Joseph Armano Commercial Real Estate Advisor

Joseph Armano December Commercial Real Estate Update

Hi All,

As you may know I started at UGL services about four months ago. UGL is rated as the highest rated corporate real estate services provider in the country according to a recent Watkins survey. My team and I have had an exceptional start.

We have been working on several large national accounts in the finance, healthcare, media and technology, professional services, education and fashion industries. We recently picked up several new accounts in the finance and banking, not for profit and healthcare and fitness industries. We are actively growing our team and have been fortunate to add two new members. We have been successful as a result of achieving exceptional cost savings for our clients. Most recently, we were able to achieve cost savings of over 20% for a health care services provider as a result of negotiations involving lease term, free rent and operating and tax escalations.

Additionally, we are working on an assignment involving a consolidation of space in Midtown Manhattan and nationally in which we will achieve savings of over 30% for our client. These savings will be achieved through reductions in footprint and rent as well through lease renewals and strategic relocations. This client will also achieve considerable financial and operating benefits as a result of receiving turn-key build outs with efficient layouts and design plans. Many landlords and brokers as well as top executives and real estate users are attempting to assess the impact of the European Banking Crisis and recent Wall Street layoffs on the office leasing market. The below article addresses this.

Banking Crisis and Wall Street Job Cuts will have little or no effect on Manhattan Office Rents

The New York financial services industry continues to be severely impacted as a result of the European debt crisis and turmoil in the financial markets. It is estimated that the industry could slash another 10,000 jobs by the end of next year according to a new report from the New York State Comptroller's Office. Other estimates are higher. A recent New York Post article quoted that 10-15% of the entire Wall Street workforce may be eliminated. Up till now, Wall Street has been the main driver in the office market resurgence.

According to a recent report, financial services accounted for 32.4 percent of all leasing year-to-date, followed by information/media at 27.5 percent and government, education and social services at 9.5 percent. Financial services firms are the leading occupier of New York City office space. According to Costar’s third quarter 2011 report, the finance, insurance and real estate industries (FIRE) accounted for 28.4 percent of the total space occupied in the New York City office market.

Although, the employment base of the city is less dependent on financial services than in the past, the industry still comprises 12% of all New York City employment, which translates to roughly 316,200 jobs. The question many landlords and office brokers, as well as users of space are asking, is whether the Wall Street downturn and loss of jobs will result in financial services firms putting their excess space on the market (sublet space), both increasing supply and leading ultimately perhaps, to rent reductions.

Many users of space believe that rent reductions are imminent as a result of the Wall Street fallout. However, this may not be the case and making corporate real estate decisions based on Wall Street job cuts and an inevitable office market downturn might not be wise. While there is little doubt that Wall Street will downsize, it is questionable whether the cutbacks will actually cause financial service firms to put their excess space on the market and whether this increased supply of excess space (sublet space) will lead to rent reductions. If a case can be made that the financial services firms will not glut the market with space and that demand for space by other industries will more than offset the increase in supply by the financial services firms, then a case can be made that the New York office market would not be impacted by job losses on Wall Street and could in fact, rise further.

Three years ago, with the United States in the middle of a financial crisis, major global banks looked to cut costs by subletting their unneeded office space to other companies. As the downturn dragged through 2009, the total amount of sublet space peaked, with Manhattan financial services firms listing at least 4.4 million square feet at the end of the year. Ultimately, the total amount of all industries’ sublet space peaked at 11.4 million square feet. Today, the European debt crisis and resulting financial market turmoil has pushed banks again to cut costs. European banks have been most affected by the debt crisis and have recently announced a number of mass layoffs. Thus, it is expected that these banks will once again put their excess space on the market. In fact, some space has recently come on the market.

For example, Citadel Investments listed 30,529 square feet at 601 Lexington and Macquarie Holdings listed 50,000 square feet at 125 West 55th Street. Most recently, Societe Generale moved from 600,000 sf at 1221 Avenue of the Americas to 400,000 sf at 245 Park Avenue. The firm is now subleasing about 75,000 SF of that space. Also, it is likely that MF Global will sublet a large amount of its 64,525 sf of space at 717 Fifth Avenue as a result of its recent bankruptcy filing. Despite these numbers, it is unlikely that financial services firms will come near to putting the 4.4 square feet of space that they did in 2009. Many of these banks have already reduced their footprints considerably over the past three years and may not be willing to put their excess space on the market in expectation of a market uptick and future hiring needs.

