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Category ArchiveKaufman Organization

Logistics Startup Flexport Moves From Flatiron District to Chelsea

Freight logistics software startup Flexport has outgrown its New York City office and has leased a larger space across town.

The air and ocean freight forwarder has inked a deal for 23,000 square feet on the entire second floor at Kaufman Organization’s 111 West 19th Street between Avenue of the Americas and Seventh Avenue, Crain’s New York Business reported. Asking rent in the deal was $65 a square foot, according to information from CoStar Group. The length of the lease wasn’t immediately available.

It wasn’t clear what brokers were involved in the transaction, but Kaufman Organization’s Sam Stein and Yvonne Chang marketed the space. Stein declined to comment on the deal. Flexport didn’t return a request for comment.

Flexport had outstripped its current home, an 11,000-square-foot office at 250 Park Avenue South between West 19th and West 20th Streets, after growing from three employees to 70 over the past two years, per Crain’s. The five-year-old, San Francisco-based firm plans to grow to 175 employees, and its new home can fit up to 200. The move to New York has also made it easier for Flexport to reach local shipping and trucking companies that do business at the Port Newark-Elizabeth Marine Terminal.

The 600-person company also has offices in Amsterdam, Atlanta, Los Angeles, Chicago, Hamburg, Hong Kong and Shenzhen. It offers shipping and customs services as well as real-time shipping data for air freight, ocean freight, and trucking.

Other tenants in the Chelsea property include meal delivery service Plated, legal news provider Law360 and wedding dress retailer Kleinfeld Bridal.

Source: commercial

Four Reasons Why Oxford Properties’ Big Bet on St. John’s Terminal Will Pay Off

Oxford Properties Group and the Canadian Pension Plan Investment Board (CPPIB) announced yesterday that they closed on the $700 million St. John’s Terminal redevelopment project in Hudson Square.

The acquisition of the south portion of the site at 550 Washington Street from Westbrook Partners and Atlas Capital Group was major news, with Oxford owning a 52.5 percent interest in the project and control of the development and Canada Pension taking the remaining stake.

The City Council granted a zoning variance in December 2016 for the 3.3-acre project, which is supposed to include 1,500 rental apartments along with a mix of office and retail, when it was completely under Westbrook and Atlas. Westbrook and Atlas landed $300 million in financing from Morgan Stanley last year and used $100 million to acquire 200,000 square feet of development rights, as CO previously reported. (Westbrook and Atlas Capital will continue to own the northern portion of the site.)

St. John’s Terminal is not Oxford’s first rodeo on the Far West Side of Manhattan; the company is currently working with Related Companies on the Hudson Yards megaproject.  

We talked to real estate experts to get their takes of why spending $700 million for this project was a savvy move for Oxford and CPPIB.

primaryphoto44 Four Reasons Why Oxford Properties’ Big Bet on St. John’s Terminal Will Pay Off
550 Washington Street.  Photo: CoStar Group

Hudson Square is ripe for redevelopment (and close to cool neighborhoods)

Hudson Square hugs up next to Greenwich Village and West Village to the north and Tribeca to the south. Not to mention Soho is to the east. It would be difficult to find four trendier neighborhoods on the island of Manhattan.

“What’s the old real estate adage—location, location, location, and this location has a tremendous amount of untapped potential,” said Daria Salusbury, the president and CEO of Salusbury & Co., which works on branding and consulting for developers.  “And Oxford is very, very smart, and they are very well financed.”

Salusbury was a senior vice president with Related Companies and worked on the development of the firm’s 261 Hudson Street project in the area before she left in 2016. The Robert A.M. Stern-designed rental building features approximately 200 apartments.

She added, “In three minutes you are sitting in Tribeca at a restaurant. And in five minutes you are in Soho sitting in a restaurant. In six minutes you are in West Village sitting in a restaurant. How can you go wrong?”

Plus, while the area was long known for its extensive warehouses, as development has thrived in the surrounding neighborhoods, Hudson Square has come into its own.

“Ride your bike down the West Side Highway and you’ll see the amount of development right off the highway on the West Village,” Steven Kaufman, the president of Kaufman Organization, said. “This is just south of all of that. It’s in between the West Village and Tribeca. And it’s like a hole in a doughnut there. It’s very ripe for development.

He added, “And it’s a big site. It’ll be a city of it’s own. It could be like Battery Park City.”


…And has no landmark issues!

Plus, it’s not like the New York City Landmarks Preservation Commission can get involved like in other neighborhoods nearby.

“Greenwich Village, Tribeca and Soho are protected because of the landmark issues. [But] it’s something that they don’t have to worry about, and here they can build something of scale and size,” said Robert Dankner, the president of Prime Manhattan Residential. “The fact that it is not landmarked and it’s one step to the left—it’s a very obvious next step.”

primaryphoto43 Four Reasons Why Oxford Properties’ Big Bet on St. John’s Terminal Will Pay Off
A rendering of other residential properties that could be constructed at the site. Rendering: CoStar Group

The Hudson River Park is a perfect amenity for future tenants.

The 550-acre park that extends from Battery City to the West 59th Street offers a plethora of activities for locals. It attracts 17 million visits each year, according to the Hudson River Park Trust’s website.

‘[St. John’s Terminal] is a two-minute walk to the esplanade. And there are a lot of possibilities there,” Salusbury said. “Look how much money the city put in to create that esplanade. You can bike with your kids or take a walk.”


They’re not going into Hudson Square alone.

Oxford Properties is certainly not the only ones working on projects in the area. Hines, Norges Bank Real Estate Management and Trinity Church Wall Street has an 11-building portfolio of 5 million square feet in the area, the majority of which is office space. They have CBRE and Newmark Knight Frank leasing up the buildings, as CO reported in 2016.

