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Big Six mergers shake-up market.

Millions of square feet of real estate could end up in play as the big financial services giants merge and redeploy their people.

Last week's announcements of the potential mergers of the Big Six accounting firms Coopers & Lybrand with Price Waterhouse, and then the nearly billion dollar combination of investment and insurance giant Travelers and its Smith Barney group with Salomon Bros., left space watchers breathless.

Along with the potential scrapping of redundant back-office space, the potential mergers could lead to other consolidations or expansions.

Industry experts believe these moves won't become clear for at least several months, and perhaps even longer.

In fact, noted John Powers, executive managing director Insignia/ESG, the ongoing Morgan Stanley/Dean Witter combination, announced earlier this year, is still trying to determine its space needs.

"They have to work through the business plan," said Powers, explaining the integration could take a year or more. "It takes months to figure out a plan."

While Morgan Stanley and Dean Witter are now actively working on their space issues, the other four companies will first begin getting to know each other and their respective ownership and lease positions.

"The capital associated with building interiors is a tremendous cost on a move, so the synergy of getting groups together would have to outweigh current dollars," explained Lewis Miller of Insignia/ESG.

Ray O'Keefe, president of Grubb & Ellis NY, believes that in the short-term some space will be given up and there will be "some shuffling around," but in the long-term, the companies become stronger and end up growing and needing more space.

"If this had happened five years ago when there was a glut of space, everyone would have thought it was a disaster, but the vacancy rate has been coming down and people are now worried about the supply of space and limited opportunities," said O'Keefe. "These mergers also reinforce the mergers in our industry, where the firms have to be larger and provide deeper and better services to serve these amalgamated companies."

Philip Sprayregen a senior vice president of CB Commercial, who represents Dean Witter, said that particular merger with Morgan Stanley would not be bringing a lot of space to the market.

"If anything, in time, they will grow," said Sprayregen. "If there is a cutback in space it will be minimal. The two companies, unlike Salomon and Smith Barney, have distinct businesses and different businesses."

As the six huge companies integrate, most real estate executives believe both space and people will be left behind.

"With the mergers and possible downsizing, we may see some space on the market," said Lydia Sklar, who heads her eponymous company, Sklar Realty Group and holds an MBA in Finance. "They will each become more efficient as one organization. They are increasing their coverage of the market and going after more clients."

In the metro area, a Coopers & Lybrand spokesperson said the accounting firm employs 4,000 people, with space at several locations.

Its Stamford offices are at One Canterbury Green, while on Long Island the firm is located at 225 Broad Hollow Road in Melville. Jersey offices are located in Ft. Lee, where Cooper's & Lybrand Kwasha Lipton Group is housed at 2100 North Central Road; at 101 Hudson at the Colgate Center; in Parsippany at the Morris County Financial Center at One Sylvan Way; in Princeton at 136 Main Street known as Princeton Forrestal Village; and in Edison at 399 Thornall Street.

According to RE/Locate, in New York City, Coopers & Lybrand has about 571,500 square feet at 1301 Avenue of the Americas, stretching from part of the first floor through part of the 10th. At 1251 Avenue of the Americas, they remain on the 40,000 square-foot eighth floor, where they once had three floors. The firm is consolidating into the nearby 1301 Avenue of the Americas - the old JC Penney building, where it has just under 10 floors.

Coopers & Lybrand's large real estate clients include American Real Estate Partners; the Atlantic Development Group; the Lunt Theater Company; and a number of real estate investment trusts. It also has a well-regarded hospitality advisory practice.

Price Waterhouse has 66,000 square feet at 1251 Avenue of the Americas, where a lease expires in May of 1998 and is on the market through Newmark with an asking rent of $54 a foot.

Its New York practice office is located at 1177 Avenue of the Americas, better known as Americas Tower. It moved to the brand - new speculative building around 1993 after an ownership battle and became the first tenant.

The Price Waterhouse tax technology group also has about 20,000 square feet at the McGraw Hill Building at 1221 Avenue of the Americas.

A 31,686 square-foot office was rented in November 1996 at 75 Varick Street that is more of a warehouse type space.

Of more vicarious interest is Price Waterhouse's recent announcement that it committed to about 140,000 square feet on two floors at 11 Madison Avenue until 2013. That space is in the process of being renovated.

"We announced plans to expand our presence in New York into that building and to put 1,090 people there," said a spokesperson.

