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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

Meridian Arranges $68M Bridge Financing for LA Office Building

Southern California-based J.H. Snyder Company has sealed a $68 million bridge loan from refinance its debt on a recently built North Hollywood, Calif. office building, Commercial Observer can exclusively report.

Minnetonka, Minn.-based Pine River Capital Management provided the three-year, interest-only loan, sources close to the transaction told CO. Officials at the alternative investment firm did not immediately respond to a request for comment.

Meridian Capital Group negotiated the financing on behalf of the owner. The brokerage declined to name or confirm the lender on the deal.

The nine-story, 179,000-square-foot building, at 5250 Lankershim Blvd., went up in 2011 and is fully occupied, according to J.H. Snyder. Tenants include a Kaiser Permanente medical clinic, a co-working space managed by Regus and the Art Institute of California, a non-profit university that offers degrees in design and media production.

“This property has maintained 100 percent occupancy for years, despite coming to market during the peak of the recession,” Mike Wise, a senior partner at J.H. Snyder, said in a statement. “In addition to our long-standing tenant and leasing relationships, that performance also highlights the strength and improvement of the [North Hollywood] submarket over the last decade.”

The Los Angeles basin’s decentralized geography spreads the region’s office tenants over a wide breadth of neighborhoods, from Downtown Los Angeles in the north-center of the basin to Beverly Hills and Santa Monica to the west. The refinanced office building, north of the Hollywood Hills in the San Fernando Valley, has performed well because of its transportation access, according to its owner.

“The building is in a good location on a main thoroughfare,” Jerome Snyder, the founder of J.H. Snyder, told CO. “It’s right next to the subway that goes downtown.”

The Los Angeles Metro’s Red Line stops a block and a half north of the Lankershim building, making it a popular transit option for the Art Institute’s students especially, Snyder said.

Los Angeles being Los Angeles, the building also features a 6-story parking garage with more than 700 spaces.

Even given the building’s strong occupancy numbers, leasing considerations presented a challenge in the refinancing, according to Meridian officials.”Although there is no current vacancy, the majority of the tenants roll over [in] the next several years,” Seth Grossman, a Meridian managing director, said in prepared remarks. “It was critical to tailor a loan with ample structure to prepare for that role, while simultaneously maintaining maximum flexibility to allow our client to operate the property on their terms.”


Source: commercial

How a New Way of Working Is Ushering in Short-Term Rental Offerings

Over the past few years, the offsite has been gaining traction among lean startups and large enterprises alike. The thinking behind it is simple: Whether brainstorming

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Credit: Breather

a product launch strategy, planning out the quarter or year ahead or strengthening the bonds between teammates, getting out of the office and into a new physical context (hence offsite) can inspire new thinking and break down the barriers that keep workers from collaborating effectively.

 

 

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Credit: Breather
Successful offsites leave participants feeling optimistic, engaged and motivated to tackle new challenges—critical outcomes in a world where roughly one in four employees report feeling completely disengaged from their work. But a successful offsite doesn’t just happen: It takes careful planning, a clear idea of what you want to accomplish and a comfortable space that encourages communication.

 

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Credit: Breather
However, finding the right space to meet outside the office isn’t always easy. Shared office and coworking companies like Regus and WeWork and peer-to-peer marketplaces like LiquidSpace do offer private meeting rooms. But they’re accessed through bustling office environments and often completely visible to outside passersby. One of the major reasons to host an offsite is to escape the everyday distractions of the office, which can sap motivation and eat up half the typical office worker’s day; this makes a distraction-free environment a must-have for a successful offsite.
 
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Credit: Breather

Hotel meeting rooms are a common option, but they too come with caveats. There are often sizable minimum spends, mediocre-yet-mandatory catering, limited equipment for presentations and conference calls, and stuffy decor that does little to inspire creative thinking. It can be hard to think outside the box while you’re trapped inside of one, after all.