“Hudson Square has undergone an exciting evolution from New York City’s printing district to a vibrant mixed-use neighborhood with an impressive mix of creative companies, new residential opportunities, local eateries and other businesses that call Hudson Square home,” said Ellen Baer, the president of the Hudson Square Connection. “A waterfront community, amazing access to public transportation and lower west side location, Hudson Square is taking its place as a truly great New York neighborhood.”


But one note of caution for the developers trying to outdo other trendier areas nearby:

“As long as [Oxford and CPPIB] don’t get too ambitious with pricing and they recognize that it’s one step to the left, they should have a home run,” Dankner said. “They can’t get too ambitious because they have to look at [other projects] like Greenwich Lane, which is in the heart of the Village. That’s where everyone wants to be. In Hudson Square, there are still some spotty streets. You are not just there yet. It doesn’t have the neighborhood cleaners. It doesn’t have restaurants. It’s not old enough. It’s new. History has to be created there. It doesn’t have personality [yet].”

Source: commercial

Liquor Maker Pernod Ricard Subleases 18K SF to Legal Tech Firm

Legal-services technology company Complete Discovery Source has found a new home for its headquarters.

The company has completed an 18,803-square-foot sublease with wines and spirits maker Pernod Ricard USA at 250 Park Avenue, according to a news release from Complete Discovery’s broker, Kaufman Organization.

The tech firm plans to relocate later this month and will occupy a portion of the 18th floor of the 21-story building between East 46th and East 47th Streets and owned by AEW Capital Management. The asking rent in the five-year deal was not immediately clear.  

“CDS needed a strong level of security for its high-tech and sensitive legal operations,” Kaufman Organization’s Arthur Spitalnick, who handled the deal for CDS, said in a prepared statement. “250 Park Avenue met this need while also offering the firm a modern, furnished space that allows for the seamless occupancy that is essential for tech tenants.”

CDS, which has additional offices in Chicago and Washington, D.C., is relocating from 345 Park Avenue between East 51st and East 52nd Streets, according to The New York Post, which first reported news of the deal.

The company offers a variety of software to help law firms during the discovery process of litigation (the pre-trial phase).  

David Falk, Alex Leopold and Gregory Frisoli of Newmark Knight Frank represented Pernod Ricard USA, a subsidiary of Paris-based Pernod Ricard, in the deal. The Newmark brokers did not immediately respond to request for comment via a spokesman.

The liquor company recently remodeled its offices into an open-floor plan, shrinking the amount of space that it needed for its employees, so Pernod Ricard USA decided to sublease out the excess space, according to the Kaufman news release.

Pernod Ricard USA signed a deal for 82,300 square feet at the building for the entire 16th,17th and 18th floors, and a portion of the 20th floor in 2012, as CO reported at the time.  

The 543,000-square-foot building is also home to law firm Epstein Becker & Green, office space provider Regus and investment banking and asset management firm Needham & Company, a subsidiary of The Needham Group.

Source: commercial

How a Former Garmento Became Oldest ‘Kid’ Leasing in Garment District

Richard Smith, a senior director at Winick Realty Group, is an old-school operator in all the best ways, relying on shoe leather and people skills to score new business through cold calls, relentless networking and building relationships face to face.

Smith, 62, grew up in Hewlett, N.Y., in the Five Towns section of Long Island. His father, Al Smith, manufactured brooms and mops. (He was not the four-time governor of New York.) Richard spent his Saturdays as a child playing in his father’s broom factory in Canarsie, Brooklyn, while Al played cards with friends.   

Always idolizing his dad, the younger Smith got caught up in the excitement of business in 1969, when his father took his company, Ace Industries, public.

“It really drew me in when he got involved in Wall Street, because it was very exciting,” said Smith, who lives on the Upper West Side with his wife of 31 years, Rhonda. “It was really big business, and it made me understand that business wasn’t just going to your office every day; it was Wall Street and financial information that flowed. That really got me going.”

His father’s experiences wound up being educational for reasons other than he expected. Smith entered Boston University in 1973 and expected to join his father when he graduated with a business degree four years later. But Ace closed in 1975, and he got to watch as his father dealt with the aftermath of a disaster.

“He went out of business, and he paid every dime he owed to everybody,” Smith said of his father, who passed away in 1993. “He wanted his reputation to be intact no matter what. I learned that from him.”

Smith worked a few retail sales jobs before entering the garment industry. He sold fabrics at a small company called Holland Fabrics for five years before opening his own firm, Ace Fabrics (the name was an homage to his dad’s company), where he worked as a jobber.

In the garment industry, jobbers sell fabric companies’ excess runs and, as such, are limited in how much they can sell. The big money went to converters, who bought raw fabric in bulk, and could take unlimited orders.

Seeking to grow to the next level, Smith caught a break from the son of one of his mother’s friends.

“My mother spoke about this gentleman my whole life, and we never knew each other,” he said. “He was in the garment center, and his mother kept bragging to my mother about how much money he was making. And my mother would say to me, ‘What’s wrong with you? This guy is making so much money.’ ”

20171101richardsmith0341 How a Former Garmento Became Oldest Kid Leasing in Garment District
Richard Smith Photo: Michael Nagle

Eventually, Smith met the man, whose name was Howard Rosenblum, and he joined Smith at Ace Fabrics, bringing along experience and clients as a converter. The pair worked together for 20 years and grew the business to the point where they were averaging $18 million a year in sales.

Beginning around 2000, China’s growing prominence in the garment market undercut their prices, and business tapered off. By 2006, Ace was barely scraping by, and Rosenblum left the company to shift into real estate, renting office space.

Smith kept Ace going until 2008 and then followed Rosenblum into real estate by joining Winick.

While they no longer work together, the former partners still speak every day. Rosenblum described Smith as a man he’d trust with his life.

“He was a very hard worker and a very tough negotiator,” Rosenblum said. “He was honest, and he was tenacious.”

Rosenblum said that over about 20 years of partnership, there was only one squabble they ever got into.

