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Office condos require well-designed plan.

In today's difficult commercial leasing market, building owners and leasing experts are continuously reviewing strategies for attracting new - and retaining existing quality tenants.

One of the more recent strategies to come forth is the conversion of existing rental offices into condominium office buildings. The opportunity for ownership of all of a building, is especially attractive to those who enjoy a taxexempt status.

According to the mayor's office, employees of New York City's not-for-profit organizations, including government agencies, spend approximately $30 billion annually on local goods and services. With one out of every eight persons in the city in not-for-profit, it behooves the city to take active measures to ensure that these organizations can afford to stay in New York and not succumb to suburban relocation trends.

Converting a Speculative Office Building

As with all speculative office buildings, the owner's primary interests are to lease-up, realize tenant income and to attract quality tenants who will be the catalyst for bringing similarly profiled firms into the building. For some owners, another option is to sell the building in its entirety.

The Hammerson Property Group, with only two of the 30 available office floors leased at their new 420 Fifth Avenue commercial office building, considered putting the building on the market.

When the Girl Scouts of America, seeking approximately 200,000 square feet of contiguous space, approached Hammerson, the owners reviewed their options. As the Girl Scouts are a not-for-profit organization and enjoy real estate tax exemptions, ownership was their objective; however, they were only interested in purchasing one-third of the building.

The prospect of having such a highly-respected organization become a major tenant along with its resulting financial gain was incentive enough for Hammerson to stay actively involved in the building. In reviewing their options, Hammerson decided to pursue the condominium conversion. 420 Fifth Avenue's office space is now more than 75 percent occupied.

As a condominium conversion gets underway, all building systems and elements within the structure must be meticulously described and delineated. Defining the bounds of each new tax lot necessitates understanding of just what is to be owned and by whom, including . all public and tenant areas, as well as structural and mechanical systems support areas.

Coordination and consistency between the client, the client's lawyers and the architect are crucial to successful condominium conversion. In the case of 420 Fifth Avenue, the architects had to move expeditiously in order to meet the owner's December 31, 1991 closing, and to complete the process by the critical New York City Tax Status Day of Jan. 5, 1992. Missing this deadline could have cost Hammerson the deal, or the Girl Scouts of America an entire year's worth of real estate taxes, despite their tax exempt status.

Brennan Beer Gotman is now performing a similar condominium conversion for a prime tenant in a trophy office building in midtown, for which the firm was not the original architect.

With expertise garnered from the 420 Fifth Avenue conversion the firm is reviewing, verifying and certifying all existing space, redrawing where necessary.

Using information from existing CADD drawings, the firm has verified measurements in order to certify this data as accurate, and obtain the needed area calculations that are critical to tax lot subdivisions.

The fact that this building conversion dealt with existing tenants in place versus being put on the market for sale, meant that no offering plan was needed. This simplified the filing process by not involving the State Attorney General's review, as was required at 420 Fifth Avenue.

From the building owner's perspective, when all criteria fall into place, condominium conversion is a one-shot cash deal, which in a soft market may make sense.

Condominium conversion may not have universal appeal, as the average tenant may not necessarily want to become an "owner." It is therefore best suited to a tenant who wants to benefit from ownership status without the implications of being a landlord.

In a condominium conversion, the architect is one of the principal players needed to complete and certify a package that accurately describes, delineates, and calculates the areas of the property being sold. While in some cases this might be the original building's Architect of Record, the most important issue is the ability of the architect to accurately represent the client's interest in accountability to the city and state. The architect's proven track record in similar conversions and complete comprehension of the intricate filing process is invaluable to the timely completion of a successful condominium conversion.
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Title Annotation:Commercial Sales & Leasing; conversion of rental office space to office condominiums attracts quality tenants in New York, New York market
Author:Brennan, Henry H.
Publication:Real Estate Weekly
Date:Mar 24, 1993
Previous Article:Happy tenants will stay 'at home.' (emphasis on service and basic maintenance proves effective means of retaining commercial building tenants)...
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