Take-Two Interactive Throws Another Coin in the Slot at 622 Broadway
Jotham Sederstrom Feb. 14, 2012, 12:30 p.m.
When Take-Two Interactive, the video game giants behind such popular and violently lurid titles as Grand Theft Auto and Max Payne, had a few years remaining on its lease at 622 Broadway, the landlord, Yuco Management, found itself in a curious position.
Should Yuco Management aggressively market the 69,000 square feet of space Take-Two had called its own since 2002, thereby losing its anchor tenant? Or should it do anything it could to keep Take-Two, which had in some ways branded 622 Broadway as a distinctly hip and colorful office building, especially with its endless parade of behooded video game designers and executives?
“It’s the unique building where people don’t wear suits and ties and ride bicycles to work with their dogs,” said William Cohen, an executive vice president and principal at Newmark Knight Frank, who was hired alongside colleague Mark Weiss by Yuco Management to help decide the next best move. “I’m not kidding,”
The building had, in some ways, been transformed by Take-Two’s tenancy, as if by osmosis. There was a roof deck with views of the surrounding Noho and Soho areas that even Mr. Cohen himself deemed “cool.” There were the six total floors of space that featured mostly open and collaborative—and sometimes dark and secretive—floor plans.
“They’ve got top-secret floors that you can’t get on to without a black hood over your head,” joked Mr. Cohen. “They’ve got floors where guys sit with the lights off staring at the monitors all day … There’s a lot of heavy duty stuff, and it’s very secretive.”
Another attractive feature in the building, especially for a producer of video game software, was a Best Buy located in 622 Broadway’s retail floor.
Yuco Management had owned the building for at least a decade. Prior to Take-Two’s arrival, the building was outfitted with brand-new air conditioning, plumbing, bathrooms and elevators. It had been a building accustomed to having multiple tenants. Then Take-Two arrived, and the building suddenly changed from being known primarily as a multi-tenant office building to being a veritable house of video games.
Take-Two Interactive produces video games and other interactive entertainment through Rockstar Games and 2K, which publishes its titles through the 2K Games, 2K Sports and 2K Play brands.
If Take-Two left, Yuco wouldn’t have filled the void with a legal tenant. But there were new media, advertising and technology firms that had covetous eyes for the space.
“People were calling nonstop to get into the game,” said Mr. Cohen. Those suitors included prospective tenants and prospective new owners.
“It’s a wonderful blank canvas for somebody else.”
When it came time to negotiate a new lease, with CBRE’s Stephen Siegel and Harley Stevens representing the tenants, it became clear that this was not going to be a leisurely drive through Grand Theft Auto’s Vice City.
The negotiations lasted more than a year.
Take-Two, despite having grown attached to the space, had Messrs. Siegel and Stevens venture out to the marketplace to research its options.
Both Mr. Siegel and Mr. Stevens declined to be interviewed for this story. Take-Two declined to comment on its new lease as well, citing company policy.
Secret rooms and a lax policy on dogs in the office aside, Take-Two was a very alluring tenant to other building owners.
Those old schoolers who scoff at the notion of a video-gaming company as a blue-chip company in the new economy should take notice of the changing dynamics of an industry normally written off as being strictly child’s play.
The video-gaming industry has evolved greatly from its Atari heyday to its Blu-ray and full-body gaming present. Video games have become a global industry that’s raked in $56 billion in 2010 and is growing by nearly 9 percent a year, according to a recent report in The Economist. Also, the average age of a video gamer is 37 and 42 percent of those gamers are women, according to the Entertainment Software Association. Seventy-two percent of all households in the U.S. play video games.
Take-Two’s numbers were also strong. The company posted a net revenue of $236.3 million in the third quarter of fiscal 2012, a drop from the $334.3 million it posted in the same quarter in fiscal 2011.
Eleven percent of its net revenue was driven by “digitally delivered content,” like game apps for Grand Theft Auto III for iPhone and Android handheld devices. Take-Two has so far posted a $677.7 million profit this year, compared to $954.6 million the same time last year.
In short, the industry is lucrative enough to make the average commercial real estate broker wish she had studied computer programing.
But in the negotiations, the size and scope of the video-game industry mattered little to Yuco and its Newmark Knight Frank team.
“There came a time where we were clear that we had no fear of losing them,” said Mr. Cohen. “I can say that was the game changer. I think they liked to tell us they were prepared to move when I believe they were hard pressed to find a building that would allow them to ride to work on their bikes with their dogs.”
Yuco Management would eventually come to the realization that keeping Take-Two as a tenant made more sense.
In January, both sides agreed to a new 10-year deal for six floors sized at 69,000 square feet. The asking rent was $47 per square foot.
As part of its deal, Take-Two will receive some “cosmetic enhancements,” including exterior signage for Take-Two and a redesign of the building’s lobby.
But Mr. Cohen blanched at a comment made by Mr. Stevens in a recent Crain’s New York report stating that Take-Two will be paying lower rent than it did when it first moved into the building in 2002.
“They got value,” he said, without elaborating on the exact costs. “The most important thing is that the landlord made certain concessions, but he didn’t take it on the nose.”