“There was a customer around 20 years ago who took advantage of me—he low-balled me, and I gave him a lower price. Richard would not accept the order because he knew I was being taken advantage of,” Rosenblum said. “He called the customer behind my back and got more money. I almost dissolved the partnership because he went over my head. But my anger only lasted a day because I realized he was right.”

By the time he entered real estate, Smith had a base of the business-related skills that are essential to success in the industry, foremost among them the building of personal relationships and a strong, unwavering work ethic.

“Never take a second off—there are always opportunities every day in the garment center, and if you’re not there, there are no opportunities,” he said of his work philosophy. “It’s very similar in real estate, in retail, especially. There are always opportunities every second. If you take off an hour or a day or a week, you’re missing an opportunity that may never come back again. So you really have to be dedicated.”

Starting in real estate at 52, some still called the father of three daughters (Sarah, now 25, and twins Phoebe and Emma, 21) “Kid.”

“You call a landlord, and he’d say, ‘Listen, kid, we’re getting $300 a square foot. Get me $350 a square foot.’ He’s calling me a kid,” Smith said. “The person on the other end of the phone might have been 25 years old, didn’t know me from a hole in the wall. I didn’t care.”

Smith said he did no business at all his first year, supporting himself with savings, but used door-to-door cold-calling to develop relationships with landlords and potential tenants throughout the city.

“I was a very personable person, and we got to know each other,” he said of people he met along the way. “So if we did business or not, it wasn’t that important. It was important that they knew who I was, and I knew who they were, and we had a relationship.”

His efforts began paying off a year and a half into his tenure at Winick.

Walking by a Korean deli on West 34th Street that had been taking a year to build out, he introduced himself to the owner, a Korean man named John Chun who spoke almost no English and joked with him about how long his buildout had been taking.

Despite the language barrier—Chun sometimes has one of his managers translate—they became friends and Smith began bringing him deals. Sitting with one landlord asking Chun for $80,000 a month in rent, Smith felt the landlord was disrespecting his client with his timing.

“Everyone has to give permits and plans to the landlord to sign,” Smith explained. “The landlord wanted 21 days from when he got the papers to sign them and give them back to my guy. Three days was standard in the market. My guy [would have been] paying $80,000 a month. You have three sets of papers to sign, so if it takes him 60 days to sign all the papers, that’s over $150,000 in rent. The guy said, ‘That’s the best I’m doing.’ I said, ‘We’re out of here.’ I take my tenant and I walk out.

“[Chun] says, ‘Richard, what are you doing? How much money are you losing on this deal?’ I said, ‘Nothing. He’s not being fair with you. It’s going to cost you money, and I’m not interested in doing it. It’s not the deal I want for you.’ To make a long story short, within a year, we got that deal. That goes back to relationships. [My clients] want to do business with me because they know I care about them.” The space became Café Hestia at 513 Seventh Avenue at West 38th Street.

These are the sorts of relationships that helped Smith gain a foothold in real estate.

“I’ve done 10 deals with this guy, and this is a guy I cultivated from nothing,” Smith said. “It wasn’t like I’ve known him since I was 20 years old. I started with him, and we built up, and I have 10 of those guys now.”

This attitude has fueled a steady book of business for Smith.

“It all comes down to his training from his previous career in the garment center,” said Steven Baker, Winick’s president.

“Richard is the kind of guy who just walks into a store and introduces himself, and before you know it, he’s transacting with that tenant. Richard is very results-oriented. We see the fruits of his hard work.”

While Smith does transactions throughout the city, much of his business comes through his old haunt, the Garment District, and he said he finds himself there every day.

Despite the city’s ever-rising rents, Smith said there are still bargains to be had in the Garment District.

“Now it’s catching up, but for a long time there was a very, very good bargain over there—the best bargain in the city,” he said.

“With retail now on a downturn, the garment center never got to the point where [rent prices were] ridiculous,” Smith said. “So they can go down a little bit, and it’s very fair. The places that are ridiculous—the Madison Avenues, the Sohos—they got up so high that even if the rents come down a little bit, it’s still ridiculous. The garment center never got there. So now, the rents are reasonable. You go on a side street, $100 a square foot, you find a beautiful place. You can’t beat it. It’s still the best deal in town.”

In terms of deals, Smith’s strong relationships keep him busy, including a lease signed in September for 8,000 square feet—4,000 on the ground, 3,000 on the mezzanine and 1,000 in the basement—at 248 West 35th Street for Chun, his Hestia client, who sought to open a karaoke place, called Muses 35 Bar, by year-end. Smith said he did the deal at around $100 per square foot for 15 years.

Steve Kaufman, the president of the Kaufman Organization, has done several deals with Smith and said his dedication to knowing the market makes him a valuable business partner.

“I met Richard probably 10 years or so ago,” Kaufman said. “He did a big leasing transaction with us when he rented a big store in our building at 450 Seventh Avenue to Duane Reade in 2013.”

Kaufman added, “He’s proved to be a very good store broker. He works hard, he has good relationships with his tenants and landlords, and he keeps his finger on the pulse of the market.”

For Smith, chasing deals of this sort—simple, what he calls “unsexy” deals that create a positive long-term situation for clients and landlords he’ll continue to be in touch with for a very long time—is the path to business success.

“Every day, I’m calling every one of my relationships up and speaking to them and having conversations and going to visit them and having coffee,” he said. “Every time I go in there, I’m building more and more of a relationship with them. If we don’t discuss business, we can discuss their kids, their future plans, whatever they choose to discuss. I enjoy all of that. Obviously, you want to do business and make money. But if I’m having a successful week, I’m seeing my clients and getting new clients and meeting new landlords. That, for me, makes it successful.”

Source: commercial

Owners Magazine 2017: Interviews with NYC’s Top Landlords

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At the risk of stating the forehead-slapping obvious, it’s been a strange 12 months.

There’s been a mixture of good and bad real estate news that can paint a picture of continued stability or darkening clouds on the horizon, depending on your point of view.

