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BOMA seminar explores 'real' leasing story.

The new realities of today's "buyer's market" were reflected in a spirited three-hour session at the Building Owners' and Managers' Association of Greater New York, Inc. (BOMA/NY) seminar, "lease Negotiations in the 90's", held at the Manufacturers Hanover Trust Building at 270 Park Avenue.

The seminar featured Leonard H. Carter, Esq., partner, Carb Luria, Glassner, Cock & Kufeld; Donald Schnabel, vice chairman, Julien J. Studley Inc.; and Gregory Tosko, project director, Edward S. Gordon Co. Inc. as panelists, with Cornelius J. Lynch, senior vice president of Silverstein Properties as moderator.

Using an audience participation format, Lynch and the panel took seminar attendees through the "natural life cycle of the occupancy of space", covering each stage of the process and comparing recent history with the current market. Pointing out that " ... there are terrific opportunities for tenants to negotiate a deal that will last 15 years," Donald Schnabel emphasized that concession packages were equally as important as rentals, and without exception had as much, if not more effect on leases made today. Underscoring that point, Gregory Tosko added that "landlords need to be fully aware of what tenants are really looking for.

Following are highlights drawn from the BOMA/NY panel's assessment of what owners and tenants can expect of the leasing process, and how today's leasing scenario differs from the 80's.

What the Tenant "Really" Wants....

Tenants are naturally going to focus on financial concerns, Schnabel pointed out, but their subjective reaction to the space is still as important as ever.

Tenants tend to look strictly at numbers, going for the cheapest deal. Warning that they can be blinded by what looks like a "fire sale", Schnabel emphasized that it is critical to outline all factors the client feels are important, and balance them against the conditions such as value, opportunity, etc. offered by the space and the lease.

Tosko explained how matrices have come into use in recent years to quantify "qualitative" issues, weighing each criteria in order of importance to that particular tenant, and cross-referencing the criteria against each building's profile.

"They're especially useful in providing that overall snapshot of the building," he added, explaining that "while the matrix provides a qualitative ranking, it is only one factor in a process that involves many subjective and quantitative issues."

Deals still turn on those subjective conditions, the panel asserted, and to illustrate the point, Carter posed the following questions and called for a show of hands from the owner representatives in the audience: If a potential tenant likes your building but the CEO absolutely has to have operable windows,

and your building does not, would you accommodate the CEO? A survey of the room was an overwhelming "yes." The response was qualified, however, by a number of factors: size of deal, financial strength of the tenant, number of years of the lease, physical constraints, and more.

New Players at the Leasing Table

Schnabel pointed out that the financial security of the landlord, particularly in light of the recent problems of major developers, is essential to tenants -- a concern rarely voiced in the 80's. All panelists agreed a new player has also been introduced, the mortgageee, who sometimes replaces the landlord at the table and holds deal-making power.

Changes in Brokerage Services

Both Tosko and Schnabel agreed brokerage services have expanded. The influx of MBA's into the business in the 80's added a number of new financial tools--forecasting models, evaluation matrices, pro forma budgeting and more. These tools are being refined in the 90's, but the real expansion has been in pre-lease services, with much more time and detail being devoted to feasibility studies, space planning and engineering by professionals in those fields, with brokers acting as project managers before negotiations even begin.

The biggest change, however, can be seen in the influx of the Wall Street firms and their influence on brokerage style as consultants-advisors. Often connecting at the chairman-to-chairman level, manning teams of three to four senior individuals on each deal, the Wall Street firms will include leasing and real estate services as part of their overall financial advisory services.

Free Rent and Brokerage Commission

The 90's concessions of free rent have changed the way commissions are being paid, the panel explained. Traditionally, the owner paid the commission on receipt of the second month's rent -- free rent would naturally make that situation change.

Brokers are now protecting themselves by asking for guarantees of the commission payment schedule as well as requesting documentation of where the dollars for the commission and work allowance are being drawn from.

When asked about bankruptcy, the honoring of commissions and other exceptional circumstances, the panel pointed out that there is no standard rule and most situations are resolved individually.
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Title Annotation:Building Owners' and Managers' Association of Greater New York Inc. conducts seminar on lease negotiations
Publication:Real Estate Weekly
Date:Jul 15, 1992
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