Many firms tend to hold onto excess space even as they lay off workers in expectation of improving business conditions. During the recent downturn a number of financial services firms put their space on the market only to take it back themselves. Thus, this recent lesson may lead these firms to hold onto a considerable amount of their excess space. Assuming an aggressive job cut figure of 20,000 Wall Street employees and an average of about 200 sf per employee would amount to 4,000,000 sf of space. However, we believe that only about 25% of this, or roughly one million square feet will actually be put on the market. While one million sf seems like a large amount of space, this is only a 26% increase in Class A sublet inventory space (3,847 million) and just 0.32% of the total Class A space on the market, which presently stands at 304 million sf and 0.19% of all space on the market, comprising 542 million square feet according to Co-Star.

This analysis however, does not take the demand side of the market into consideration. If there is an increase in demand for space which is greater than that of the supply coming onto the market due to Wall Street layoffs, then we would expect rents to rise. Although financial services remain an important industry in New York City, most new jobs are being created in other sectors. For example, while 20,300 private sector jobs were added in New York City over the last 12 months, only 4,900 were in financial services with the remaining 15,400 in growth industries such as healthcare, technology and education. It is expected that these industries will continue to grow through 2012. If 15,000 new jobs were created in 2012 and if each new position resulted in net absorption of 150 square feet of space (using a more conservative figure than 200 cited earlier), then this would result in net absorption of 2.25 million sf of space, more than offsetting the increase in supply of space by the Wall Street firms.

Even under a very aggressive scenario of 2.0 million sf of space coming onto the market - 50% of excess space according to the above example, or roughly 45 percent of the financial services sublet space that came on the market in 2009, it is quite plausible that under steady employment conditions, all excess space as a result of the layoffs would be absorbed and there would be a net demand of new space.

In summary then, while we anticipate large employment reductions as a result of the banking crisis, we believe that New York City will remain a vibrant economy and that Manhattan Office market rents will not be affected by the Wall Street job cuts. Users of space in New York City should not rely on a decline in the market as a result of Wall Street jobs cuts when making their corporate real estate planning decisions.

All my best,

Joseph

Joseph Armano Joins UGL Services

The New York office of UGL Services (formerly UGL Equis) is pleased to announce the addition of Joseph Armano to our team as Vice President.

Joseph Armano, formerly an Associate Vice President at CresaPartners, has joined UGL Services' New York office as a Vice President of brokerage and client advisory services.

With a background in tenant representation, finance, and management, Joseph's depth of experience and broad skill set enables him to successfully implement UGL Services' integrated platform for the benefit of his clients.

Prior to his tenure at CresaPartners, Joseph was the principal at Joseph Armano Real Estate and a director of Coldwell Banker's Midtown Office. In addition, Joseph worked at several well known Wall Street firms before pursuing a career in real estate.
About UGL Services
UGL Services, through its affiliated companies, is a global real estate firm that focuses exclusively on the business space user. With more than 40,000 affiliated employees and in nearly 100 locations around the world, Chicago-based UGL Services provides comprehensive real estate solutions through portfolio strategy and management, transaction advisory, corporate finance, project services, workplace integration, data management, facility management and audit & recovery services for national and global companies with office, industrial and retail opportunities through the United States, Mexico, Asia Pacific, Europe and the Middle East. UGL Services is a subsidiary of UGL Limited (ASX: UGL).

July Commercial Real Estate Advisor Update

Hi All,

We hope that you are well and enjoying this work shortened holiday week. I personally have been enjoying the summer and have been doing some cycling and open water swimming in a few favorite spots.

The commercial real estate market had been strong as vacancy rates continue to fall and rents climb. The overall Manhattan vacancy rate fell from 12.2% to 12.0% in May according to a broker report while Class A vacancy tumbled from 11.0% to 10.8%. Net absorption was positive for the month though not quite as strong as April (691,440 SF versus 794,799) according to the same report. Overall asking rents increased from $48.45 to $48.91 while Class A rents increased from $59.65 to $60.17. This is the eight straight month of monthly increases.