By October, the vacancy rate in all three major Manhattan markets for office space appeared to be falling, per Cushman & Wakefield data. Hundreds of thousands of square feet have been leased by Spotify, GroupM, Amazon and others. All of that is inarguably good news.

However, a year ago, few people knew that we were sitting on a retail powder keg ready to blow and take some of the biggest names in the industry with it, like Toys “R” Us, Aerosoles, Payless, Radio Shack…you get the idea. This is inarguably bad.

This is one of the reasons why it’s important to have a magazine like this one.

Yes, the data, the deals and the numbers are critical to understanding the state of real estate. But it’s also important to get a sense of what the key players are thinking right now. That’s why we asked 36 of the biggest names in the business what their vision of the market looks like.

We’ve supplemented these questionnaires with our own reported features.

Last year, New York was considered immune to the vicissitudes of the world economy because we were always a safe, stable place to park cash. That looked like less of a sure bet when China announced new outbound investment rules. Lauren Elkies Schram examines the topic in her story in this issue.

Some in the real estate community long hoped for a challenge to Mayor Bill de Blasio in this year’s mayoral election and put substantial money behind Paul Massey (one of their own) to take the reins of City Hall before that fizzled out. At the risk of propagating a Dewey-Truman blooper (we ship this magazine before Election Day), Aaron Short reported what developers are expecting and hoping for in de Blasio’s second term.

While many developers have spent the last few years touting the Far West Side of Manhattan, there is actually quite a bit of activity on the East River, something that Rey Mashayekhi examines in depth.

Finally, Liam La Guerre looked at something that’s always been written off as anathema to real estate developers: technology. It turns out, the shrewd owners are not only interested in tech, but they’re also developing their own. — Max Gross 

Source: commercial

Think Small: How Manhattan Office Landlords Are Courting the Market for Modest Space

In the New York City office market, the big deals get all the attention. Landlords usually covet major six-figure-square-footage users who can lock down large blocks of space at their buildings, bringing with them the security of long-term leases that can anchor a property for a decade or longer. Brokers, meanwhile, covet the sizable commissions that come from representing such large-scale clients.

The reality, however, is that most of the city’s office stock is occupied not by major corporations leasing multiple floors at Class A Manhattan buildings, but by small-to-midsized businesses across a diverse range of industries that require more modest footprints.

Of the roughly 21 million square feet of Manhattan office space leased through the first nine months of this year, more than 4.6 million square feet came in the form of deals for less than 10,000 square feet, according to data from CBRE. (By comparison, deals between 25,000 and 50,000 square feet and 50,000 and 100,000 square feet each comprised 3.1 million square feet of leasing activity.) From more traditional financial services and legal firms to the younger tech, media and creative-oriented companies increasingly fueling New York City’s economy, it is this scale of user that drives much of the city’s office leasing activity.

The relatively modern phenomenon of coworking—initially popularized in the 1990s by Regus (now IWG) but revolutionized by WeWork and a whole crop of like-minded firms in recent years—has added another wrinkle to this equation. As the startup economy produces wave after wave of nimble new companies that have looked to coworking spaces to suit their needs, landlords have caught onto the trend and sought to capitalize—often through smaller, prebuilt office layouts positioned as both an alternative to shared office space and an option for young companies that have outgrown the coworking model.

“There’s been a shift in the small-user paradigm where players like WeWork are accommodating businesses that can be run out of a knapsack,” said Jay Caseley, an executive managing director at ABS Partners Real Estate and head of the brokerage and property management firm’s office leasing operations. “Several of our tenants are so-called graduates from that environment. When those people get tired of being in a crowd, they want to have some autonomy and privacy.”

At properties like 200 Park Avenue South near Union Square, owned by a group of ABS investors, Caseley said the firm has taken the approach of prebuilding units as small as 900 square feet in spaces that it inherited from larger tenants whose leases have expired. Such units not only meet certain tenants’ more limited space needs, but as prebuilts, they are also “more or less ready to move in” and are being leased out at terms usually no longer than three years—the sort of flexible arrangement tailored for nascent small businesses.

While noting that he would “shudder to not accommodate renewals to full-floor tenants,” Caseley said ABS has found success in catering to smaller office users. “We find that the smaller units rent more quickly, have less long-term issues with vacancies and give us a formula where we have a portfolio that’s attractive to [tenants] under the current market conditions.”

It is a formula with which other landlords and property managers have also found success. At the Adams & Co.-owned 110 West 40th Street near Bryant Park, the landlord, brokerage and property management firm is taking an approach more closely mirroring the coworking phenomenon—but with a more established twist.

Adams is pursuing a strategy where it is breaking up entire floors at the 26-story, 140,000-square-foot building into prebuilt suites ranging from 600 to 1,500 square feet. In addition, the company has equipped the building with features including a shared conference center and lounge area, as well as tenant-controlled HVAC systems and a full-time concierge.

“For a small tenant, the majority of the options are in coworking, but coworking isn’t for everybody,” said David Levy, a principal at Adams & Co. “When you have a real business that wants its own space, and the owner wants his own office, the ability to find that space is limited.”

Of the 27 such units Adams & Co. has built at 110 West 40th Street thus far, Levy said 26 have been rented out—mostly at lease terms between three and five years and at asking rents between $65 and $75 per square foot. He added that the company plans to eventually convert the entire building into small-scale prebuilt units.

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110 West 40th Street. Photo: CoStar Group

“We are seeing much more variety than I thought,” Levy said of the tenancy in the building’s prebuilt suites, which includes not-for-profits and tech and design firms as well as financial companies. He added that several “older,” existing tenants at 110 West 40th Street have also opted to move into the smaller new suites, thanks in part to the building’s new features. “They’re downsizing their space, but they don’t need [their own] conference rooms anymore.”

