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11 Times Square and the Subprime Lending Meltdown- What Does it Mean for Green Building?

Over the past couple of weeks, it’s been impossible to ignore the economic doomsday scenarios that pundits have been tossing about in the wake of several high profile bankruptcy declarations by subprime lenders like American Home Mortgage (as well as the $11.5 billion loan obtained by Countrywide Financial to bolster its cash reserves). So, should green building practitioners and developers be concerned that projects- those both underway or on the drawing board- might be in jeopardy if interest rates rapidly rise and lending practices become much stricter? The New York Post’s Steve Cuozzo pondered these questions in an article last week and, interestingly, used developer SJP Properties’ 11 Times Square, which will seek a LEED Silver rating, as his paradigm.

The entirely speculative, $400 million office building’s CB Richard Ellis leasing team is just getting its marketing efforts underway as it anticipates a late 2009 or early 2010 occupancy. Steven J. Pozycki, the founder of SJP, told the Post that the market in Manhattan is “so ‘strong and deep’ that it can easily withstand retrenchment by investment banks, the largest users,” in the event that the subprime fiasco is indicative of a more extensive Wall Street slowdown. The Post points out that SJP, and its financing partner Prudential Financial, have thirty-five percent equity in the project, which is higher than normal, and its loan terms are fixed-rate rather than adjustable-rate (from a group of seven banks including PNC Bank and Bank of America) which should shield the project from the higher interest rates that a tighter lending climate would implicate. The Post also reports that the upper floors of the New York Times Tower (similarly speculative space) have been inking tenants in the upper $90s/square foot, which bodes quite well for 11 Times Square across the street. Pozycki expects the project’s foundations to be complete by early next spring; construction is already ahead of schedule.

Nevertheless, speculative projects are typically far and few between (4 Times Square in 1999 was the first such project in New York in a decade) and tighter lending practices might continue to make them the exception rather than the rule. Further, will lenders be concerned over funding a perceived green building premium when considering such projects, particularly if they’re speculative? Only time will tell, but more cautious lending for projects in New York City- where the real estate market has enjoyed an unprecedented boom over the past few years- would not be a good sign for green building, either here or across the rest of the country.

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