Landlords have been emboldened as a result of these positive trends and are expected to further raise asking prices. The question that tenants and real estate brokers are asking is whether rents will continue to rise in the face of a struggling national economy.

http://therealdeal.com/newyork/articles/low-class-a-office-vacancy-reported-by-cassidy-turley-emboldens-landords-said-robert-sammons

The Manhattan unemployment rates remain below the national average. New York City unemployment remained unchanged at 8.6% in May versus April. The national average was 9.1% in May and increased from 9.0% in April. Thus, Manhattan’s economy remains relatively strong.

The Manhattan market is unique as a result of its dependence on financial services. It is estimated that financial service firms and related businesses comprise 40% of office market occupancy. Financial services firms had been hiring last year, however, many are now in the process of cutting jobs. According to Reuters, financial sector layoffs are up 21% this year with more cuts likely. Additionally, these cuts seem to be permanent. Demand for office space has traditionally been led by financial services hiring. So, the question is how long positive pricing trends can be sustained in the face of Wall Street downsizing.

http://www.wallstreetandtech.com/career-management/231000180

My thought is that that the momentum in the market may be sustained for a period of time by firms other than financial services. For example, the tech sector has been very strong and LinkedIn.com recently signed a seven year deal for the entire 25th floor of the Empire State Building amounting to 31,000 square feet. The rapidly growing Mountain View California based firm increased its office space more than 5 times according to a recent Crain’s article. Education, healthcare and sciences are other industries where job growth is expected. However, the longer term picture could be negatively impacted if Wall Street hiring remains sluggish.

http://www.crainsnewyork.com/dcce/20110505/12/real_estate/122/deals_active/2581840

We are finding that much of the value that we are adding as corporate real estate advisors is in workspace planning. Some tenants have been able to hire more employees while reducing their real estate expenses through employee seat sharing and mobility (working remotely from home). For example, if 10% of your employees worked from home full time, total seat requirements could be reduced by 15-30%.

http://www.cresapartners.com/blog/tag/mobility/ The last couple of months have been excellent for my team and I. We are working on assignments for one of the nation's largest telecom companies, a top fashion company, a leading technology and media company, a prestigious law firm, a large hospital, a national retailer and a fitness club. We are working with professional services firms and other firms including banking, investment, insurance, law, media, technology, fashion and design and health care as well as with retailers.

Please feel free to contact us for a “gratis” consultation. Twenty minutes can save you twenty percent or more on your real estate costs.

 

May Commercial Real Estate Advisor Update

Download CresaPartners Market Report 1Q2011

Hi All,

I am attaching CresaPartners first quarter real estate report for review.

The Manhattan market continues to be strong as firms position themselves for growth. Manhattan’s unemployment rate has steadily declined. It was 7.8% in February which is down almost a full percentage point from the prior year. Leasing activity has been robust as availability rates have decreased and asking rents have risen. However, absorption has not kept pace with leasing volume. Deals are getting done, but as a result of alternative workplace strategies, including mobility and desk sharing, firms are not growing as rapidly as they have in other recoveries. Please see report.

My team and I had an exceptional first quarter. We are working on a two million square foot assignment for one of the nation's largest telecom companies. We are also working with top investment, fashion, technology and media, law, health care and professional services firms. As a result of increasing pricing power on the part of landlords, it is more important than ever to have a tenant advisor to help you navigate the market and the complex world of commercial leases.

Please feel free to contact us for more information. Thanks.

All my best,

Joseph

February Commercial Real Estate Advisor Update

Hi All,

Leasing activity is off to a great start this year. Deals for a total of 3 million square feet of commercial office space were signed in February. That's only the sixth time that's happened in the city since 2002. February's blowout performance follows the impressive 2.6 million square feet of space leased in January. Leasing activity has now surpassed the nine-year monthly average of 1.9 million square feet for six months in a row.