The Kaufman Organization took a similar approach at 27 West 24th Street in the Flatiron District, where it took its 11-story, 125,000-square-foot building and divided the 12,000-square-foot floors into five or six prebuilt units per floor. “We’re the next step from the coworking environment to tenants taking their own spaces,” said Grant Greenspan, a principal and senior vice president at Kaufman.

In addition to offering shorter lease terms, Greenspan said the small-scale spaces at 27 West 24th Street are designed to offer financial value for tenants. “In a coworking environment, between what [coworking providers] are leasing you and the common areas and the amenities, it’s in the $80 to $90 per square foot range,” he estimated. “The thesis [at 27 West 24th Street] is you come in and take 3,000 square feet, and you’re paying $55 to $65 per square foot.”

Greenspan and other market participants noted that the small-scale office model is not a one-size-fits-all approach, as larger tenants locked into longer leases remain an integral part of most commercial landlords’ business models from a financial perspective. Buildings catering mostly to smaller tenants can also run the risk of turning into an office version of a “hotel” if spaces “keep turning over too quickly,” Greenspan said, adding that landlords must also look to build out their prebuilts somewhat “generically” so that they “don’t get caught continuously renovating and repositioning” spaces. “You have to be cognizant of staggering your lease expiration, too,” he added.

But the city’s office market at large—not just the small-space niche—has shown heightened appetite in recent years for prebuilts, too, according to Nicole LoRusso, CBRE’s director of research and analytics for the tri-state region. LoRusso cited figures indicating that, in Midtown Manhattan specifically, the amount of prebuilt space taken by tenants has grown roughly 30 percent from 2015.

“Tenants don’t want to wait six to 12 months to execute a buildout,” LoRusso said. “For a lot of tenants, [prebuilts] are appealing. They don’t know what [their company is] going to look like in the future. The flexibility of not having a long-term commitment and also recognizing that, if you need to grow by 2,000 square feet, you can sign and get that space three weeks later—that’s what’s appealing about it.”

For developers like Josh Caspi of Caspi Development, smaller-scale prebuilts have become a boom business that the market has come to demand. At 79 Walker Street in Tribeca, the firm is taking an approach that has previously served it well at small-scale office projects like 135 Bowery and 161 Bowery on the Lower East Side.

The company is finishing up its conversion of 79 Walker—a five-story, 25,000-square-foot former manufacturing building—into full-floor prebuilt offices spanning 5,000 square feet each. Already, Caspi has secured commitments from the likes of electronics company Bang & Olufsen and digital production music library Epidemic Sound, which were drawn to the prebuilts’ flexible layouts and ample amenities—including convertible conference and breakout rooms, tenant-controlled HVAC systems and high-end kitchenettes featuring quartzite countertops, refrigerators and dishwashers (not to mention a wine fridge).

“The thing I learned as a landlord of large buildings is that there’s no love for this-sized tenant,” Caspi said on a recent tour of the building, which includes a private roof deck for the top-floor tenant and a 3,600-square-foot ground-floor retail space that will be anchored by Chicago burger sensation Au Cheval.

Caspi said that leases at the building generally run between five to seven years at rents in the mid- to high $60s per square foot, with the landlord—like other developers operating in the smaller-footprint market—taking a larger security deposit to offset the risk of its business model. But the prebuilt strategy also means that “turnover costs are less,” according to Caspi, as tenant improvements won’t be required every time a space changes hands. “If you lose a tenant, you just fill it up the next day,” he said.

And then there are real estate startups that are specifically targeting the small-to-midsized tenant space, buoyed by the belief that they understand the needs and requirements of such office users in a way traditional landlords do not.

buildingphoto 44 e1509489073794 Think Small: How Manhattan Office Landlords Are Courting the Market for Modest Space
315 West 39th Street. Photo: CoStar Group

Knotel is a startup office provider that has grown at a prolific pace this year since sealing a $25 million Series A funding round in February. (Disclosure: Observer Capital, led by Observer Media Publisher, Chairman and Chief Executive Officer Joseph Meyer, is an investor in Knotel.) The company has nearly 500,000 square feet of office space currently under lease in New York City, which—unlike coworking providers such as WeWork—it subleases as single-tenant spaces under short-term agreements.

For Amol Sarva, Knotel’s co-founder and CEO, landlords attempting to get into the small-tenant game are chasing a trend that they’re ill-equipped to serve, since they lack the “uniform product experience” offered by Knotel.

“We actually run the office for you—everything about the space is thought about and designed by us, for you,” Sarva said. “We source and deliver all the supplies, services and utilities. We staff the place and know your people. We help them get in, in the morning, and lock up at night. If the building isn’t performing, we take it up with [the landlord]. There’s a whole [real estate] department of your company that you don’t need.”

Traditional landlords, by contrast, mostly provide a lower quality of service and at higher costs than Knotel, according to Sarva. “The only thing they can do is make small boxes and have someone meet you out front [at a reception desk],” he said. “It’s like individual taxi drivers trying to compete with Uber; as the lease becomes the taxi medallion of the office market, these buildings will become taxis.”

Knotel is hoping to further expand its business to the tune of 1 million square feet of office space under lease by the end of the year and recently announced its expansion into the San Francisco market. With small-to-midsized office users fueling the real estate startup’s rapid rise, it would appear that the limited-scale office market is growing more influential than ever.

But Scott Galin, a principal and CEO at Handler Real Estate Organization, said that his firm—which owns a portfolio of office buildings mostly located in the Midtown West area—has been serving that segment of the market for years. At 315 West 39th Street in the Garment District, Handler has converted the entire 16-story, 140,000-square-foot property into small-scale studio spaces averaging between 800 to 1,200 square feet.

Like most buildings in its neighborhood, 315 West 39th Street was formerly a garment factory. But Handler gradually transformed the entire property over the course of the 2000s, several floors at a time, into spaces that were initially occupied mostly by creative and design tenants and now also hold nonprofits and accounting firms.

