Crain's New York Business
Landlords up ante to fill vacant space
Court tenants with big build-outs; encourage brokers with plum bonuses
By Fran Ferrante
How far will a Manhattan landlord go to fill a sprawling space that's been empty for months? In one case, as far as building a 1,000-seat auditorium to seal the deal. In others, as far as offering a shiny new convertible or flight time in a private jet to the first broker to score a tenant.
The overabundance of commercial space has landlords outdoing each other with creative leasing strategies. Owners of newer buildings are working particularly hard to market their raw space, which lacks the curb appeal of the finished product. Even the smallest tenants are being courted extravagantly.
Consider the experience of Stephen Sunderland, managing director of Optimal Spaces. He says that 15 landlords are in the middle of a bidding war for one of his clients: a K-8 elementary school looking for 30,000 square feet of space. "A year ago, they wouldn't have returned my call," he says. The school doesn't have a top credit rating, and schools are not exactly sought-after tenants.
The overall Manhattan commercial vacancy rate climbed to 11.5% in February from 8.6% in June. The amount of space that's available is not that alarming and doesn't compare to what was available in the early Nineties. But the number of tenants looking for space is the lowest I've seen in my 20 years in the business."
So when the United Federation of Teachers balked at the lack of meeting space at 52 Broadway, owner Jack Resnick & Sons Inc. offered to construct a 1,000-square-foot auditorium. As a result, the UFT agreed to lease Resnick's 400,000-square-foot building.
Other incentives are being showered on brokers who can close deals.
Chelsea Market at 75 Ninth Ave. is offering a new Lexus convertible to the broker who finds a new tenant for the building's 4% of remaining space by June 15. It's a creative way of marketing, because there's so much built-out space out there.
But the big dollars are spent on the tenants themselves.
Rent waivers of six to nine months are now common, and some landlords are footing the bills for costly renovations. That's the story at 2 World Financial Center. At the asking price of $55 per square foot, they'll throw in six months for free and a work allowance of $25 per square foot.
Tenants with good credit get $40 a square foot in improvements today; a year ago, the same tenant would have gotten $25."
Many building owners prefer short-term leases or stagnant rents to the alternative: letting financially shaky tenants sublease. Radianz, an Internet firm jointly owned by Reuters and Equant, recently assumed a lease for space at 575 Lexington Ave. after the previous tenant, a dot-com, downsized.