The early 2011 deal closings have resulted in a wave of large block transactions. The recent 400,000 square foot Bloomberg deal at 120 Park avenue has forced smaller users to find alternative options. Household name companies with A ratings are subject to getting bumped by larger tenants who have finally returned to the market in deal making mode. In addition, the unexpected turn of events of Nomura Securities and Deloitte to abandon the downtown World Financial Center for midtown has accounted for another 1.0 million square feet of demand and absorption of Class A space in midtown.

These recent events coupled with the addition of more large block transactions in have caused most Midtown landlords to increase their asking rents. Smaller tenants who have been bounced for the larger transactions are scrambling to find alternatives which may not be as economical as the original locations. 

If the roaring pace holds up, 2011 could go into the records as the best year ever in the Manhattan office market. The record was set in 1998, when 33.1 million square feet were leased. A combination of pent-up demand and companies renewing or moving early to take advantage of recession-lowered rents is driving the activity. However job growth needs to continue for leasing activity to keep up its muscular pace. So far, New York has regained 40% of the 140,000 jobs lost during the recession. But given the upheaval in international economy over the past few weeks, it is difficult to predict what the demand for space will be over the next several months.

 Recent events

Much of the news over the past few weeks revolve around the natural disaster in Japan as well as the political upheaval in the Middle East and North Africa. It is, therefore, of great interest to understand how this will effect the New York City commercial real estate market.

The political instability in Bahrain could spill into Saudi Arabia which is a large oil producer thus decreasing word oil supply. Additionally, the supply of oil could be decreased as a result of the situation in Libya. Additionally, the supply of oil in the United States is lower than anticipated. So we are faced with a potentially large worldwide decrease in oil supply.

Although the Japanese disaster will lead to a decrease in energy demand, the damage to the nuclear reactors will result in an increase in oil demand to make up for the lost nuclear output. So while world supply is decreasing, Japan's oil demand is increasing. The result could be increases in demand for oil and limited supply leading to above $4.00 prices for gas.

The expected increase in the price of oil and gas, which is an input to production of goods and services, will lead to a slowdown in the economy. Most analysts agree if oil prices stay around $100 per barrel for the rest of this year, that will shave US GDP growth by only one-half percent or less for the year.  If correct, which remains to be seen, this will cut US GDP growth from a 2.8%-3.0% rate to around 2.5% or slightly lower. Obviously, this will drive the unemployment rate back up later this year and/or next year.

The slowdown in economic growth from the increase in oil will translate to less hiring and to less demand for office space and retail space for tenants.  The lower demand for space negatively effects landlords which rely on growing tenant space demands to increase rents.

However, while the demand for office and retail space may be negatively effected by the slowdown in the economy resulting from a increase in oil prices, there are other factors resulting from oil price increases that will benefit commercial real estate. Inflation is likely to increase as higher oil prices are factored into the production of goods and services.

Real estate is a bundle of assets and including factors of production such as natural resources  (concrete and steel), land (development site), labor (construction costs) and financing costs (bank loans).  As oil prices increase so do the prices of the aforementioned real estate costs. Thus, real estate prices tend to rise and act as a hedge against inflation.

Additionally, as the economy moves toward an inflationary environment, landlords seek more aggressive formulas to recover higher costs. A landlord may typically accept a simple and low fixed rent increase. However, in an inflationary environment the landlord has the ability to pass on higher expenses to the tenant though a number of innovative means including  variable rent increases based on such external metrics, as the consumer price index which reflects the national inflation rate, or the porters' wage increase, which is a local union contract staple that raises the pay scale of building  maintenance workers. Therefore, the landlord benefits from an inflationary environment through higher asset prices and the ability to generate additional revenue through hidden cost increases.

Although the US domestic economy may be hurt by the slowdown in growth resulting in higher oil prices, New York City is an anomaly in that 40% of the office leasing market is comprised of financial services companies. Many financial services companies may actually benefit from the instability in the international markets caused by the increased volatility in oil prices and in the markets overall. So, higher oil prices may not impact financial services hiring as it would other industries.

In conclusion, while the national economy may  slow as a result of oil increases, there are other factors offsetting this that will benefit the commercial real estate market. Real estate is a hedge against inflation and real estate asset prices and rents are likely to rise in the face of an economic slowdown. Moreover, Manhattan is highly tied to financial services which may actually benefit from volatility in the international stock and bond markets. Thus, we are likely to see the Manhattan office market remain steady and continue to improve in the near future. Please note that these are my personal views and just food for thought.

