The diplomacy game: how to work with brokers.

New York City has arguably the most diverse tenant base of any urban center in the world. Everyone from major financial services companies to corner convenience stores call Manhattan home, and each of these tenants has their own unique business and real estate requirements. However, even in this diverse mix, certain types of organizations stand out as being particularly out of the ordinary. One group of tenants that meets this classification are the missions and embassies to the United Nations.

Because New York is home to the United Nations, the City also serves as the host to embassies and missions for nearly every government in the world. These organizations are mostly clustered in one particular zone of the City, informally known as the United Nations Market, which stretches from First to Lexington Avenue and from 39th to 50th Street. As you might imagine, for an organization to find suitable space within this narrow zone can be a daunting task and usually requires the assistance of a real estate advisor.

Over the course of our careers we have met the real estate requirements of numerous governments, including Peru, Ecuador and Sweden. Accordingly, we have garnered an in-depth understanding of the challenges and obstacles that these organizations face. On May 4th, we parlayed this knowledge into a seminar, conducted in conjunction with Wachovia Bank, which addressed the unique real estate concerns of foreign governments.

At this event, we discovered that one of the key issues of concern to ambassadors was whether to buy or rent their space. This is a question that often plagues many tenants, particularly not-for-profit organizations, but it is even more complex for foreign governments.

The simple answer to this quandary is ... well, that there is no simple answer. There are advantages and disadvantages to each scenario and every situation has to be evaluated on its own merits. Nonetheless, there are certain aspects of this issue that almost always need to be considered.

For instance, if a foreign government purchases its space it can control its occupancy costs, i.e. it doesn't need to be concerned about rent escalations or changes in market conditions. The property, given New York City's historical performance, is also likely to appreciate in value over time. Some other unique advantages Of a purchase for foreign governments are the prestige of its own property, as well as a lack of real estate taxes and landlord. The last item is particularly noteworthy; property owners will frequently eject a foreign government in a tight real estate market in order to make way for tenants with deeper pockets.

On the other hand, leasing space has its share of benefits as well. Leasing space requires no large capital expenses or down payments. This is a particularly thorny issue for foreign governments, since achieving the appropriate approvals for a purchase from their government back home can be an arduous process. It also used to be difficult for foreign governments to borrow money for a purchase here in America, but several lending institutions are now offering excellent loans for this purpose. Nonetheless, it is important to keep in mind that once a building has been purchased your flexibility has been compromised. A quick expansion or contraction of space could prove to be a logistical nightmare. If your space is leased, a change in your facility requirements can be achieved much more easily.

Ultimately, each situation comes down to the particular tenant and space in question. What makes sense for Spain may not make sense for Japan, and it is for this reason that a knowledgeable real estate advisor can provide valuable assistance for these friendly visitors to New York City.