Using a team approach to satisfy complex problems

Real Estate Weekly, April 20, 1994 by Richard W. Donohue

New York's commercial real estate picture improved during 1993 as over 18 million square feet of primary office space was leased in Midtown Manhattan. During the first quarter of 1994, 5.7 million square feet were leased in Midtown, the most since Cushman & Wakefield began tracking this statistic in 1984. The vacancy rate dropped to 14.5 percent at the end of the first quarter, down from 15.5 percent at the outset of 1993.

This improvement was largely the result of commitments many ma major firms have made to New York City over the past 12 months - both as tenants and user/buyers. MasterCard's selection of 460,000 square feet on Sixth Avenue and Spear, Leeds & Kellog's commitment to Downtown makes a statement about the renewed vigor in the market. Morgan Stanley's purchase of 1585 Broadway for $176 million is perhaps the best indication that New York City remains a vibrant business hub.

While this pick-up in leasing activity is a very encouraging sign, a return to the boom years of the 1980s is certainly not in the immediate future. New York's real estate market will not experience sustained growth until the white collar employment picture improves. While employment is increasing on a national level, the New York region has lagged. The area was hard hit by the recession and as a result, has been slow to recover.

As a consequence of these market conditions, real estate firms in the New York area and in other markets must now, more than ever, take an innovative, team-oriented approach to client service. With companies continuing, to maintain tight operating budgets, the traditional virtues of energy and salesmanship are no longer adequate to lease space in immensely competitive markets such as New York. The commercial real estate broker of the 90s must have ready access to a broad base of support services and technical data.

In today's economy, corporate strategies are clearly reflected in real estate decisions. Brokers must have a keen understanding of a company's strategic business objectives and know how short and long-term space requirements can accommodate that strategy. Information that enables brokers to achieve an optimum balance between rent and concessions while determining the tax implications of different transactions is critically important given the fiscal conservatism of most corporate organizations.

Furthermore, as the market has shifted away from the development and construction of new properties to the management and improvement of existing ones, brokers must possess a comprehensive understanding of building management, design, and operations issues.

In order to bring together all of the services necessary to meet the needs of the 1990s client, real estate brokers must have access to a multi-disciplinary team of professionals who are highly skilled in a diverse range of business issues.

This team, led by the broker, can provide the client with in-depth information in the following areas:

Acquisitions: Feasibility studies, lease vs. own analysis, development consulting, and relocation analysis.

Dispositions: Valuations, sublease analysis, investment analysis and move coordination.

Strategic Real Estate Analysis and Consultation: Portfolio analysis, organizational analysis, rent schedule restructuring and lease language formulation.

Operational Issues: Expense evaluation, lease/contract review, development consulting, and energy surveys.

In most instances today, the broker should function as an account executive, supervising a dedicated team of service professionals who are brought together for a specific client. This approach provides the client with access to a diverse array of business information through one single point of contact.

Over the last several years, we have seen this team approach become increasingly valuable. In one recent case, a major financial services firm's decision to remain in Manhattan could not have taken place without the efforts of a multi-disciplinary team working with the broker.

The corporation realized that it had effectively outgrown its 154,000 square feet Manhattan offices in 1990 and initiated a three-year search for the right space in the right market (the company was prepared to relocate to another region of the country if necessary). A location was sought that would meet the company's economic needs while providing, proximity to its current workforce and meeting, a variety of technical and aesthetic requirements.

The corporation was faced with numerous issues including the economic impact of consolidating its New York headquarters with its Mid-West data-processing center; day to day operating costs, and image considerations such as identity and presence in a prestigious location.

On a more basic level, the company, required access to continuous space, a hi-tech work environment, and, of course, a favorable lease that reflected the organization's immediate and long-term term economic objectives.

The search originally included suburban Chicago, suburban Washington, and the greater New York metropolitan area. Working with Cushman & Wakefield, the company realized that its economic needs could be most effectively met by remaining in the New York metropolitan area. The search was narrowed down to 15 buildings in Westchester County and 30 in Manhattan and later to four properties in Westchester and eight in Manhattan.