Asian Market Bull Rally Begins

Good afternoon,

Wait, are we bullish on China tech this year if they rapidly devalue their currency, flood the market with stimulus, and continuously pump the "reopening" narrative? Looks like we’ll find out soon enough. Asian stocks are now on track to enter a bull market as China’s rally extends.

Let’s dive in.

Bottom Line Up Front

• The Swiss National Bank posted an annual loss of 132 billion Swiss francs ($142.67 billion) in 2022, the biggest loss in its 115-year history (CNBC)

• Starting in 2023, Canada has banned foreigners from buying residential property for two years (NPR)

• Apple hired workers in India as it looks to open its first flagship stores (FT). Tata Group is close to taking over a major plant in India in a deal that would give the US its first homegrown iPhone maker (BBG)

• Microsoft is in talks to invest $10 billion with OpenAI (Reuters)

• New Jersey and Ohio have banned TikTok from government devices (NBC)

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Deep Dive: Why New York's World Trade Center is Still Unfinished

Of all the construction sites in the world, few have been bigger sources of contention and debate than your MD’s roots – the World Trade Center. Let’s discuss.

You’ll probably recognize One World Trade Center - it's the now-iconic skyscraper that rises next to the grounds of the original Twin Towers. What you may not know is that it’s actually part of a much bigger development of new skyscrapers that overlook the 9/11 Memorial site.

But something is missing. Or, more like some things. If you look at the latest rendering of the site, you’ll see another shiny new skyscraper that’s supposed to be standing.

Go to Google Maps, or walk down there, and you’ll just find some colorful murals on steel sheds next to the Oculus. This isn’t just some art exhibit. It’s actually the unfinished foundations of a new office skyscraper called “2 World Trade Center.”

And nearby, there’s another empty site where a residential tower called 5 World Trade Center is supposed to sit.

Developers once thought these skyscrapers would be completed by 2020. And if you’re as good at math as the developers who jumped from 2 → 5 World Trade Center, you’d realize the development is now 3+ years delayed. The remaining buildings are just renders, leaving two gaping holes in what’s arguably one of the world’s most important redevelopment projects.

And when you try to find out why that is – you come up against just as much difficulty as getting a deck draft without disclosures through Compliance.

The story of the battle to finish New York’s new World Trade Centre reveals a lot about how money, politics and design determine the future of this city.

How to build a skyscraper in New York City

If there’s one thing New York is known for, it’s subway crime skyscrapers.

There’s a lot that needs to happen just to reach the point of putting the first steel spade of a future skyscraper in the ground, and especially in New York City. You can break it down into four main stages.

Stage One: Location and acquisition. Developers first need to choose where they want to build their skyscraper.

All kinds of things like land value, sidewalk circulation, zoning laws, and the need for a skyscraper in the area all factor into where these towers get constructed.

Traditionally, there's a desire to be in clusters where a lot of firms are in general and where employees actually want to work.

In case you’ve tried to get lunch at a FiDi Pret a Manger on the weekend (everything okay?), you’d quickly notice that downtown is aging. Midtown has been a hot district for many years. Then, firms started going back down to the World Trade Center area. Some of them realized their mistake pretty quickly and are now trying to move to Hudson Yards.

So, a lot of the hot pockets can evolve simply on where new space opens up.

Then, developers need to actually acquire the lots they are eyeing, which usually means buying out current owners. This part of the stage can take years or even decades to complete.

Then comes Stage Two: design.

Most skyscrapers fall into one of two main categories – residential, filled with apartments or even a hotel, or commercial, used for offices and retail stores. Some skyscrapers have mixed uses, some have viewing platforms and sky pools.

This is when it’s about time for developers to draw up a plan and hire an architect. The architect works with engineers to make sure that the building can be constructed within the building codes. They consider issues about wind, building sway, geological issues and the foundations of the building, for example.

Stage Three is every nepotism baby’s favorite word: financing.

Of course, there’s sometimes a bit of this upfront too before land acquisition happens – but developers usually need a good idea of where a building will be and what it might look like before they can raise finance.

If you thought renting in the West Village was cheap, try constructing a skyscraper. New York is – and we know this will come as a shock – one of the world’s most expensive cities to build in.

