Studley Fights for the Tenant; Competitors for the Landlord

In an article in the NYT; CB Richard Ellis states “We also tailor our research to landlords’ needs, so it is very customizable.”  At Studley we believe this is backward.  It is you the tenant who is important.  We fight for your rights against the landlords.  See the article below to understand the how our competitors are not looking out for your best interest.

– Tom

Class-Consciousness in the Office Building Market

By JULIE SATOW – New York Times, July 26, 2011

There are roughly 400 million square feet of commercial real estate in Manhattan, an amount equal to more than 9,000 acres. For the last three decades, as the office market grew and matured, brokers and tenants began slicing that space into classes that signaled a building’s amenities and location and, of course, the rent that its landlord could charge.

Traditionally, four classifications are used for office buildings: trophy properties, which are mostly new construction that offer tenants the latest technologies, best locations and most exclusive tenancies; Class A, where the vintage may be somewhat older but the location or landmark architecture demands above-average rents; and Class B, mostly on Midtown side streets or peripheral locations, with average rents, services and building systems. Rounding it out are Class C properties, which are often simply Class B buildings that lack services. Often, Class C buildings will be upgraded to achieve higher rents and make better use of valuable real estate or be converted into residential units.

Trophy office towers make up 9 percent of the Manhattan market, Class A buildings make up 53 percent and Class B 26 percent; the remainder is Class C, according to Cushman & Wakefield. In the boroughs, the brokerage firm tracks roughly 17 million square feet of office space in Brooklyn, about half of which is Class A, and 7 million square feet of mostly Class A and B office space in Queens.

But there is no industrywide standard, and deciding whether a building fits into one group or another is more art than science.

“There is a universal desire for a classification system that is somewhat objective, but unfortunately, it is really a very subjective process,” said David Goldstein, an executive vice president at the brokerage firm Studley.

While it varies from firm to firm, among the criteria brokers use are age, location, curb appeal, tenancy, building infrastructure and ownership. The labels help brokers categorize average rents, and vacancy and absorption rates, and are often used as a form of shorthand in marketing space to tenants. The city’s Finance Department also relies on the class system to help assessors determine real estate taxes and property values.

The Trophies

Trophy buildings are often the easiest to spot because they tend to be the newest and most technologically advanced. Both 1 Bryant Park and 7 World Trade Center, completed in 2009 and 2006, respectively, are considered trophies, and are among the country’s leaders in environmentally sustainable buildings.

Some trophies have climbed to their position through gut renovations. Jones Lang LaSalle, for example, lists 545 Madison Avenue, which underwent a $90 million renovation in 2008, as a trophy property.

“The only thing that exists from before is the concrete and steel,” said David Sigman, executive vice president and principal at LCOR, which acquired a 75-year ground lease on the property, at East 55th Street, in 2006. It is 60 percent leased, with rents in the range of the low-$70s per square foot.

Some trophies do not require such extensive work to keep current. The Solow Building at 9 West 57th Street has retained its position as one of the most exclusive Manhattan office towers despite its 1974 vintage. It commands rents from $100 to $200 per square foot and has an exclusive roster of tenants, including the private equity firm Kohlberg Kravis Roberts & Company and the corporate offices of the design house Chanel.

Class A

Class A skyscrapers are characterized as well maintained, with stellar ownership, in prime neighborhoods with high-credit tenants, but are generally not of recent vintage. Rockefeller Center, for example, was built in the 1930s, but its location, the reputation of its owner, Tishman Speyer, the quality of its retail roster and the fame of the Rockefeller Center brand have kept the office complex well within the Class A status.

But while trophies are usually designated as such by acclaim, Class A properties can sometimes evoke disagreement, particularly when the location is a focus. Park Avenue, for example, in the heart of Midtown is often considered reason enough to label the buildings there Class A properties. But 230 Park Avenue and 250 Park Avenue, for example, were built in the 1920s, and some real estate experts argue that the buildings fail to live up to Class A standards.

“Do they have updated common areas that feel plush and luxurious, do they have the services?” said Marisa Manley, the president of Commercial Tenant Real Estate Representation, a brokerage firm. “Or are these buildings really just fabulously located space on Park Avenue?” While some may say the buildings are lackluster, brokers do mostly consider them Class A properties, and their rents are consistent with other top-tier buildings in the area.

In some cases, buildings can move up the classification rung. The Empire State Building spent decades in the lower classifications, but now many firms consider it Class A. Since 2006, it has undergone a $550 million renovation and has shrunk its roster list from 561 tenants to less than 190, seeking to attract bigger companies. Among the companies that have recently moved in and helped raise the building’s stature is the construction company Skanska, the Federal Deposit Insurance Corporation and the social network LinkedIn.

Class B

A key factor in Class B buildings is often the presence of many smaller tenants, as well as a prewar vintage. Class B buildings that are in Midtown are nearly always on the side streets, and the bulk of them can be found in Midtown South.

“The way I look at it is usually based on amenities,” says Jeffrey Buslik, a director at Adams & Company, a brokerage firm that has many Class B listings. “In a Class A property there may be a concierge, but in a B building, there is someone at the door, but that is the extent of the lobby services.”

Earlier this year, APF Properties and Prudential Real Estate Investors acquired 28 West 44th Street, a Class B building close to Grand Central Terminal. The new ownership is working on a $12 million capital improvement program to provide tenants with prebuilt spaces, upgraded elevators and windows and new bathrooms, as well as other services.

“We like Class B properties because they are often in the best locations, but still provide tenants with an affordable alternative,” said Ken Aschendorf, a partner at APF Properties. Rents in the building range from mid-$40 to $50 per square foot.

Class C

Class C properties tend to be Class B buildings with fewer services, like no attendant in the lobby and only a superintendent to maintain upkeep, industry experts say. There are only a handful of Class C buildings in Manhattan, because “if a building gets too far down on the food chain, it can’t compete effectively,” said Robert L. Freedman, chairman of Colliers International in New York. “In these cases, the highest and best use for the site is often converting the building into residential.”

In the financial district in Lower Manhattan, for example, many of the Class C office buildings have been converted into condominiums and rentals. Among the most recent conversion projects are 70 Pine Street and 116 John Street.

Not all firms use the classification system. CB Richard Ellis, one of the largest brokerage firms, eschews the traditional class system in favor of dividing office buildings geographically and by size or age.

For example, it will focus on Midtown buildings that are at least 150,000 square feet or those that are prewar, built before 1944.

“The Class A, Class B system is arbitrary, so we prefer to base our research on location, size and year built,” said Travis Yuengst, the head of Manhattan research for CB Richard Ellis. “We also tailor our research to landlords’ needs, so it is very customizable.”

For tenants, the building classification can often be an afterthought. “It’s never where the discussion starts when you are talking with tenants,” said Ms. Manley. “Tenants generally think in terms of where they want to be geographically, then they think in terms of the image they want to project.”

Still, it can be a sort of shorthand. “If a tenant tells me that they are looking for Class A space,” she said, “I understand that they are telling me they need great-looking space, that image is important to them.”.

See article.  http://www.nytimes.com/2011/07/27/realestate/commercial/for-commercial-properties-it-is-all-about-class.html