Price Waterhouse is supposed to receive a $1.5 million job creation grant and a $500,000 capital improvement grant for these two floors of expansion offices, along with state and city sales tax exemptions associated with the expansion. LaSalle Partners repped PW in the talks with the governmental entities.

After a repositioning of the building, the space had been rented to Alexander & Alexander The ink wasn't dry when that company announced it had merged with Aon and no longer needed that lease. According to the Met Life ownership, Price Waterhouse subleased the space at the end of June.

"Those floors are on everyone's minds," said Insignia/ESG's Miller. "I don't think they will do anything immediately, but it's a position they can flip out of and remain whole."

Miller explained that most often, incentives aren't tied to the building, but to the company remaining in New York. Most agreements also contemplate mergers, he said.

According to John Melia, a spokesperson for the Empire State Development Corp. (ESDC), which handled the Price Waterhouse incentives, the company is supposed to apply for a refund of its moving and capital improvement-associated sales tax expenditures after they are made.

"We have been informed by the company that the merger doesn't affect the dealt" said Melia. "They have assured us that the job creation project we did would be carried out."

The ESDC also recently completed a modest incentive deal with Travelers upstate.

Price Waterhouse has metro offices in Stamford at 300 Atlantic Street; on Long Island at 100 Jericho Quadrangle; in New Jersey at 411 Hackensack Avenue in Hackensack; and at 4 Headquarters Plaza North, on the square in Morristown, NJ.

While Travelers recently turned on a neon umbrella at its 388 Greenwich Street building in TriBeCa, it also swept up the adjacent buildings at 250 West Street and 390 Greenwich, which it achieved in the step-up combos leading from Shearson Lehman Bros. to Smith Barney.

Travelers' merger partner, Salomon Bros., is housed a mere jog down the street at Silverstein Properties Seven World Trade Center, where they occupy 1.1 million square feet.

"Smith Barney is already laying off 1,500 people and they will be giving up space at Seven World Trade Center because there is supposed to be a lot of vacant space at the Travelers buildings," said Sprayregen.

The World Trade Center project had lain dormant since its completion in 1987, the year the market took its nose-dive and its expected tenant Drexel Burham folded.

"There weren't many options for Salomon Bros., which had outgrown One New York Plaza," said Sprayregen. "While the market was soft at that time, there weren't many choices for a million square feet."

This was also before the city administrations thought they had to ante up to keep companies Downtown. "The only time the city got involved was when they threatened to leave and go to Connecticut or New Jersey," said Sprayregen.

Dean Witter had 5.5 million square feet around the country at the time of the merger announcement and a "very mature" space planning department with full leasing, architectural and other associated professionals.

According to information released by other real estate sources at the time of its merger announcement, Dean Witter has branch locations in Midtown that range in size from 10,000 square feet to 20,000 square feet and house retail brokers. It occupies about 900,000 square feet in Tower Two at the World Trade Center and has another 360,000 square feet in 5 World Trade Center, where an operations group's lease is up at the end of May 2006.

A Dean Witter mutual funds division is housed in 180,000 square feet in Jersey City's Harborside Financial Center in a lease that goes to about 2008.

Its merger partner, Morgan Stanley, cut a deal with the Dinkins administration in October of 1992 under which the city would provide approximately $39.6 million in incentives over the 10 years the firm agreed to remain headquartered in the Big Apple, in order to retain 4,100 workers.

A year later, in the depths of the city's real estate down cycle, Morgan Stanley purchased 1585 Broadway - then housing only the law firm Proskauer Rose Goetz & Mendelsohn - for $176 million through a sealed bid bankruptcy auction. They quickly added 750 Seventh for their growing personnel. Both properties were brand-new, speculative projects.

As these firms combine to create powerhouses in search of market shares, its obvious that duplicate back office and human resource functions will be eliminated, shrinking space needs, while technological advances could eliminate or move other jobs further afield.

Warns Bruce E. Mosler, executive director of Cushman & Wakefield, "The game of hopscotch has to be watched. If there is spec development and there are vacancies created behind [the mergers] we can quickly go from a market as strong as the one were in to the one we left behind."
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Title Annotation:Coopers and Lybrand's merger with Price Waterhouse; office space market
Author:Weiss, Lois
Publication:Real Estate Weekly
Date:Oct 1, 1997
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