Your average commercial tower in New York costs around $6,000 per square meter. It’s $5,000 in Chicago and a little over $3,000 in Tokyo. So, developers either need a lot of their own cash or a loan to pay for construction costs.

Then it’s finally onto Stage Four: the process of actually constructing the building. In case we’ve lost you, this process all starts by digging into the earth and bedrock to create the building’s foundation.

Usually this’ll be made up of concrete pillars that will support the skyscraper’s superstructure above, and its layout varies depending on the design and weight of the building.

Steel frames tend to be the most common approach in New York City. Normally, workers build a concrete core in the center housing the building’s stairs, services and elevator shafts.

One particular quirk of New York City is that – unlike almost anywhere else on earth – the steel frame rises before the concrete core. It all goes back to those iconic black and white images and the steel workers unions – they like to have clear working areas away from other trades as far as possible.

Rebuilding the World Trade Center after 9/11

Lower Manhattan is where New York City’s first skyscraper was built and over the years it transformed into a high-rise financial hub. The Twin Towers were the tallest buildings in the world when they first completed back in 1973 and once defined the city’s skyline. Back then, they were owned by the Port Authority of New York City and New Jersey – a quasi-independent, government agency that maintains certain infrastructure across the two states.

The agency built the towers in hope of boosting development in the neighborhood. But it had the opposite effect: vacancy rates grew while the real-estate value sank. It wasn’t until the economic boom of the 1990s, that more people started using them. Over the years, the Port Authority came under pressure to sell the World Trade Centre; it was never supposed to be in the real estate business.

In July 2001, American businessman Larry Silverstein signed a 99-year lease on the towers and other authority owned properties for USD $3.2B. Then came one of history’s darkest days.

In the wake of 9/11, the world began to debate what would become of the ground zero site.

Just weeks after the attack, Silverstein sparked a legal battle that hindered any moves on construction for nearly the next six years. When he signed the lease for the Twin Towers in 2001, he had to take out a $3.5B insurance policy on the buildings. But he and his lawyers argued that the September attack occurred as two separate events and that the policy should, therefore, pay out double the amount. Silverstein wanted $7.1B, but was awarded $4.6B – it went towards paying rent to the Port Authority and potential future projects.

Meanwhile, the debate for how to rebuild the site rumbled on, and that second stage of building a skyscraper, designing it, was causing a bit of a hold-up.

After initially holding a contest with over 2,000 submissions in late 2002, the city chose a masterplan design by Studio Libeskind. The initial proposal included a 1,776-foot spindle-shaped structure called the Freedom Tower. The building’s height would nod to the year of American independence and stand beside four other descending skyscrapers in a semi-circle that kind of bowed to the memorial site.

At the time, developer Silverstein thought it could all be built by 2020.

Different architects were brought in to design their own skyscrapers within the framework of Libeskind’s overall masterplan – and it’s fair to say that caused just a little bit of friction, particularly with the Freedom Tower, which was being designed by David Childs of Skidmore, Owings and Merrill.

Today there are now a total of four commercial skyscrapers planned for the site. Given it’s become one of the most important and iconic construction projects in American history, there are a lot of people trying to put their stamp on how the new site should look. It’s a completely unanticipated excuse your VP would definitely accept for why the design stage took a little longer than expected.

Eventually, the site slowly took shape. A new memorial and moving underground museum were constructed.

4 World Trade Center opened in 2013, followed by the Freedom Tower – then renamed One World Trade Center – in 2014 and 3 World Trade Center, the latest addition, in 2018.

Now, the money to develop the entire site came from a handful of different sources for each building – including a combination of Silverstein’s insurance proceeds, the US federal government, and Liberty Bonds (a federal tax exempt program).

But one of the four skyscrapers still hasn’t made it past the drawing board. There’s been plenty of disagreement about what it should actually look like, but the bigger hold-up is the money.

Money, anchor tenants and 2 WTC

So who exactly is paying for all these skyscrapers to go up? And how do projects like this really get past stage three of the process?

It depends. One option some might have is through government funding, but that’s not too common in New York. It is typically reserved for special projects or housing.

One World Trade Center is one of those special developments that largely relied on the US federal government’s money for its construction. The final cost was nearly $4B – one of the most expensive skyscrapers ever built in the US.

