As seen in

Special Report - Commercial Real Estate
January 13, 2003

When they need to be, even giants can be nimble. Just ask Antoine Haddad.

As the managing partner of Bainbridge Partners, a fledgling hedge fund, Mr. Haddad desperately wanted office space with a good address. His problem was that he was concerned that his fast-growing, four-person outfit would soon outgrow its lease.

Despite the oddity of his situation, last summer, Mr. Haddad found exactly what he needed: a 1,500-square-foot space at 1270 Sixth Ave.-in, of all places, Rockefeller Center. There, landlord Tishman Speyer Properties had recently launched its "Flexible Lease Terms" program, which included a provision tailor-made for Mr. Haddad. It allows new tenants to terminate their leases during the first five years with just 90 days' notice.

"We're a new company, but aiming for high growth," says Mr. Haddad. "We didn't want to have to worry about breaking the lease if we were to expand faster than expected."

Acts of kindness

With the vacancy rate, including sublease space, for the overall midtown market now at close to 11%-considerably more than double the 3.6% overall vacancy figure of two years ago, according to Cushman & Wakefield-building owners are bending over backward to accommodate tenants.

Tishman Speyer is not about to be outmaneuvered by smaller, swifter rivals. It is taking a new, more aggressive stance in luring tenants-even the puniest of them-and retaining old ones at its 12-building (6 million-square-foot) slice of the 16-building Rockefeller Center complex.

"We're trying to create a competitive advantage, in what is a difficult market, by being flexible," says a spokesperson for Tishman Speyer. So far, it seems to be working.

Since inaugurating this approach last May, Tishman Speyer has concluded 24 deals, including renewals, expansions, relocations and flexible lease-term deals covering more than 120,000 square feet of space. "Flex-lease terms is one piece of an overall program, and we feel it's been very successful," says the spokesman.

The statistics bear that out. CoStar Group Inc. puts the overall vacancy rate (including sublease space) for Class A buildings in the Plaza district-which stretches from East 65th Street to East 47th Street and from the East River to Central Park and Sixth Avenue-at 8.3% in the fourth quarter. For all of the buildings that formally constitute Rock Center, the overall vacancy rate, including space for sublease, stood at a mere 2.9%.

One of Tishman Speyer's oldest and biggest tenants, the Associated Press, could balloon that number. The AP, which currently leases 190,000 square feet, is actively looking elsewhere.

As competitive pressures mount, the big question in the minds of some brokers is how long can it be before Tishman Speyer must show more openness to negotiate on the most important lease factor of them all-its price. They note that new bells and whistles such as flexible leasing only obscure a growing gap between Rock Center rents and those of others in the area.

James Meiskin, president of Plymouth Partners Ltd., a tenant representation firm in Manhattan, warns that tenants need to be wary about special programs such as flexible leasing. "It's an interesting marketing technique," he says, but he emphasizes that Rock Center's rents outstrip other Class A buildings in the area by as much as $15 to $20 a square foot.

Tenants, he cautions, have to keep an eye on all the elements of their rental agreements. "There are at least 50 variables that go into a lease negotiation," he notes.

Making things happen

Even though others charge less for space, Neil Goldmacher, a principal of Newmark & Co. Real Estate Inc., says he's not surprised that Tishman Speyer is doing well. After all, he recently saw firsthand what goes into that track record when he concluded a deal for a 10-year lease of 10,000 square feet in 630 Fifth Ave. for Mezzacappa Management.

Despite its enviable vacancy rate, Rock Center went to great lengths to put together enough space for the investment firm, which had outgrown its subleased space in the same building. In the end, the landlord combined two contiguous spaces, and relocated two tenants to do it.

That was only the beginning. The landlord also pledged to pick up most of the tab for building out the space to Mezzacappa's specifications. "That kind of flexibility and aggressiveness is why Rock Center is winning a lot of deals," Mr. Goldmacher says.