My team and I have been very busy in the market. We are in the process of closing several deals totalling over 50,000 square feet in the next few weeks. Additionally, we are in the process of being hired to represent tenants for over 200,000 square feet of space.  

As discussed, there is a growing sense that prices will rise and many large tenants see the need to lock into long term favorable rates. The New York City economy is improving and the time to act is now! We have achieved great benefit for our tenants in this changing market environment. Please feel free to contact us in regard to how we can help you meet your real estate needs and take advantage of opportunities in the changing market. Twenty minutes can save you twenty percent or more on your real estate costs.  Thanks.

All my best,

Joseph

January Commercial Real Estate Advisor Update

http://www.cresapartners.com/newyork/documents/NewYork_Market_Report-2010-Q4.pdf

Hi All, 

We are having a record year on snowfall in January in New York and many of us are dreaming about our vacation getaway if we have not already taken one. I am attaching our Fourth Quarter market report. 2011 may well prove to be the turning point where landlords begin to resist offering bargain rents and flexible lease terms. It may well benefit tenants to renew, modify, extend and add space to their existing leases now while the market is still relatively favorable.

So, hold that thought on the Caribbean vacation and contact us to see how we can help you save money on your office and/or retail lease.  A twenty minute “gratis” consultation can save you 20% or more on your real estate costs.

Market highlights are as follows:

• New York City’s unemployment rate has dropped from 10.5% in December 2009 to 9.1% in November 2010.
• For the twelve months ending in November 2010, the city’s employment base grew at a pace of 1.0% adding 37,000 jobs.
• Over the last few quarters, the availability rate has continued to follow a generally downward path.
• The once abundant sublease market is shrinking.
• Leasing activity has been reviving as tenants resume looking for space.
• 2011 may well prove to a big turning point in the market. 

All my best,

Joseph

December Commercial Real Estate Advisor Update

Hi All,

My last newsletter emphasized the team and athletic component of office leasing as I discussed a bike ride my teamates and I completed across Long Island. I recently saw the movie “The Social Network” and Mark Zuckerberg has recently been named Time Magazine’s Person of the year in 2010. I admit a preference for athleticism over “geekiness.” However, it is very clear as evidenced by “The Social Network” that “geekiness” has its benefits. And this is the case for corporate real estate advisory services and leasing and as well as in social media and technology.

In the movie the “Social Network”, Mark Zuckerberg’s programming ability allowed him to implement the Facebook concept. Although the rowing athletes (the Winkelvoss twins) appeared to have originated the concept earlier, they lacked the implementation ability that allowed Zuckerberg and his team to succeed.

The corporate real estate advisor position involves some very “geek-like” aspects. For example, a tenant representative must get involved in complex issues such as financial analysis, design and architecture, project management and real estate law to name a few. My team and I recently have been involved in reviewing leases and negotiating clauses as well as in design, construction and real estate finance issues. Having the ability to coordinate various leasing aspects makes a huge difference in the implementation of a successful corporate real estate strategy.   

Some of you who saw “The Social Network” may be may be thinking that my team and I are engaged in corporate real estate advisory activities to enhance our dating prospects. However, I emphatically deny that is our motivation.  As effective corporate real estate advisor’s we must be engaged in some of the more mundane and “geeky” aspects of real estate to ensure that our customers have an advantage in lease negotiations and in achieving a favorable real estate position. Similar to the creation of Facebook, it is not enough to have a concept. We must not only seek creative ideas to save our customer’s money, we also must also effectively implement solutions. Hence, we must be “geeks” as well as athletes. 

Commercial leasing is a full contact activity. Landlord’s are very adept at maximizing real estate profits through hidden costs. Thus, a tenant’s most effective strategy to gain a competitive advantage in lease negotiations is to hire a tenant advisor skilled in corporate real estate advisory and leasing services.  A skilled tenant advisor can generate substantial cost savings for a company.

Lease clauses are critical components of a lease. Properly reviewing and negotiating lease clauses can have a significant impact on your business.