Normally, developers looking to build a skyscraper either dip into their own money or, more commonly, put together a business case and request loans from lenders to cover construction costs. Those lenders might be entities, like banks. Those lenders obviously want to be confident they’ll get their money back – and one way that a commercial building like 2 World Trade Center can build confidence is by securing what’s known as an “anchor tenant” before construction.

Anchor tenants are firms that are usually large firms that rent a substantial amount of space, typically before the shovel even hits the ground. Target anchor tenants for a World Trade Center skyscraper would be a large law firm, a large media firm or a bank. They’d rent out ~200,000 square feet of space, which could be 20% of the building, for example. This signals to all of the players involved that there is a demand and interest in the building.

Anchor tenants are looking at what a building has to offer – things like amenities and location. Doing a big deal early on as the “anchor” means these companies can usually expect to pay less rent. A big anchor tenant can even help transform its surrounding neighborhood. When VICE and Etsy decided to move their offices to Brooklyn – the borough exploded in popularity.

But finding the right company to sign a multimillion dollar lease can be a hard sell, and that’s what’s been happening down at 2 World Trade Center.

Simply put, Silverstein hasn’t been able to convince any big companies to spend the money and move their offices into this new building. It’s gone through multiple radical redesigns, and it’s still not part of the city’s skyline.

Back in 2005, architecture firm Foster + Partners was awarded the rights to design the project. In the first design draft, the lower levels would be built-out as bank trading floors in an attempt to lure financial anchor tenants.

A super groundbreaking concept for a site right by Wall Street.

The project started without a signed anchor tenant and instead used the Liberty Bonds available at the time. But it didn’t get very far. Rumors began circulating that Silverstein was struggling to find the necessary anchor tenants to make the structure financially viable.

After 9/11, the state of the downtown area was no longer filled with just financial companies and Wall Street bankers. Instead, media and tech companies began moving in. Conde Nast, the company that owns Vogue and GQ, even signed a 25-year lease for 21 floors of One World Trade Center.

Meanwhile, original financial institutions were looking elsewhere and banks were no longer enticed by Foster’s design. So construction came to a halt in 2012.

But instead of giving up on the building, Silverstein came up with another plan. In 2015 he reportedly turned to a foreign visa program to try and bring in financing from China. He brought on a younger architect in an attempt to entice more media and tech companies with edgy work spaces.

It worked. The media executives of 21st Century Fox and New Corporation signed an initial agreement, planning to move in during 2020 once their midtown leases had expired. They were even offered millions of dollars in subsidies and tax credits to make the move downtown easier.

Things for 2 World Trade Center were looking up

You can read trends. Not long after, a few big problems began to surface. The team was trying to build off foundations for a different, earlier version, of the skyscraper. It needed an entire reconfiguration.

So in 2016 – you guessed it – the finalized deal with the media companies fell through. Developers were said to be no longer certain about which design to go with. For years, the project remained in limbo and Silverstein focused on signing leases for other structures across the site.

Then, in January 2020, some fresh news broke.

Silverstein was reportedly going back to the original design. Yes, after all that, the developer decided to stick with the original architect.

Your portfolio should have a not-so-fond memory of what early 2020 and the next two years were like. You know, COVID?

That takes us to today, where the latest information that’s been provided is that “the developer has repeatedly confirmed to the media that the structure will go up eventually.” Confidence-inspiring.

Enter: JPow

Would it really be an econ memesletter without a mention of our boy? Sure enough, city developers and agents close to the project believe the delay is down to financing. The capital markets froze during the pandemic, came back, only to be crushed again by rising interest rates. When interest rates go up, understandably, it becomes much more expensive to build.

As of today, there’s no official word on the latest design for 2 World Trade Center. Now that downtown Manhattan is evolving, it’s a question of who it can attract and when.

The next chapter of New York City's skyline

With the history and tragedy tied to it, the World Trade Center is one of the most unique and challenging construction sites on the planet. Both 2 and 5 World Trade Center find themselves confronted with huge hurdles just to put a shovel in the ground.

But while their issues might be particularly extreme, they aren't exclusive. Right across this city, new skyscraper projects face the same challenges: finding the right businesses to buy space in a changing economy; building apartments that provide that housing people really need, and securing the money to make it all happen.

In short: The New York City skyline has become a performance review for broken projects.

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