Lease negotiation process evolving.
* Property owners are forced to seek new accommodations from their lenders due to under-performing buildings, or when construction or maturing 'bullet' loans cannot be refinanced satisfactorily.
* Lenders continue to test the waters, often declining loans which might have been approved in the past, as they redefine lending policies.
* Traditional relationships between landlord and tenant are rapidly evolving in the commercial leasing sector. The once familiar lease "negotiating process" has been redefined. The game of brinkmanship played knowingly by both sides in prior years is being replaced by take it or leave it proposals made by the larger, financially strong corporate or institutional tenant. As a result, some landlords, unable or unwilling to respond, are losing significant transactions.
Landlords who have adapted to this new, less flexible negotiating posture, are succeeding in leasing large blocks of office space. As an example, the owners of 666 Fifth Avenue and 1177 Sixth Avenue have enjoyed successful leasing programs and low vacancy rates. Critical components in these transactions include attractive tenant alteration allowances, appropriate rent concession periods, and most important the ability to assume existing lease commitments.
In particular, we have seen the ability of landlords to take over existing lease commitments as key, to the completion of major leasing transactions. The landlords who have been able to do this have satisfactory debt-equity ratios.
Companies which have been 'bottom fishing' are finding compelling lease packages. In addition, foreign companies and financial institutions are active as they find attractive office space relatively inexpensive due to the weakened dollar when compared with their national currencies.
Today's market provides opportunities for the stable, larger tenant who is now positioned to secure extremely favorable long-term lease commitments. Favorable leases will significantly augment and enhance the future performance of these entities.
Looking a little further ahead, it might be assumed that a proposed cap on New York City taxes, combined with the attractive rents and concession packages already available may significantly spur the leasing activity of large transactions in Manhattan and other areas in the region.
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|Title Annotation:||Commercial Sales & Leasing; New York, New York real estate market faces continuing period of adjustment|
|Publication:||Real Estate Weekly|
|Date:||Mar 24, 1993|
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