Please see the CresaPartners blog post on the importance of reading leases. 

http://www.cresapartners.com/blog/2010/11/forewarned-is-forearmed-read-your-lease/

Also please see CresaPartner’s third quarter market report. 

http://www.cresapartners.com/tenantsguide.asp

December has been a good month for my team and I. We are working on assignments for one of the nation's largest telecom companies, a top fashion company, a leading technology and media company, a prestigious law firm and a large hospital. We are working with professional services firms and other firms including banking, investment, insurance, law, media, technology, fashion and design and health care.

Buildings in which we represent tenants include: The GM building at 767 Fifth Avenue, The Chelsea Market at 75 Ninth Avenue, 757 Third Avenue, 1370 Avenue of the Americas, 888 Seventh Avenue and 141 West 36^th Street.  

We have been able to save enormous amounts of money for our clients and we would be delighted to provide you with a “gratis” consultation. Twenty minutes can save you twenty percent on your commercial real estate costs. Please feel free to call us for more details.

Happy Holidays! Wishing you a healthy and prosperous 2011!

 

 

 

November Commercial Real Estate Advisor Update

My two teammates and I embarked on a one day 143 mile bike ride last year from Penn Station to Montauk. My friend Jeff had completed this ride before and he was well trained and came with a GPS.  It was my first time doing the ride. We were lucky Jeff was on our team as there was a torrential rainstorm that day complete with 10 MPH headwinds and cold weather. Our bike ride turned into an expedition.

Jeff bravely took the lead at the onset bearing the brunt of the rain and wind. The lead rider cuts through the wind in a cycling “pack” making it easier and faster for the rest of the group. We were reliant on the GPS as we could not see the road signs that were painted on the street. 

Despite three flats and a couple of near car crashes we made it to Montauk in good time. I finished strong and toward the end of the ride I was able to take the lead and pull the group taking turns with Jeff, thus giving him a much needed break.

Cycling is a team sport and when cyclists work together in a “pack” they perform much better than when riding alone. I am involved in several commercial lease negotiations for tenants and I am finding that working together as a team is beneficial in leasing as well as cycling.

As commercial real estate advisors representing tenants, we play a role very similar to that which Jeff played in my bike ride across Long Island last year. Commercial real estate lease negotiations can be very complex and the tenant representative leads a process which allows a company to reach its real estate goals while minimizing its costs.

This includes typical brokerage services such as acquisitions, dispositions, renewals and lease modifications as well as strategic planning (workforce and location planning), project management (construction, design and relocation) and post-lease activities (lease audits and database management).

Real estate leasing can often be a long and arduous process. Like my bike ride across Long Island, there can be many unexpected pitfalls along the way. Most often the pitfalls arising from commercial real estate negotiations result from the landlord as well as their broker and/or attorney attempting to get the better end of a negotiation. This happens often in New York City as landlords are very sophisticated and have a favorable negotiating position.   

Closing a commercial lease deal involves several parties including, tenant, broker advisor, architects and attorneys. As the tenant advisor, my team and I take the lead in the commercial real estate “pack” making the process easier and more advantageous for our customers. A tenant advisor is similar to a GPS system guiding the tenant through the snares presented by the opposing real estate parties. This allows the tenant to cut through the process with less effort and complete the deal with strength and in a good position.

Lease clauses are an example of potential pitfalls in a commercial real deal. I have been involved in reviewing several of these recently and they can be lethal to your business.  Feel free to read the below for more information.

 http://www.cresapartners.com/blog/

November was a good month for my team and I. We recently picked up assignments for one of the nation's largest telecom companies, a top fashion company, a leading technology and media company, a prestigious law firm and a large hospital. We are working with professional services firms and other firms including banking, investment, insurance, law, media, technology, fashion and design and health care.

Buildings in which we represent tenants include: The GM building at 767 Fifth Avenue, The Chelsea Market at 75 Ninth Avenue, 757 Third Avenue, 1370 Avenue of the Americas, 888 Seventh Avenue and 141 West 36^th Street.  

We have been able to save enormous amounts of money for our clients and we would be delighted to provide you with a “gratis” consultation. Twenty minutes can save you twenty percent on your commercial real estate costs. Please feel free to call us for more details. Thanks.