Today, the building has roughly 140 tenants, which Galin said were drawn to the building’s loft-like spaces and “communal” vibe, as well as its proximity to transit hubs like the Port Authority Bus Terminal and the general transformation of the West Side into a desirable place to do business.

“It took off by itself,” Galin said of the firm’s approach to the property. “It was clear that there was a demand for small space between 500 and 1,500 square feet. These tenants want to be in a cool neighborhood and around mass transit.”

Handler signs most of its tenants at 315 West 39th to leases under five years in length—“When you have so many spaces, tying things up long-term can tie you up long-term,” according to Galin—at asking rents in the mid-$30s to low $40s per square foot. With around 95 percent occupancy, Galin said Handler has never had reservations about relying on such a varied and fragmented tenant base instead of larger users on leases promising longer-term cash flows.

“Having 10,000-square-foot tenants are neat—until you lose that tenant,” he noted. “If somebody wanted to come here and lease a third of the building, we’d have great reservations.”

Source: commercial

Kaufman Organization’s Fred Leffel Talks Midtown South, Acquisitions and Off-Market Deals

Slow is smooth and smooth is fast for Fred Leffel as he navigates the New York real estate playing field. As the president of new ventures at the Kaufman Organization, he knows the power of a slow burn.

Leffel, 67, isn’t scared of complexity. In fact, he welcomes it with open arms. A graduate of the University of Virginia and a brazen fan of its basketball team, he has close to 40 years of experience in law and commercial real estate—from brokerage and investment sales to investment banking and acquisitions. He takes pride in his new ventures team’s ability to be patient and calculated in structuring dense, complicated deals and isn’t scared to invest the time needed to close a transaction.

He was lured to the Kaufman Organization—after a long stint in investment sales at London-based services provider Savills—eight years ago by its chairman, George Kaufman, to head up the firm’s then-new ventures platform. The company may have found its perfect match. Leffel’s background coupled with his personal philosophies on how to operate in the industry gel well with that of Kaufman Organization—one of the oldest (founded in 1909) and most reputable real estate companies in New York City. Neither are willing to engage in overly aggressive or stubborn deal-making.

Kaufman closed six Midtown South acquisitions in the last two years—most recently a 99-year ground lease at 236 Fifth Avenue between West 27th and 28th Streets—and eight since the division was launched in 2009. Commercial Observer met with Leffel at his office at 450 Seventh Avenue between West 34th and West 35th Streets to discuss the company’s Midtown South footprint, acquisition strategy and penchant for off-market deals.

Commercial Observer: What’s your focus as the head of the new ventures division at Kaufman?
Fred Leffel: We acquire office properties on a value-add basis in New York City. We look to reposition, upgrade or repurpose those buildings to a higher and better standard. It involves a business plan, physical work to the building, new leasing and a marketing strategy for the building. We have to know who our tenants are to attract them—or if there even are any tenants to attract for a project.

Why office assets specifically?
In creating this division we wanted to take advantage of our strengths and our core competencies—to use an overworked phrase—to try to attract institutional capital. That was what we were most comfortable with because we already had so much knowledge in house.

We haven’t done as many deals as a lot of people, the deals aren’t as large as a lot of people, and we don’t get as much publicity as other firms—but we’re just careful. George Kaufman was not a cowboy and [Kaufman Organization President] Steve Kaufman is not a cowboy—he’s very careful about what he does.

How does that approach fit with your knowledge and background?
I worked at CIBC [Canadian Imperial Bank of Commerce], which is one of the biggest banks in Canada and, in fact, one of the biggest banks in North America. If you know anything about Canadian banks, they’re very stodgy and very conservative. The bad news is that, from 2000 to 2008, they made a fraction of what Lehman Brothers made. The flip side is they’re still around. They didn’t suffer the [same] problems. There’s a good and a bad side [to it]. You have to tone it down when everyone’s going crazy [doing deals]. On the other hand, you survive for a long period of time. From time to time, I’d like to do more deals, but my time at Kaufman has been very good.

It’s interesting that you took on a role in a division for new ventures in the middle of the 2009 recession.
The recession was in full swing, but we were starting to come out of it. At that point, Kaufman had a long history and pristine credit rating. We’ve never defaulted on a loan and have never given back a property—and that’s going through many cycles. So we were trying to leverage off of our terrific reputation and capabilities. Many other real estate companies—to put it lightly—weren’t doing well, so the idea was to leverage off of the capabilities here because we operate a legacy portfolio of many buildings and have done so for a hundred years. We’re full-service: leasing, management, fixing up buildings, developing. We thought we’d be able to attract capital so we’d have a competitive advantage in trying to seize on some of the opportunities that would be coming up.

Was it smooth sailing for Kaufman at the time?
Well, what we did with our new ventures platform was create a different model than what the firm had been operating under for all those years. It had operated very well, but essentially [we had] a portfolio of properties that had been acquired over the course of many years with small family partnerships. Going forward, if we were going to take advantage of the opportunities I mentioned before, we’d have to do that with institutional capital partners—which is something the firm had never done before. So, understanding how to attract capital to deals—and also underwriting those deals because the firm wasn’t used to buying distressed properties—was us putting together a new business and a new psychology and way of looking at things.

Kaufman has a long history in Midtown South. Why?
It goes back to when there really were garment factories in the Garment District. Having loft buildings in that area was sort of an outgrowth, historically, based on the way the firm has grown. Those areas—particularly Midtown South, Madison Square and the Flatiron District—have blossomed in the past 20 years or so. I think it’s largely a function of the change in the nature of the area to a quality residential area. That brought retail and restaurants to an area that was pretty moribund for decades, then the offices followed.

How has demand for specific asset classes shifted in the area?
One of the fascinating dynamics about Midtown South, particularly the Flatiron and Gramercy areas, is that there has been so much residential conversion there that any building that came up for sale that was zoned for residential was converted to residential—apartments and in some cases hotels. [Historically] nobody would’ve bought an existing building to convert it to office space because the residential values were so much higher. The inventory for office was shrinking dramatically, but at the same time the demand for that kind of space was exploding, which created a terrific dynamic that is still going on. As time went on, the demand rose because the residential [product] was bringing in certain types of people. There is a little bit of new development, but it’s just a drop in the bucket. By far, there is more demand than there is supply. We saw that early on.

