s/f it purchased from Lehman Brothers two years ago. But the company says that it is starting to offer pre-build options to attract smaller tenants to the complex.

"Basically, all of our available space is in 3 World Financial Center, now that Cadwalader Wichersham & Taft has done a deal and all the sublets in buildings 1 and 2 have gone, it's all in that one building," says Melissa Coley, a spokesperson for Brookfield. "So we offer pre-building on a couple of floors, to attract the small, as well as the large tenants, but nothing else has changed at all."

According to some brokers, however, Brookfield might be more worried than it lets on. The CoStar Group lists the World Financial Center vacancy rate at 20.2% as of first quarter of 2004. And though the complex accounted for about 30% of the downtown leasing last year, including the 460,000 s/f Cadwalader deal, the area is lagging behind the rest of the city in both the level of activity and the asking rents.

According to CB Richard Ellis' market report, the amount of available class A space downtown totals 8.27 million square feet. Rents range from $38.49 per s/f for direct space to $32.15 per s/f for subleases, according to GVA Williams' numbers.

"The vacancy rate at the end of March for downtown class A space was a little steep," says Robert Sammons, director of research with Colliers ABR. "So it's a great market for tenants, but not so great for landlords. And certainly, if the top people at the firm live in Westchester or Connecticut it's a much more difficult sell [than midtown].

"But the World Financial Center offers trophy space and a good location along the river. Tenants with a positive long-term outlook can see that things will get much better when the downtown transportation project is completed."

Some tenant brokers, however, have another view on the matter. They agree that Brookfield's space is of premium quality, but point out that the firm has to adjust its expectations to the current market conditions, not future ones.

Says one insider, "You'd think they never heard about the market going down. If they did aggressive, cheap deals two years ago, they would have more tenants right now. But they have taken the view that they have the best buildings downtown and they are well-capitalized, so they don't have to [compromise with] tenants."

The broker points out that virtually none of his clients want to be located downtown because of the lack of transportation and non-competitive financial incentives.

"We've taken tenants down there and never had an easy time," he says. "It's inconvenient to get to, the buildings are on a very large scale, and then the people look out [the window] and see Ground Zero. A tenant who's conveniently located in midtown won't go there, even for $10 a foot."

Patrick Gardner, senior vice president of CRESA Partners, also thinks that Brookfield should do more to market itself.

"A lot of tenants, prefer midtown because they commute into Penn Station or Grand Central and don't want to go any further," he says. "Of course, there are other types of tenants, like large publishing concerns who have a lot of young employees coming from Brooklyn, that are considering downtown. Having said that, downtown is still not the preferred location."

According to Gardner, Brookfield would benefit from giving brokers better access to building information, sending out more mailings and educating prospective tenants about the downtown incentive programs.

"A lot of people feel 'Okay, they've got incentives, but we have no idea what those incentives are,'" he says. "Brookfield has major, major competition across the river in New Jersey, where, there are large blocks of space of comparable quality at a fraction of the cost., Someone of their size can certainly [do more marketing]."

Many brokers agree that, considering the current abundance of quality office space in the city, Brookfield might have a hard time competing with midtown, Jersey City and the outer boroughs at the same time. In addition to the fact that all of these areas offer better transportation, Jersey City, Harlem, Brooklyn and Queens have relocation incentive programs that are comparable to and, in some cases, better than downtown's.

According to one broker, "The Brookfield properties are probably the best product in die area, but let's face it, they are a pain to get to. And then if people want to go out in the middle of the day in downtown, they have nowhere to go. It's really inconvenient. In the outer boroughs and Harlem, the city offers benefits of up to $15 per s/f. Incentives of that magnitude are not available downtown."

The competition may get even worse later this year if Prudential Securities decides to put all of its space at 1 New York Plaza on the market at the same time. The firm is consolidating its operations with Wachovia Bank and has already put out 400,000 s/f at 199 Water St. 1 New York Plaza is a class A building totaling 1.2 million s/f and is closer to the Lexington Avenue subway fines.

However, according to Hal Stein, a downtown specialist with GVA Williams, "Brookfield is doing everything right. Certainly, you are going to lose some people who are coming in from Westchester and Connecticut, but in my opinion, [when it comes to] the real estate value, the World Financial Center buildings are unbelievable in terms of quality and pricing."

So what about the malcontents? They think that until the city completes the downtown transportation terminal, Brookfield (whose asking rents have so far hovered in the high $30's) will be reduced to one measure to get tenants--"cut the rents."

Built in the 1980's, the World Financial Center is a class A office complex, containing four buildings and eight million s/f of space.