 

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Credit: Breather
As the world’s leading provider of private, temporary workspace, Breather understands what types of spaces empower teams to do their best work. Founded four years ago by Canadian entrepreneurs Julien Smith and Caterina Rizzi, Breather’s network of on-demand workspace has expanded to 10 cities worldwide, including New York City, San Francisco, Los Angeles, London, Montreal, Toronto and more.
 
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Credit: Breather

With Breather, there are no long-term agreements or commitments; clients can instantly reserve any tech-enabled space for a few hours, a day or even many months. This flexibility allows Breather to serve a wide variety of workspace needs, from team and client meetings to small events, individual work, product sprints and spillover space.

 
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Credit: Breather

More crucially, Breather can ensure an experience that’s quiet, tidy and productive because there are no middlemen and no user-to-user marketplace; every space is leased, designed and operated in-house. And because the spaces are private suites accessed through a common corridor (like a typical office), there’s no need to pass through another company’s office or communal space to get to it. Just show up, type in your access code on the door’s keypad and get to work.


Source: commercial

Coworking Company Spaces Establishing NYC Flagship in 100K SF at Manhattan West

Brookfield Property Partners six-building Manhattan West megaproject is getting a major coworking tenant.

Amsterdam-based workspace provider Spaces has leased 103,000 square feet across seven floors in a building known as The Lofts at 424-434 West 33rd Street, the landlord told Commercial Observer. The coworking company will take the seventh through 13th floors in the top half of the former printing loft building between Ninth and 10th Avenues.

The asking rent in the 10-year deal was in the high $70s per square foot, according to David Cheikin, an executive vice president at Brookfield. Spaces will get its own private entrance and lobby, as well as a 2,000-square-foot rooftop and multiple terraces. The building has 15,000-square-foot floor plates, exposed steel beams, and high ceilings, plus newly revamped elevators, lobbies and mechanicals.

“Our average tenant size at Manhattan West is 200,000 square feet,” Cheikin said to CO. “We wanted to provide those tenants with the ability to grow and shrink a bit and provide them WITH the resources for conferencing and flexible work environments.”

He also explained that the loft building will connect to Manhattan West’s 250,000 square feet of retail, anchored by a 60,000-square-foot Whole Foods.

Brookfield had originally planned to knock down 424-434 West 34th Street in order to amass a larger site that would allow for a big retail and hotel project, Cheikin said. “But when we actually got into the building, we realized it was a really good turn-of the century printing loft building that added some authenticity to our site of what the neighborhood used to be.”

Spaces is planning to make The Lofts its flagship outpost in the five boroughs, where it already has 44 locations and 1.3 million square feet of offices, according to Michael Beretta, the vice president of network development in Spaces’ Americas division. This will also be its largest space in the city, where typical Spaces locations average 30,000 to 50,000 square feet apiece.

JLL’s Jim Wenk, Brannan Moss and Kirill Azovtesv represented Spaces. Cushman & Wakefield’s Bruce Mosler, Josh Kuriloff, Robert Lowe, Ethan Silverstein, Matthias Li and Whitney Anderson worked on behalf of Brookfield.

Mosler declined to comment on the deal, and a spokesman for JLL didn’t immediately respond to a request for comment.

The seven floors will be constructed with movable walls, prebuilt suites, large coworking areas, conference rooms and event spaces. The interiors are going to be renovated with a “cool and contemporary design that’s European in nature and a mix of casual and interesting while still remaining a very professional place where companies can do business,” Beretta said. He added that the company chose The Lofts because it’s a building with “character” but the project will offer all the amenities of new construction, including a significant retail component.

Spaces already rents at a few other Brookfield properties, including 245 Park Avenue, 1 Liberty Plaza and Brookfield Place. It expects to open at Manhattan West in late 2018.

Pioneering, Luxembourg-based coworking provider IWG Plc (formerly Regus) owns Spaces, which has tried to pitch in urban markets as a trendy competitor to WeWork

The lower half of 424-434 West 34th Street is currently home to several small office tenants. All of them will be vacated by 2021, when Brookfield plans to put the building’s remaining 100,000 square feet of office space on the market.