 All my best,

 Joseph

October Commercial Real Estate Update

Download Savings Wheel

Hi All,

As I endeavor in my position as a tenant advocate, I am often reminded of the experience that my father had with his landlord. My father owned a hairstyling business on Long Island. I often remember him complaining about the landlord and how he was being taken advantage of through huge rent increases. Well, that was many years ago, but some things do not change.

The economy remains soft and it would be all too apparent for a landlord to take advantage of a tenant with huge rent increases today. Instead, landlords are much more creative and use “hidden profit centers” as a means to maximize profits. Some of my favorites are large “compounding” escalations, re-measured space, superfluous utility billings and landlord construction profits. See attached “savings” wheel. Note that hidden profit centers may result in tenants paying 20-30% more than they should.

For example, the following is a list of ways that the landlord can take advantage of a tenant through superfluous utility revenue generation: 

1. Purchasing energy at bulk rates and excessively marking up the rates.
2. Billing for overtime air-conditioning and heat without adequate backup.
3. Capturing and allocating common area maintenance costs to the tenant.
4. Subsidizing other tenants operations.
5. Overstating square footage and percentage calculations thereby inflating billing.
6. Capitalizing on tenant loads.

We are currently involved in several lease negotiations in which we are generating large cost savings for our customers. Please feel free to contact me for more details.

Market Update  

The market for commercial office and retail space is slowly improving. The availability rate is dropping, sublet space is coming off the market, rents are slowly increasing and landlord concession packages are getting smaller. See CresaPartners Manhattan TenantReport.

http://www.cresapartners.com/newyork/documents/NewYork_Market_Report-2010-Q3.pdf

CresaPartners Ranked Number Seven Commercial Real Estate Brand

CresaPartners was recently ranked the number seven brand in commercial real estate according to a survey done by Lipsey. Since the top six brands derive their income mostly from landlords, CresaPartners is ranked the number one “tenant only” commercial real estate broker internationally.

http://www.lipseyco.com/pdf/2010.pdf

My team and I are currently involved in several lease negotiations and we are finding that landlords are gaining ground. For example, leases that have recently been drawn and signed in the Midtown market are at fairly higher rent levels than last quarter. Our business is strong and we have recently acquired several new clients over the past couple of months. We also expect to close many deals in the coming months. We believe that our model of serving “tenants only” and our ability to help maximize tenant cost savings is the key to our success. 

My dad is semi-retired and we cannot help him negotiate with his landlord today. However, we welcome the opportunity to serve your business. Please feel to contact me for a lease analysis and evaluation and we would be happy to quantify possible cost savings we can generate for you. Thanks.

All my best,

Joseph

September Corporate Real Estate Advisor Update

Download Savings Wheel

Theft By Lease

Many tenants pay more than they should (sometimes 20-30% more) costing them large sums of money. CresaPartners’ Potential Cost Savings Analysis demonstrates the many ways a landlord can profit from a lease. These key areas need to be scrutinized and carefully negotiated to maximize savings for a tenant. Please see the attached “Savings Wheel.” The costliest line item components in a “killer commercial lease” are often the operating escalation and real estate taxes. These are by far the most expensive and least understood hidden costs of a lease. With a killer lease the landlord can take the traditional incremental increases in operating expenses, real estate taxes and utility charges, and cause them to double the fixed rent in four to six years rather than in the traditional 12 to 15 years, even in or especially in a down market.

As a result of the difficult economic environment, landlords are seeking ways to increase their buildings profitability through these “hidden costs.” It is critical, therefore, for tenants to hire an advocate that will protect their interests. Many brokers have existing relationships with landlords and are conflicted. Since they represent the landlord as well as the tenant they are not in a position to negotiate fairly and aggressively on the tenant’s behalf. For example, a broker may be handling the leasing assignment for a landlord on a large portfolio of properties. This broker may now seek to handle a tenant in its renegotiation for an existing lease in a building the landlord owns.

