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Major tenants looking to move.

The decline in rents coupled with the availability of large blocks of space - particularly in Downtown Manhattan -- s creating a renter's market for big companies in search of new homes.

The size of the lookers, particularly in today's climate, is staggering. Donaldson Lufkin and Jenrette is in the market for 500,000 square feet; Kidder Peabody for 750,000 square feet with Smith Barney; and Prudential Securities for 750,000 square feet to 1 million square feet. Reliance Insurance and American International Group are seeking space in excess of 400,000 square feet.

These companies, together with the Bank of Tokyo, UNICEF and others, are exploring every nook and cranny in an attempt to make the best deal. Buoyed by the Bertelsmann deal, which brought over $10 million in incentives to that company for purchasing an empty, bankrupt building at 1540 Broadway for $119 million, some companies are hitting on the City of New York for inducements.

The projects and the proposals that UNICEF is pursuing are also, said one industry expert, something the other U.N. agencies, and indeed the corporations, should consider as a way of reducing their costs before they leave the country for Germany or move across the river.

Investment houses out hunting include: Donaldson Lufkin and Jenerette, Prudential, Kidder Peabody and J.P. Morgan, which, sources say, would like to consolidate their investment arm in Midtown.

A Prudential Securities spokesperson said the company will make a decision about relocating within the next month. They have looked at Downtown, Uptown and New Jersey and are in discussions with both the city and state. The Pru has over 1 million square feet in several nearby Downtown locations including One Seaport Plaza and 100 Gold Street. All of those leases expire at the end of 1994. The company was thought to be going into one of the Times Square Redevelopment office towers, but no commitment was ever made. Other sources said they were taking a close look at One New York Plaza and negotiating with the city, too.

"It's a tenant's market when you are that big and financially capable of honoring that commitment," said one real-estate leasing expert about Prudential.

American International Group has 4,000 people also spread out over several Downtown locations, including 70 Pine and 72 Wall. Several years ago they backed away from a move to Brooklyn but sources said they are "always" in the market for more than 400,000 square feet.

The Renaissance Plaza mixed-use project of 1.5 million square feet is offering a Hilton hotel and conference space next door as a particularly attractive amenity for the U.N. organization, UNICEF, which has them on its short list of proposals.

Renaissance Plaza, which is five minutes from Downtown Manhattan, has already rented 360,000 square feet -- he first 12 floors - to the Kings County District Attorneys Office for 500 attorneys and administrative staff.

"We're actively looking for those 100,000-square-foot users who are looking to relocate an operating or back office division in order to reduce operating costs," said leasing agent Donald E. Miller of the Muss Development Company.

UNICEF is considering several other sites including three spaces that would be constructed for them, one in Yonkers owned by the Morris Companies of New Jersey, one in New Rochelle, and one proposed by Rockrose Development in Long Island City. The International Design Center Building is another Long Island City contender.

At Brooklyn's Metro Tech only 100,000 square feet is available and they are close to making a deal in that building, said one source.

The Bank of Tokyo, which has a main office at 100 Broadway, and others at 301 Park and 1271 Avenue of the Americas is planning to move uptown to a Sixth Avenue building. That lease, for 160,000 square feet, will be completed in the next month or so.

As these deals are signed over the next few months, New York will be getting a big boost to the economy, while brokers can heave a collective sigh of relief.

Competition Stiff

Wayne Lagary, managing director or the Downtown office of Julien J. Studley, said competition is stiff for these tenants because the decline in the market has reduced both the number of tenants as well as the number of brokers.

"There are fewer hound dogs chasing a much depleted supply of birds," he said. "The tenant base is reduced so dramatically that we're all chasing the same deals."

Jonathan R. Serko a director of Cushman & Wakefield, which represents the recently completed Americas Tower, said: "We're seeing a recognition on the part of some very sophisticated tenants that there is a window of opportunity in the marketplace for large blocks of space."

Given the fact that there is essentially no new construction and given the current climate of the finance opportunities available to developers, Serko said, these tenants are recognizing the opportunities and taking advantage of them. The end result, he said, is that there are a couple of major tenants in excess of half a million square feet that are in active negotiations to stay in Manhattan and they are moving to the newer Class A office buildings. Serko believes the optimism over the long term will result in an upward pressure in pricing that is already appearing in the form of reduced concessions and work time.

James B. Frederick, a partner with Abrams Benisch Riker believes that is overly confident. "The economy will be slow in recovering and there is still fear and trepidation as to who will make it through this," he said.

David Solomon, executive, vice president of Harper Lawrence, said the bottom has been reached in terms of "rock bottom survival rentals" for the landlords and lenders.

"It's more on the tenant's side to make the final decision," he said, "and not to extract more from the landlord; that point has been reached. It's more the tenant's perception of where the economy is going for them to commit for long term space. The numbers are not the holding force and the same tire kickers are out there."

Dino Piccini is vice president of corporate services of Richard Ellis Inc., an international consulting firm that is working with groups such as UNICEF to determine what is best for their needs. The companies are aware of the market, he said, and the conditions today are so attractive for entering into new leases that people believe now may be the time to reconfigure their operations. They can lock in low rates for the long haul, he said.

"There are not too many fantastic transactions yet and a lot of shopping and looking," Piccini noted. "Giving birth to a transaction now seems to take a long time but there are only so many buildings that can offer high-tech options."

Robert A. Constable, associate managing director of Edward S. Gordon, and a leasing agent for One New York Plaza, said his building has 1.5 million square feet available and that deals are taking a long time. Constable said he would hope some of the lookers, who have real requirements that need to be addressed, are advancing toward signing.

"They are out there pursuing deals but the time frame is a long protracted process," he added.

Every major tenant in the market is bound to look at One New York Plaza, he said. The building is undergoing a $200 million renovation, with the first floors ready for delivery now and the rest ready in early 1993.

Constable noted there are limited opportunities for major institutional moves. At this time, there are approximately 10 blocks of space larger than 250,000 square feet in Downtown, with four or five of those blocks controlled by Olympia & York. The O&Y space, he said, is out of the competition for the moment.

Lagary believes the Olympia and York bankruptcy of Canary Wharf will have implications here. "They will impact lease values and sale values and the way leasing occurs including the terms and conditions," he said.

Tenants look to their leases as a source of protection, he explained. "He is looking for a stable owner and a good reputation," he said. "They are more important than the dollars. What's the sense of paying rent if you don't get anything for it?"

Because of this concern for owner stability, a major sticking point, Frederick said, is negotiating a "non-disturbance" document. These are now tenant oriented and written in a way that the lender is now guaranteeing the provisions of the lease.

As owners go through workout procedures, buildings are coming back into the marketplace. The Solomon buildings at 1585 Broadway and 750 Seventh Avenue will soon be a force in terms of large tenants, said one broker who asked not to be identified.

"If people would concentrate on looking in Lower Manhattan rather than looking at the variables across the river I think Downtown will come back," said Joseph T. Wright, senior vice president of JMB Realty Services. "It's more economically feasible for them to make a better deal in New York today."

JMB is about to sign one 200,000-square-foot-plus user in its Midtown building at 1211 Avenue of the Americas and has space available at 40 Broad Street.
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Title Annotation:downtown Manhattan, New York, New York becoming attractive renter's market for large companies seeking new space
Author:Weiss, Lois
Publication:Real Estate Weekly
Date:Jun 3, 1992
Previous Article:Report: hotel prices create buyer opportunity.
Next Article:'Rescuing' lost value via trade transactions.

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