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As seen in
October 28, 2001
Safety Issues: A New Interest in Security
in Office Buildings
by JOHN HOLUSHA
Security has zoomed to the
top of tenants' concerns in the wake of the World Trade Center
attack, according to real estate executives, who report that
some standard clauses in leases relating to interruptions of
business are also being re-examined.
No one is suggesting that there is anything a landlord can do
to prevent suicide attacks by aircraft, but there is a heightened
interest in how people and packages come into buildings and
how both are screened.
"The first physical thing tenants experienced after Sept. 11
was increases in security in places like lobbies and messenger
centers," said Matthew Barlow, an executive managing director
of Julien J. Studley, a brokerage specializing in representing
tenants.
"All the owners are evaluating their security on a lot of levels,"
said Peter Turchin, a managing director of Insignia/ESG, a brokerage
and services company that represents both landlords and tenants.
"They are examining how tenants get into buildings and they
are also looking at invitees, parcels, freight and construction
materials."
Since office floors in major buildings are typically demolished
and rebuilt when one tenant moves out and a new one takes the
space, security in connection with construction projects is
a particular problem, Mr. Turchin said. During these renovations,
construction workers, many of them employees of subcontractors,
come in and out of buildings, and boxes of tools and materials
travel to and from the job site, Mr. Turchin said.
At many buildings, security provisions that were formerly reserved
for nonbusiness hours, such as signing registers in the lobby
and using key cards to restrict elevator access to just a few
floors, have now been extended to all hours, real estate executives
said.
Security is not the only area being re-examined. The destruction
of the Trade Center and the damage to adjacent buildings has
some tenants taking a hard look at the clauses relating to damage
and destruction and interruption of services that are standard
in most leases, Mr. Barlow said. Because of these clauses, some
tenants may be obligated to honor leases for office space that
may not be rebuilt for years, if at all.
Another issue is what will happen in buildings that have been
physically repaired but that have tenants whose employees are
reluctant to return because of the horror they experienced on
Sept. 11. Real estate executives say some tenants displaced
from buildings near the Trade Center are expected to balk at
returning to those locations because of the emotional toll on
their employees and the continuing transportation difficulties
in lower Manhattan.
According to Mr. Barlow, the standard damage and demolition
clause gives landlords 18 months to rebuild before displaced
tenants can break their leases, which may seem like a long time
for businesses in fast- changing fields like financial services
and telecommunications.
He said tenants are asking more pointed questions about what
constitutes an interruption of service. "Access to the building,
air quality, disruption of deliveries, window blockages - all
issues that compromise the `normal conduct of business' should
be reconsidered," Mr. Barlow wrote in a report analyzing the
impact of the events of Sept. 11 on the real estate market.
To finance repairs to damaged buildings, landlords need to be
able to demonstrate to lenders that they have tenants signed
on, said Paul N. Glickman an executive director of Cushman &
Wakefield, a brokerage and services company. But he conceded
that most such provisions contemplated partial damage - such
as damage from a fire - not the complete destruction of structures.
"At the end of the day, supply and demand, the relative bargaining
positions of both sides, will dictate the content of those clauses,"
Mr. Glickman said. And he noted that business interruption insurance
is something a company signing a long-term lease should have
for protection if an accident or disaster strikes its workplace.
SINCE law firms and insurance companies in the Trade Center
lost virtually all their paper documents when the buildings
burned and collapsed, there will be a lot of attention paid
to document-storage policies and increased interest in electronic
document storage in coming months, the Studley report notes.
And the severe personnel losses suffered by some of the companies
based in the Trade Center may prompt the development of disaster
recovery policies that spread senior executives around multiple
locations, rather than concentrating them at one headquarters
location, it adds.
Real estate executives are also groping with how to deal with
a situation in which a building is physically intact but not
usable. "We have to think about biological initiatives and other
airborne agents that could make a building uninhabitable," said
Gregg A. Popkin, an executive director of Insignia/ESG and manager
of the company's group that represents landlords.
He said these types of hazards make it necessary for building
managers to control carefully what comes into their structures
and to develop the ability to closely monitor their air-handling
systems. But, he said, there is precedent for handling these
types of problems.
"We have been living with asbestos for 20 years, and that can
be a real problem if it gets into the air system," Mr. Popkin
said. "Life has changed and we are going to have to deal with
it."
While most real estate executives agree that employees generally
draw comfort from a higher level of security, tighter security
increases the cost of operating buildings. The question is who
pays for it?
"Tenants want more security and they are willing to pay for
it," said Steven A. Swerdlow, president of the eastern region
of CB Richard Ellis, another brokerage and services company.
He said most leases allow building owners to pass through additional
costs to tenants in rent escalations.
But some leases tie rent rises to an external measure, like
the consumer price index or increases in wages of building staff
members.. In that case, enhanced security would come out of
the landlord's income, at least until the lease can be renegotiated.
There are two separate aspects of security, real estate executives
say.
There is the continuing cost of adding security guards and the
capital cost of installing magnetic card readers, or, as the
security-obsessed telecommunications industry has done, adding
palm or fingerprint readers.
"The operating costs are going to be passed on to tenants in
the form of escalations," Mr. Popkin said. "But the structural
elements of security are capital costs, and they come out of
the landlord's pocket."
As the cost of security keeps rising, Mr. Barlow said some property
managers are thinking of taking it out of general operating
costs and charging for it separately, the way electricity is
now. Rents would be quoted as base rent plus electricity and
security, he said.
Because of the nature of the emergency,
both tenants and landlords are being unusually flexible in negotiating
new leases, particularly for companies displaced from downtown,
said James Meiskin, president of Plymouth Partners, a brokerage
that represents tenants. "The majority of the ownership community
is doing the best it can to assist those displaced from the
World Trade Center area," he said. "They are fast tracking negotiations
for people in dire need."
But despite increased flexibility on both sides and a general
agreement that tighter security improves employee confidence,
some real estate executives say there is a limit to the annoyance
that people will endure to get in or out of buildings.
Access to the office building at 540 Madison Avenue at 55th
Street is controlled by an E-ZPass type of system, under which
a person carries a magnetic card, Mr. Turchin said. This works
fine for a 300,000- square-foot building, but would cause severe
jams at 9 a.m. and 5 p.m. at a 1-million-square-foot building.
And if security ratchets up to where employees need a separate
card to get into a building's lobby, one for the elevators and
another to gain access to their office, they may balk. "Nobody
wants to be walking around with nine different cards in their
pocket," Mr. Turchin said.
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