Major tenants looking to move - downtown Manhattan, New York, New York becoming attractive renter's market for large companies seeking new space

Real Estate Weekly, June 3, 1992 by Lois Weiss

The decline in rents coupled with the availability of large blocks of space - particularly in Downtown Manhattan -- s creating a renter's market for big companies in search of new homes.

The size of the lookers, particularly in today's climate, is staggering. Donaldson Lufkin and Jenrette is in the market for 500,000 square feet; Kidder Peabody for 750,000 square feet with Smith Barney; and Prudential Securities for 750,000 square feet to 1 million square feet. Reliance Insurance and American International Group are seeking space in excess of 400,000 square feet.

These companies, together with the Bank of Tokyo, UNICEF and others, are exploring every nook and cranny in an attempt to make the best deal. Buoyed by the Bertelsmann deal, which brought over $10 million in incentives to that company for purchasing an empty, bankrupt building at 1540 Broadway for $119 million, some companies are hitting on the City of New York for inducements.

The projects and the proposals that UNICEF is pursuing are also, said one industry expert, something the other U.N. agencies, and indeed the corporations, should consider as a way of reducing their costs before they leave the country for Germany or move across the river.

Investment houses out hunting include: Donaldson Lufkin and Jenerette, Prudential, Kidder Peabody and J.P. Morgan, which, sources say, would like to consolidate their investment arm in Midtown.

A Prudential Securities spokesperson said the company will make a decision about relocating within the next month. They have looked at Downtown, Uptown and New Jersey and are in discussions with both the city and state. The Pru has over 1 million square feet in several nearby Downtown locations including One Seaport Plaza and 100 Gold Street. All of those leases expire at the end of 1994. The company was thought to be going into one of the Times Square Redevelopment office towers, but no commitment was ever made. Other sources said they were taking a close look at One New York Plaza and negotiating with the city, too.

"It's a tenant's market when you are that big and financially capable of honoring that commitment," said one real-estate leasing expert about Prudential.

American International Group has 4,000 people also spread out over several Downtown locations, including 70 Pine and 72 Wall. Several years ago they backed away from a move to Brooklyn but sources said they are "always" in the market for more than 400,000 square feet.

The Renaissance Plaza mixed-use project of 1.5 million square feet is offering a Hilton hotel and conference space next door as a particularly attractive amenity for the U.N. organization, UNICEF, which has them on its short list of proposals.

Renaissance Plaza, which is five minutes from Downtown Manhattan, has already rented 360,000 square feet -- he first 12 floors - to the Kings County District Attorneys Office for 500 attorneys and administrative staff.

"We're actively looking for those 100,000-square-foot users who are looking to relocate an operating or back office division in order to reduce operating costs," said leasing agent Donald E. Miller of the Muss Development Company.

UNICEF is considering several other sites including three spaces that would be constructed for them, one in Yonkers owned by the Morris Companies of New Jersey, one in New Rochelle, and one proposed by Rockrose Development in Long Island City. The International Design Center Building is another Long Island City contender.

At Brooklyn's Metro Tech only 100,000 square feet is available and they are close to making a deal in that building, said one source.

The Bank of Tokyo, which has a main office at 100 Broadway, and others at 301 Park and 1271 Avenue of the Americas is planning to move uptown to a Sixth Avenue building. That lease, for 160,000 square feet, will be completed in the next month or so.

As these deals are signed over the next few months, New York will be getting a big boost to the economy, while brokers can heave a collective sigh of relief.

Competition Stiff

Wayne Lagary, managing director or the Downtown office of Julien J. Studley, said competition is stiff for these tenants because the decline in the market has reduced both the number of tenants as well as the number of brokers.

"There are fewer hound dogs chasing a much depleted supply of birds," he said. "The tenant base is reduced so dramatically that we're all chasing the same deals."

Jonathan R. Serko a director of Cushman & Wakefield, which represents the recently completed Americas Tower, said: "We're seeing a recognition on the part of some very sophisticated tenants that there is a window of opportunity in the marketplace for large blocks of space."

Given the fact that there is essentially no new construction and given the current climate of the finance opportunities available to developers, Serko said, these tenants are recognizing the opportunities and taking advantage of them. The end result, he said, is that there are a couple of major tenants in excess of half a million square feet that are in active negotiations to stay in Manhattan and they are moving to the newer Class A office buildings. Serko believes the optimism over the long term will result in an upward pressure in pricing that is already appearing in the form of reduced concessions and work time.