State legislates lease cancellation; bill clears the way for SUNY, CUNY relocations

Real Estate Weekly, July 5, 1995 by Eric R. Gerard

Conversely, other industry sources said that the owners may backlash against the State, refusing to enter into long-term leases with State agencies without more upfront rent payments and seriously limiting work letter concessions for fear of being stuck with construction costs.

"I think in the near-term this is a very unfortunate situation for this particular owner," commented Bruce Mosler, president of The Galbreath Company. "It also sets a dangerous precedent in that any asset that relies significantly on State tenancy is going to be unfinanceable. It will also make it more difficult for the State to lease space.

In the long-term, I think it will impact State agencies far more. Owners have a choice, and this will make dealing with the State less desirable. It will preclude them from benefitting from market conditions in that owners will be reluctant to offer favorable rent concessions and free-work for fear that the State can arbitrarily cancel a lease."

"The real implication of this legislative sleight of hand is that no landlord or financing institution can be assured that the State will honor its leasehold commitments," said Sinzheimer. "Private owners with government agencies as tenants are in jeopardy."

State agencies currently lease space in more than 100 office buildings throughout New York City, and many lending institutions currently consider these leases to be "Triple-A rated," according to several sources. However, that may change.

"The implications to us are devastating," Mullins said. "But the implications to landlords and banks who finance properties that have State agencies as tenants will be pervasive and long-term."