Source: commercial

Ryan Simonetti and Christopher Kelly on the Evolution of Event Space Provider Convene

In early 2011, William Elder, an executive vice president and the managing director of RXR Realty in New York City, received a call from Ryan Simonetti, a young real estate executive he knew.

Simonetti wanted to tell him about his new business: on-demand conference and event space provider Convene, which he co-founded with Christopher Kelly. Elder and Simonetti met at RXR’s 1336 Avenue of the Americas, where Simonetti was hoping to open a Convene outpost, but Elder wasn’t convinced.

“I didn’t get the conferencing thing,” Elder said. “And I said no.”

Elder’s rejection wasn’t exactly crazy. Six years ago, it was still pretty unquestioned that companies needed conference rooms and boardrooms in their offices. But within the next year, Elder started seeing a change. More firms started cutting back on these kinds of spaces. The idea of outsourced meeting rooms became intriguing. In 2012, he decided to work with Convene at 237 Park Avenue, where RXR was spending $50 million to upgrade the building.

As Elder took Fortune 100 companies on tours of the building, anytime he mentioned Convene, the company’s executives eyes would light up.

“Just having Convene working through [tenants’] plans, it just changed the conversation,” Elder said. “The 10 times a year they need that big boardroom, they can use Convene. So not only do they save on the buildout cost, but they save on the real estate cost for having to lease that extra space.”

When RXR bought 32 Old Slip in April 2015, which had a Convene in place, Elder accepted how popular the company was becoming.

“[Simonetti] is very future focused,” Elder said. “He sees things well before [others]. He identified a place in the market where there was a real need and no competition.”

But the vision never changed for Convene’s founders.

“Chris and I have had the same picture in our minds of an office building—the ideal experiential office building—since before we even first started the company,” said Simonetti, the chief executive officer of Convene.

Today, Convene has about 1 million square feet of event, meeting and conference space in the country—between Washington, D.C., Boston, Philadelphia and New York City—that services 25 million square feet of office buildings. The company plans to open another 2 million square feet by the end of next year within another 50 million square feet of real estate.

And over the next five years, Convene is looking to expand into Atlanta, Chicago, Houston, Los Angeles, Miami, San Francisco and Toronto. Internationally, the 340-person company also has plans for a London location in 2019.

“Tenants don’t need to take that [extra] space, and landlords don’t need to build common conference areas, and it’s of such high quality that it will help them attract tenants,” said Jeff Lessard, a senior managing director of strategic consulting at Cushman & Wakefield. “It’s a different angle into the industry than like a WeWork, but I would say it’s compelling.”

Convene will soon open a new location in RXR Realty’s 75 Rockefeller Plaza. (The specifics of this new space are not yet set.)

Although Convene’s roots are in on-demand meeting spaces, it has evolved in phases to become a complete hospitality company that transforms an office building into sort of a “lifestyle hotel”—something Simonetti claims was the goal all along. (The evolution of Convene is something that is very much on his mind. “There was a time when Amazon only sold books,” Simonetti told CO.)

After launching in 2009, Convene progressively added new divisions including an in-house architecture and design team, a workplace strategy team and a culinary group led by Regional Executive Chef German Villatoro, who creates menus for onsite kitchens at Convene spaces. Each location has a lead chef and culinary team, and some have cafés, too.

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DOUBLE UP: Convene currently has nine active locations in New York City, including at 1 World Trade Center. Photo: Convene

Next, Convene plans to build technology and apps to connect tenants to its services. Recently, it launched Convene Workplace, a service that will provide working suites at Convene locations for companies with up to 100 employees.

But by getting into the office-space-providing business, Convene is now directly butting heads with companies like WeWork and Regus.

“As WeWork and Regus start catering to companies with 50 or 100 people [and not startups], they are moving into the landlords’ business,” Simonetti said. “So I think landlords are viewing them as competitors, meaning that they now have to respond. We have become the landlords’ response.” Convene’s model is closer to that of a property manager.

And now that the appetite for this kind of service seems to be proven, landlords like RXR, Durst Organization and Brookfield Property Partners are jumping aboard.