Is it possible for a commercial broker loyal to the landlord and seeking his interest to represent the tenant fairly? The answer is no. The broker representing the landlord is conflicted. Therefore, when choosing a commercial broker to work with it is in the tenant’s interest to work with a “tenant-only” advisor. CresaPartners is the largest international “tenant-only” commercial broker. Please feel to contact me for details on how we can save you money on your commercial and/or retail space.

CresaPartners Ranked Number Seven Commercial Real Estate Brand

CresaPartners was recently ranked the number seven brand in commercial real estate according to a survey done by Lipsey. Since the top six brands derive their income mostly from landlords, CresaPartners is ranked the number one “tenant only” commercial real estate broker internationally.

http://www.lipseyco.com/pdf/2010.pdf

Lease Accounting Rules Continue to Gain Momentum for Adoption

As the Financial Accounting Standards Board (FASB) changes in lease accounting rules continues to gain momentum for adoption within the next few years, corporations should now begin setting strategy for future occupancy expenses. These new rules requiring all lease obligations to be capitalized and shown on the balance sheet of the tenant (eliminating FAS 13 calculations for determining operating lease treatment) may change the attitude companies have towards owning versus leasing. The critical component will become the underlying cost of capital for the landlord/owner as compared to the cost of capital for the tenant. This may require developers and landlords to become more sophisticated in the underlying financing to provide capital to their buildings. While this change may seem overwhelming to many, it is similar to the international accounting rules that have been in effect for years. American CFOs may want to look to their colleagues in those markets to get some baseline knowledge on how deals are structured and gain some initial thoughts on efficient structures for their own balance sheets and operations.

http://www.cresapartners.com/blog/

Leasing Activity and Rents See a Reversal of Fortune The beginning of this year was marked by an increase volume in commercial leasing activity. Brokers were buoyed by the large volume of deals in Manhattan as well as large headline deals. Reports by a leading broker show there was 1.5 million square feet of new Manhattan space leased in August 2010, down 45% from the prior month and down 15% from August of 2009. But asking rent were up, although just barely. In August, landlords were asking an average of $47.73 per square foot in Manhattan, up from July when they were asking $47.57.

http://therealdeal.com/newyork/articles/leasing-activity-and-rents-see-a-reversal-of-fortune

While rents have appeared to have bottomed and the market appears to be emerging, there are many who believe that the commercial leasing market is heading for a train wreck as a result of the number of commercial leases that are maturing in 2013.

http://www.observer.com/2010/real-estate/commercial-leasing-collapsing-maybe

September was a good month for my team and I. We have recently won large assignments for one of the largest private investment firms, a top fashion design company, a leading e commerce company and a hedge fund. We also recently closed a renewal for Group Health Dental, the largest dental practice in Manhattan, as well as a sublet assignment for Silicon Graphics. Please feel free to contact me for more information.

All my best,

Joseph

August Commercial Real Estate Advisor Update

The leasing market is gradually improving according to recent data. Overall, there were 1.7 million square feet of new leases signed in Manhattan last month, up from just over 1 million square feet in August 2009. The vacancy rate for Manhattan fell by .2 points to 10.9 percent in August from a peak of 11.6 percent in the first quarter, while the average asking rent rose by 15 cents per foot to $54.14 per square foot. However, the volume of new space has slowed.  However, the volume of new space leased in Midtown slowed to 1.1 million square feet last month from an average of about 1.6 million square feet over the prior five months -- which was the most active period of leasing since the second half of 2006.

My team and I are doing very well in the current economic environment as our focus is on lowering tenant's lease costs. The recent economic data points to a slowly economy and overall business sentiment is not favorable. Thus, companies continue to look for way to improve overall performance by lowering lease costs and increasing efficiency of used space. The following are seven real estate cost reduction strategies:    

http://www.cresapartners.com/blog/2010/08/seven-real-estate-cost-reduction-strategies/

We recently picked up assignments for one of the nation's largest private investors, a top fashion company, a cutting edge on line luxury retailer and a hedge fund. We are working with professional services firms and other firms including banking, investment, insurance, law, media, technology, fashion and health care. Please feel free to contact us for a consultation. We have been able to save enormous amounts of money for our clients and we would enjoy discussing possibilities to lower your company's lease costs. Thanks.

All my best,

Joseph