Scoop up furnished dot-com spaces; mutual benefits
Crain's New York Business
By Mary Sisson
January 14, 2002
With its textured carpets, sliding glass doors and silver-ceilinged
lobby, the new international headquarters of Helen Keller Worldwide is one
"It's really nice," says the organization's president, John Palmer. "This is
better than we thought we would do."
The nonprofit, which fights preventable blindness, was hardly expecting the
best when it was forced to find a new location on short notice. Helen Keller
Worldwide's old office was located at 90 West St., near the World Trade
Center. When the towers fell, the force of the collapse devastated the
office. A fire destroyed computers, records and historical archives,
including irreplaceable letters written by founder Helen Keller.
Yet, like many companies and organizations once located in and around the
trade center, Helen Keller Worldwide quickly found a well-wired, furnished
office for a reasonable rent in space that was made available by a different
kind of collapse: the Internet bust. The nonprofit's new office, at 352 Park
Ave. South, was built out by Jupiter Media Metrix, but the Internet
consulting firm occupied it only briefly before consolidating operations.
Spaces once occupied by new media firms have proved to be welcome havens for
refugees from the World Trade Center attack. Companies ranging from CIBC
World Markets to Zurich Reinsurance have snapped up large chunks of
high-tech space to get back up and running. In the process, they have
allowed troubled dot-coms to escape expensive, long-term leases, despite a
slow market for commercial real estate.
Pop goes the market
"There has been, for a very unfortunate reason, this pop in the market,"
says Mark Mandell, a senior director at Cushman & Wakefield Inc. "Dot-coms
benefited, landlords benefited and the (displaced) tenants benefited."
The Internet collapse, combined with a slowing economy, meant that there was
plenty of vacant new media space available. By the end of the first half of
2001, Internet and telecommunications companies had put more than 10 million
square feet of office space on the market in Manhattan, according to
Dot-com offices can be especially attractive to tenants in a hurry. Unlike
some sublets, dot-com space is often fully furnished and wired with the
latest in telecommunications technology.
Before the attack, the fact that new media offices were furnished was a
liability. Dot-coms "wanted to appear funky," says Peter Turchin, a managing
director at Insignia/ESG Inc. Bright colors, weird furniture and open
layouts without offices were the norm-hardly attractive to more traditional
The attack made prospective tenants focus on the essentials. "You might not
like the color, but the value (of dot-com space) is in the technology," Mr.
And open layouts have an advantage: More workers can be put into them,
because space is not eaten up by hallways and walled-in offices. For
companies dislocated because of the World Trade Center collapse, the need to
get as many employees as possible back behind a desk has been paramount.
The emphasis on speed has required brokers, landlords and tenants to use
what Barry Gosin, chief executive of Newmark & Co. Real Estate Inc., calls
"unusual techniques for unusual times."
Instead of signing long-term leases, which call for lengthy negotiations,
some displaced WTC tenants have been inking modified license agreements,
which are usually used only for occupancies of 30 days or less. These
modified agreements, however, apply for much longer terms, 10 or 15 years.
They also require that leases be negotiated, but those are taken care of
after tenants move in.
"It's amazing what a deadline can do," Mr. Gosin says.
Despite the obvious need of former trade center tenants-and the occasional
bidding war among them-rents for old dot-com space have stayed relatively
stable, ranging from the low $30s to the mid-$50s per square foot, according
to Mr. Turchin.
That's because many dot-coms have an equally urgent need to get out of
leases: Even if firms have ceased operations, they must continue to pay rent
or risk losing a security deposit or being sued. "They're really not
interested in getting an extra dollar so much as getting rid of the
liability," says Mr. Turchin.
Straight to the source
The well-publicized problems of dot-com companies have made would-be tenants
reluctant to sublease from shaky operations. Consequently, in many of these
deals, the new tenant is not subletting space from a new media firm but
instead is negotiating a new lease with the owner while the dot-com
surrenders the old one.
That sits fine with landlords, who welcome the rock-solid credit of many
displaced World Trade Center tenants. The deals work out well for the dot-coms,
too. Take LivePerson Inc., a customer service firm for companies doing
business on the Internet, which was released from an 82,000-square-foot
lease at 330 W. 34th St. when The Bank of New York took over that space.
LivePerson got back its $4.2 million security deposit. "That was like a $4
million investment in the company-for free," says LivePerson's president and
chief financial officer, Tim Bixby.
The rent on the old space was $250,000 a month. The firm now rents a
7,000-square-foot office for less than $20,000 a month. While the old rent
wasn't going to break the company, Mr. Bixby says, the savings "just frees
us up significantly."
And LivePerson was able to get its new space without much trouble; it just
found a furnished office vacated by a troubled dot-com. "It was sort of
musical chairs," Mr. Bixby says.
Copyright 2002 Crain Communications, Inc