“There was a moment in the last six months where adopting agile and flexible work space went from being an opportunity for the landlords to not adopting it being a risk,” said Kelly, the president of Convene. “They want to make sure that they are mitigating risk.”

There are now nine active Convene venues in Gotham with four more under development or in the planning phase.

Convene recently opened on the 64th floor at the Port Authority of New York & New Jersey and Durst’s 1 World Trade Center, where the location features a café, meeting spaces, lounges and game rooms. It is accessible to all the tenants of the 3-million-square-foot building.

The company also has a location at Durst’s 117 West 46th Street, where the landlord first got acquainted with Convene in a typical owner-tenant relationship last year.

“We are of the opinion that the trend of greater hospitality in commercial buildings is a trend that will continue to grow and, over time, will become even more important,” David Neil, a principal at Durst, said. “Ryan and Chris have tapped into this trend and are well positioned to help landlords like ourselves be at the forefront of this movement.”

A year and a half ago, Brookfield Property Partners led a funding round for Convene that raised $20 million. And the landlord was among other established companies—including Durst and venture capital firms—that pulled in another $68 million in May 2017. To date Convene has raised about $119.2 million since 2009, according to the last announcement of funding. It is hoping to bring in $150 million in another funding round in early 2018.

Brookfield took a step further in its relationship with Convene in September, when it announced a partnership that will allow Convene to design, manage and operate workspaces and on-demand meeting and event spaces at the landlord’s downtown Los Angeles properties, starting with 333 South Grand Avenue and expanding to others in the future.

“Successful landlords will be those that work to provide solutions to their tenants’ desire for efficiency and flexibility,” Ric Clark, the senior managing partner and chairman of Brookfield, said in prepared remarks provided to CO. “Convene helps owners do that by offering flexible meeting, social and coworking spaces, significantly enhancing the consumer-facing experience within a property.”

It was probably always destined that Simonetti and Kelly would found a thriving business together.

Simonetti, 36, grew up in Hillsborough, N.J., as an only child. His father runs a bread delivery route that hauls Martin’s Famous Potato Rolls and has woken up at 2:30 every morning to deliver bread for 27 years (and still does today). It taught Simonetti the value of hard work.

He played basketball in high school and went on to Villanova University, where he met Kelly during freshman orientation, and the pair started hatching plans for extra cash almost immediately. They worked at restaurants, tended bars, bought used textbooks from their fellow students and sold them online and organized ticketed parties and spring break events.

“We were the only two guys at Villanova that didn’t have our parents’ credit cards,” Kelly said.

Kelly, a 35-year-old Armonk, N.Y., native, grew up as one of four boys.

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CONVENING WITH CONVENE: Ryan Simonetti, left, and Christopher Kelly launched Convene in 2009. Photo: Yvonne Albinowski/for Commercial Observer

His grandfather, the son of Greek immigrants, sold nuts on street corners in Manhattan as a child and became a screen door salesman as an adult. Later he ran a hardware store and got into the construction business, passing on his entrepreneurial spirit to Kelly.

While he was in grade school, Kelly’s family would go to Costco and buy items wholesale, including candy for the youngster, who would turn around and peddle it to other children on school buses.

“I always had a hustling mentality,” Kelly said.  “I still remember; Blow Pops were my first product.”

Kelly studied marketing and international business at Villanova. Following graduation in 2004, he took two years to travel around the globe, visiting about 30 countries and living on an average of $20 a day, he said. His travels took him to Asia for six months, one month in Africa, and six months in South America before he ended up in Costa Rica in Central America, where he opened a bar on the beach called Coconuts. (While in Costa Rica, he learned how to speak Spanish and to surf.)

As for his future partner, Simonetti interned for Goldman Sachs in college, and after graduating in 2005, he worked at Lehman Brothers Real Estate on the structured products side until 2006. Then he joined Gramercy Capital. At 26 years old, he was running a $3 billion portfolio that focused on office buildings and hotels.

