Endurance Reinsurance needed more office space. But growing wasn’t going to be as easy as just tacking a few new floors onto its existing footprint.
The firm had split its operations between two closely located buildings on Third Avenue, 750 and 767 Third Avenue. A quick perusal of the former revealed that only a tantalizing scrap on the building’s 10th floor was available. Alone, it wasn’t going to cut it. Endurance, a roughly 60,000-square-foot tenant at the time, was looking to grow by about 50 percent or more.
Vacancy existed at the latter building, 767 Third Avenue, but the thought of expanding into it began to make Endurance’s executives uneasy.
The buildin’s floorplates are modest in size—between 7,000 and 13,000 square feet—and the company was already spread across three of the property’s floors.
“To add the amount of square footage they needed would have put them on probably more than three more floors,” said Ryan Masiello, an executive at Jones Lang LaSalle, who represents Endurance. “It just wouldn’t have been efficient.”
In a vertical city like New York, having a stack of floors is typically a fact of life for most mid- to large-size companies. Still, the optimal arrangement that most brokers seek for their tenants is a space with as few levels as possible to avoid the redundancies that multiple floors can create and also to prevent an organization’s operations from becoming splintered.
Indeed, Endurance executives were concerned at the outset of the company’s search that by the time it was done growing, its offices would be a matrix of enclaves, Mr. Masiello said.
Enlisting the assistance of JLL’s New York-area president Peter Riguardi, Mr. Masiello began to search the market for options that would avoid that outcome.
“Peter came on board and he really added to the search from a strategic standpoint,” Mr. Masiello said. “We were thinking of all the different scenarios that Endurance could pursue. Do they buy out of their lease at 750 Third? Do they consolidate everyone somewhere else? Do they continue to occupy multiple buildings? And putting a cost to each possibility. It was exhaustive.”
With an expiring lease at 767 Third Avenue, Mr. Masiello knew the company could at least slip out of that space and go elsewhere.
“That building is a great building, but it’s really more for boutique-size tenants and we were outgrowing it,” Mr. Masiello said.
He began to focus on 277 Park Avenue, a nearly-two-million-square-foot Midtown skyscraper where floors range between 23,000 square feet and more than 50,000 square feet apiece. There too, however, a solution would likely be complex. Mr. Masiello said he began negotiating a deal there that would include a blend of space directly from the building’s landlord and sublease space being offered by the building’s largest tenant, JPMorgan Chase. By taking some sublease space, which generally is cheaper than direct space, the JLL team was looking to blunt the cost of the deal for Endurance. Still, the lease wasn’t going to be cheap. Park Avenue rents are among the highest in the city.
Then an unexpected opportunity arose.
Gregory Tosko, an executive at the real estate services firm CBRE, reached out with an offer. Mr. Tosko represents the large media and publishing company Condé Nast, one of the largest tenants at 750 Third Avenue. Condé Nast acquired the space in 1999 when it purchased Fairchild Publications, which based its operations out of the building. According to Mr. Tosko, Condé Nast had moved portions of Fairchild’s operations into its headquarters space at 4 Times Square over the years and subleased the space to other tenants, including The Economist and Reader’s Digest. Now, it had realized that it wanted to divest more.
“Condé Nast had a cafeteria on 750 Third Avenue’s second floor, but because it had shrunk its presence at the property, a decision was made that it no longer really made sense to continue operating that facility,” Mr. Tosko said.
A lease was drawn up for the second floor, but Mr. Masiello could see plainly that it wasn’t going to be a perfect fit. The space was about 40,500 square feet, less than what Endurance needed. Perhaps hoping that a solution could still be found, Mr. Masiello continued the negotiation, but he also continued the leasing talks at 277 Park Avenue so that he could preserve a backup option. The process was getting complex. He was speaking simultaneously with the owner of 277 Park Avenue, a Cushman & Wakefield team that was representing JPMorgan Chase, Mr. Tosko and Condé Nast and also the landlord of 750 Third Avenue, SL Green.
“It was an incredibly intense period,” Mr. Masiello said.
Finally, a break came in the talks at 750 Third Avenue. To get the second floor subleased, Condé Nast had space on the 10th floor that it could add onto the small amount of space that SL Green already had on that floor, creating about 17,000 square feet of extra availability. Not only that, SL Green agreed to structure the termination date of the expansion space to align with the 2022 expiration date for Endurance’s existing floors in the building, 18 and 19.
“It was a critical juncture where nobody came out of the woodwork with some kind of ridiculous demand at the last moment,” Mr. Tosko said.
Mr. Masiello said it was tough to have to call off the talks at 277 Park Avenue, because the C&W team had labored diligently on the deal.
“They were disappointed but they understood. They were total professionals,” Mr. Masiello said.
In the end however, the deal at 750 Third Avenue was almost $30 per square foot less expensive than what Endurance would have had to pay at 277 Park Avenue, a substantial cost savings.
Endurance will now have approximately 91,000 square feet at 750 Third Avenue.
The firm will stretch its operations across three floor, but the new layout includes far fewer floors than what it would have had to take at 767 Third Avenue, and allows it to consolidate in one location rather than two, as it would have had to do by going to 277 Park Avenue.
“It’s not one floor, but it’s the best solution when all the various factors in the process were weighed,” Mr. Masiello said. “A big part of being a broker in the city is managing a client’s expectations. They weren’t going to be able to have a single huge floor somewhere, but they got a great solution nonetheless.”