How early?
The first deal was in 2009, and at that point, buildings were cycling through the downturn, so there were actual foreclosures, and there was blood in the water. The timeframe within which there were opportunities was very brief because word got out fairly quickly and so investors from all over the world were looking to snatch up buildings—and they still are. Midtown South is, I believe, the tightest office submarket in the country, if not the world, which is surprising because it’s not a big market and there are very few buildings of size.

From your standpoint, how’s the health of the Midtown South office market today?
The market caters to an entrepreneurial segment of businesses in New York City as well as some other larger corporations that now want to relocate to the areas we’re in and into the kinds of buildings we’re in. I think it’s the growth segment of the New York City economy. Our office business is very strong. It’s slowed down from the hyperinflation of a few years ago, but it’s very landlord-favorable. Looking forward, I think that’s going to be true for a while. When it comes to the capital markets, I think it’s totally out of whack. There’s too much capital chasing too few deals, and the pricing is disturbing. The debt providers haven’t been crazy, but equity investors have paid too much and they’re going to be disappointed.

You closed on a long-term ground lease at 236 Fifth Avenue in September. What’s your strategy there?
This was an off-market transaction. Recently, almost everything we’ve been pursuing has been off-market—not that we won’t look at fully marketed deals through investment sales brokers. But, [the fully marketed deals] haven’t been very productive for us. We’ve had greater results mining the world of transactions below the radar screen. The building was under long-term ownership that consisted of three families who have a small business there—but this is the only real estate asset they own. Initially, they were not interested, but we persisted. We have a great deal of experience with ground leases. The ground lease concept was attractive to them, but in the case of the ownership there was a generational issue—as in the next generation wasn’t interested in being in the business of leasing, owning and operating the building. The ground lease [sale] was appealing to them because they wouldn’t have to pay the tax, they have an income for the next 99 years, which is substantial, and at the end of 99 years, their great grandchildren will get it back. And, if we screw up and can’t pay the rent, they’ll get it back before then.

Why has your organization been more interested in off-market deals as of late?
We’ve found over the past couple of years that too much capital is chasing too few deals, and that phenomenon, coupled with the already low-interest rate and low-cap rate environment, has distorted pricing to the point that it’s rare that we see a fully marketed deal where the pricing is compelling for us. At the same time, the off-market route has yielded better opportunities for us. It takes a lot of extra work to find the off-market deals and a lot more work to drag them across the finish line, but we’re willing to spend that extra time and effort. We’re not fund managers and therefore don’t have the pressure of having to get massive amounts of dollars invested within a limited time frame. That gives us a bit of leeway in waiting to find the right deal and then spending the extra time and effort to get it closed.

img 0114 edit Kaufman Organizations Fred Leffel Talks Midtown South, Acquisitions and Off Market Deals
Fred Leffel. Photo: Kaitlyn Flannagan/Commercial Observer

How does the firm typically fund acquisitions?
In terms of debt financing, we are very conservative. That’s a legacy of the Kaufman Organization itself. We’ve been around for so long and haven’t lost any properties, and that’s because the leverage has been very low. That’s the way we’ve operated our portfolio. There are many other owners who have the same philosophy as many buildings have no debt on them. In our new ventures, going forward, we try to keep the leverage to 50 or 55 percent. When you’re at that kind of level, with the reputation we have among lenders, there’s no problem getting debt financing, and the debt is very cheap—although it’s cheap all over right now. It gets more expensive as you go up the leverage scale, but if you keep it pretty conservative, lenders chase you to give you money. So, debt isn’t the problem. More interesting is the equity, so we do these [transactions] in an operating partner model with an institutional capital partner. We have relationships with dozens of capital partners. We try to figure out what are the interesting features on this deal and who are the likely candidates as potential equity partners—because they all have their own needs and idiosyncrasies. We have to spend a lot of time to find a partner who shares our vision.

China Orient Asset Management bought a majority stake in Kaufman’s Ring Portfolio of Flatiron District office buildings last year. How did that come about?
We were in dialogue with the Ring brothers for a couple of years before the underlying deal between the Rings and Gary Barnett [the head of Extell Development Company] came to fruition. So we were aware of the properties and the opportunity they represented for us as a company, given our existing presence in the Midtown South submarket and our strengths in office repositioning. After Gary concluded his acquisition of the entire Ring portfolio, we were able to work out a deal with him on long-term ground leases of four of the properties. These were gut renovation jobs as all of the buildings had been vacant for years and were in serious stages of disrepair. After establishing a good working rapport with Gary and his people during the initial stages of repositioning these first four buildings, we were able to work out a similar deal with Gary for a fifth property. Our original capital partner on that first tranche of four properties was Principal Insurance. Principal’s investment objective was a relatively short-term turnaround play, and after we completed the repositioning and lease up of those four properties, we recapitalized the principal with China Orient. In the end, it was a win-win for everyone, including Gary Barnett, who wound up selling his fee positions at a nice profit.

How has the influx of foreign capital in the city impacted the way your division does business? Any more Chinese investment interest?
It’s no secret that there’s a tremendous amount of capital seeking investment in New York City real estate, both domestic and foreign, and we talk regularly to representatives of both. In the past, domestic investors have had an easier time understanding our smaller building repositioning investment thesis. However, that has changed over the past couple of years as word has gotten out about the desirability and return potential of those types of investments, especially in areas like Midtown South. So now we are talking more seriously with Asian and European groups. As you know, we have closed several deals with China Orient. And that relationship has been great. They are smart investors and very reasonable to work with. On the other hand, we’ll have to see how their government’s currency control policies will affect the ability of China Orient and other Chinese capital sources to commit additional capital to U.S. real estate investment going forward.