When the financial crisis hit in 2008, Simonetti received many calls from tenants saying they needed to give back space as they were forced to cut costs.

That was when the idea struck about incorporating flexible conference and meeting spaces with services in office buildings, which became Convene.

“The first opportunity that I identified was why are office buildings not being run more like hotels and is there a way to think differently about how office buildings are built designed and operated,” Simonetti said.

A big problem, he realized, was the companies sign long-term sheets but don’t have crystal balls.

“How could a CEO of any company predict 10 years from now what their business is going to look like, how many employees should they have, what is the design going to be, [and] what that experience is going to be,” Simonetti said. “And I thought, if given a better option, would companies actually outsource a portion of their real estate strategy?”

To help start his business, Simonetti called Kelly, who moved to Colorado in 2006 to start a private jet charter business called evoJets. He had a house, a car and a girlfriend, now his wife.

But he decided to take a vacation and travel to New York and meet with Simonetti. “I had coffee with Ryan, and he explained to me the vision for the company, and I literally never went home [to Colorado] from vacation,” Kelly said.

Convene was born the following year in November 2009, and today Simonetti and Kelly currently live down the street from each other in Tribeca.

Kelly, a married father of two young children, has run a few marathons, a biathlon and a half ironman. He recently completed the New York Marathon in November in a personal best: 2:57:59.

Simonetti, a married father of a 3-year-old boy, practices Muay Thai and boxing and has taken part in two amateur mixed martial arts fights as well as a boxing match. (He won the two Muay Thai bouts, but his boxing record is 0-1, he admitted. He declined to say anything other than the fighter he lost to has more experience in the ring.)

“For me, [martial arts] becomes a great counterbalance to the pressures and stresses of being a husband and father and obviously running a high-growth business,” Simonetti said. “And you learn a lot about yourself when you step into a ring.”

When Convene opens its largest location yet—58,000 square feet at Cove Property Group’s 101 Greenwich Street in Lower Manhattan—early next year, it will be more than just on-demand meeting and event space with concierge service and a kitchen. There the company plans to officially launch Convene Workplace to provide flexible office suites for companies. The service will also open in Convene’s new Los Angeles locations and in the Philadelphia outpost as well.

The recently formed Convene technology department is hard at work on a mobile app for next year that will connect tenants to Convene services within buildings so they can do things like order food from the Convene kitchen for delivery to their office. This app will also be introduced at 101 Greenwich.

“As a landlord, we want to ensure that we cater to tenants’ need to attract and retain the best and brightest talent,” said Kevin Hoo, the founder and managing partner of Cove. “And partnering with someone like Convene, [which] has a competitive advantage and insight into this paradigm, made sense for us.”


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

Regus Renews 60K-SF at 5 Penn Plaza

Office provider Regus has signed a renewal for 60,000 square feet at 5 Penn Plaza, Commercial Observer has learned.

Regus, which occupies the entire 19th and 23rd floors, of the 26-story building on Eighth Avenue between West 33rd and West 34th Streets will continue to operate in that space for 10 years. The asking rent in the transaction was $68 per square foot, according to information provided by CBRE, the building’s leasing and managing agent.

CBRE’s Peter Turchin, who represented landlord Haymes Investment Company in the deal, said Regus wanted to re-up in the building, because the area is attracting creative companies, Regus’ target market.

“With the ongoing revitalization of Penn Station and the Farley Building directly across the street, 5 Penn Plaza has emerged as a premier leasing option for creative and tech firms,” Turchin said in a prepared statement.

Turchin’s team on the deal included Jason Pollen, Dave Caperna and Hilary Whittier. JLL’s Jim Wenk and Patrick Heeg (now at Transwestern) represented Regus in the transaction.

“It’s a great location because of its proximity to Penn Station,” Wenk said via a spokesman.

Earlier this year, Remedy Partners, which develops and manages bundled payments programs for health insurers, signed a 28,640 square feet of space for pre-built space at 5 Penn Plaza, as CO previously reported. Other tenants at the building include Thomasnet and the Visiting Nurse Service.


Source: commercial