Are lenders overly aggressive right now?
Lenders are tripping over themselves to put out money. Not in a bad way. From 2005 to 2008, lenders were tripping over themselves to put out money as well, but they were stupid about it. Today, they have a lot of money to put out and rates are very cheap, but they’ve been quite disciplined.

Taking that into account, are you eyeing other acquisition opportunities in the city?
Sure, absolutely. We’re very open-minded. We’ve looked for a long time in the Financial District but haven’t found the right opportunity—although we have placed bids on a couple of buildings there. I think there are tremendous opportunities for our strategy in that area, but the difficulty we’ve found is that so many of the buildings there are poorly designed for what we want to do with them. They have bad layouts and awkward corridors and a lot of windows that look out on a blank wall 10 feet away. That kind of space is hard to lease. There are very few buildings that have a good core and basic design to them. When we are made aware of those, we are very interested, but we haven’t been successful just yet. But, the Financial District, Soho and Tribeca are very interesting to us.

Source: commercial

Digital Agency Definition 6 Relocating to Nearly 14K SF on West 40th Street

Digital marketing agency Definition 6 is heading from Union Square to the Garment District.

The firm inked a deal for 13,750 square feet on the entire second floor of 218 West 40th Street between Seventh and Eighth Avenues, according to The New York Post. The asking rent was $55 a square foot. The length of the lease wasn’t immediately clear.

Definition 6 is relocating from 79 Fifth Avenue at the corner of West 16th Street, where the company has occupied 20,053 square feet since 2012, according to CoStar Group.

Jarod Stern and Ken Ruderman of Savills Studley handled the transaction for Definition 6, and Brian Neugeboren, Nicole Goetz and Bob Savitt of Savitt Partners represented the landlords, Kaufman Organization and Block Buildings. A spokesman for Savitt Partners didn’t return a request for comment.

“Definition 6 was looking for well-located, high-quality space and strong ownership,” Stern said in a statement. “The prebuilt second floor at 218 West 40th Street fit the bill perfectly, and its open floor plate and creative feel are an ideal match for the company’s culture.”

The two owners acquired the 12-story, 127,000-square-foot building as a joint LLC for $46.2 million in 2004, according to public records. Other tenants in the building include educational nonprofit National Academy Foundation, clothing brand Free People and longtime fabric supplier New York Elegant Fabrics.

Source: commercial

Digital Medical Recruitment Startup Inks Deal for Flatiron Offices

Trialspark, a health care tech company, has signed a 5,702-square-foot lease with Kaufman Organization’s 45 West 27th Street, Commercial Observer has learned.

The company, which provides digital recruitment services for medical institutions that require patients for clinical studies of new drugs, will occupy the entire fourth floor of the 12-story building between Broadway and Avenue of the Americas. The asking rent in the five-year deal was $65 per square foot, according to information provided by Kaufman.

“Trialspark was attracted to [45 West 27th Street] because Kaufman offers a unique design-build program that allows the tenant to build out their ideal workspace in a loft-style space boasting the tech-friendly amenities tenants of this caliber desire,” Kaufman’s Michael Heaner, who represented the landlord in-house on the deal with colleagues Grant Greenspan and Elliot Warren, said in a statement.

It was not immediately clear where Trialspark is relocating from in the city, but it plans to relocate to 45 West 27th Street in the coming weeks.

“Trialspark is a tech company with a high level of sophistication and 45 West 27th Street has a very creative feel but also as the infrastructure that they needed,” said Elie Reiss of Skylight Leasing, who brokered the deal for Trialspark.

Kaufman acquired a 99-year leasehold for the 68,873-square-foot 45 West 27th Street in 2014. New Jersey-based Edison Properties owns the land. In April, a trio of technology, advertising, media and information or TAMI tenants, Cuebiq, Frame.io and Market Factory, signed leases at the building, as CO reported at the time.

Source: commercial

Kaufman Astoria Studios to Add 100K-SF Office Building to Astoria Campus

Movie studio Kaufman Astoria Studios is constructing a 100,000-square-foot office building at 34-11 36th Street with two new stages on its Astoria, Queens campus, Commercial Observer has learned.

The new Gluck + Architecture building will have two new stages—one of 16,000 square feet and another of 9,000 square feet—on the ground floor, with 6,000 square feet for support space, according to a spokeswoman for JRT Realty Group, the project’s office leasing agent.

The woman-owned brokerage will lease the roughly 68,000 square feet of office space on three fours of the planned four-story building between 34th and 35th Streets. Kaufman Astoria broke ground on the project at the site of a former parking lot last month, with completion slated for spring 2019.  

The building will be part of an existing 500,000-square-foot film studio campus, which currently has nine stages, support facilities for production companies and a restaurant called The Astor Room.

Crain’s New York Business broke the news last year about the new building, but the scope of the office section of the project has expanded since.

Kaufman Astoria’s new building will feature wraparound windows, 14-foot high ceilings, seven terraces and approximately 100 underground parking spaces. The asking rent for office space will be in the mid- to high $50s per square foot. JRT will target creative firms and production companies.

“This is a great opportunity for tenants in the creative and media industries to build their brand and take advantage of brand new office space in a convenient location,” said JRT Realty President Greg Smith, who will represent the landlord with colleagues Ellen Israel and Lauren Calandriello. We look forward to working on such a momentous project.”

Notable works that used production stages at Kaufman Astoria include Men in Black 3, Sesame Street and Orange Is the New Black.

The campus was built in 1920 as the original home for Paramount Pictures. Kaufman Astoria Chairman George Kaufman, who is also the chairman of Kaufman Organization, acquired the property in 1980.

“We’ve believed in and invested in this neighborhood for over 40 years, and we’re thrilled to continue to expand and grow here,” Hal Rosenbluth, the president and chief executive officer of Kaufman Astoria, said in a prepared statement.

Source: commercial