When it Rains it Pours at 77 Water St.
Jotham Sederstrom Feb. 7, 2012, 9:30 a.m.
It would have been easy for Lou D’Avanzo and his Cushman & Wakefield leasing team to rest on their laurels.
While Condé Nast’s million-square-foot lease at 1 World Trade Center last year has become a dominant emblem of downtown’s resurgence as a popular destination for office tenants, the C&W group’s lease-up of 77 Water Street has also etched its way into recent lore in the neighborhood.
Mr. D’Avanzo and colleagues Robert Constable and Joseph Fabrizi, who are also top executives at C&W, have filled close to 600,000 square feet at the property in recent years, almost the entirety of the building, at times braving the recession’s darkest depths to do it. The string of deals has been so impressive that even brokers at rival firms have pointed to the activity as an early sign of momentum in an area that just a few years ago seemed haunted by the possibility of high vacancy.
A recent deal to fill the building’s 16,400-square-foot mezzanine level has shown that the team, despite all its success, hasn’t turned away from the property, a postmodern skyscraper built in the late 1960s by the family-owned Kaufman Organization.
“I’ve been telling my team, let’s wrap this up,” Mr. D’Avanzo said. “If you don’t follow through to the bitter end, all your client remembers is the bitter end.”
The C&W team inked the mezzanine-level deal with the Lactalis Group, a large French cheese making and dairy company that owns the popular cheese brands Sorrento and Président.
Mr. D’Avanzo said that several tenants had been interested in the space. The floor sits between the building’s ground level entrance and the second floor and is called the mezzanine due to its configuration; its perimeter, which encompasses 16,400 square feet, steps back from the 25,000-square-foot footprint of the floors higher above in the 26-story tower. Though smaller and close to the street, the space was attractive because of its above-average 14-foot ceiling heights. The floor, in fact, had sat vacant for as long as it did so that the team could have the option of offering it to larger tenants who wanted to add to existing space or use it as an entrance.
“There were options to potentially run an escalator up to the mezzanine level so we didn’t want to lease it until we were done with the rest of the building,” Mr. D’Avanzo said.
Goldman Sachs initially leased 77 Water Street in the early 2000s, but the banking institution later reconsidered the lease soon after and never moved in. Mr. D’Avanzo said he couldn’t discuss Goldman because the firm remains one of his clients, but brokers familiar with the building told The Commercial Observer that the space had been toggling on and off the market for years.
It wasn’t until Goldman hired the C&W team in 2009 that deals at the property got going. Despite the fact that the economy was in a serious downturn and leasing in the city ground to a near standstill that year, the C&W team began signing tenants. By the end of that year, the group had finished deals amounting to hundreds of thousands of square feet with big-name tenants including AT&T, the engineering company Arup, the law firm Lewis Brisbois Bisgaard & Smith and the insurer OneBeacon Insurance Group.
“Our strategy has always been to be aggressive in pursuing deals,” Mr. D’Avanzo said.
Mr. D’Avanzo wouldn’t discuss rents or concession packages at the property, but several sources said that Goldman officials demonstrated uncommon savvy in judging the market conditions at the time and cooked up economics that would spur transactions at the property despite the daunting headwinds. The company gave the C&W group leeway to offer rents in the $30s per square foot, a competitive rate, and generous incentive packages such as work allowances that would allow tenants to build out their offices. Goldman also invested more than $20 million in the property, money that was used in part to correct what was widely regarded as its principal weakness: a diminutive lobby.
“We have a beautiful lobby in the property now,” Mr. D’Avanzo said.
Mr. D’Avanzo’s team did its part, recruiting brand name space takers with sterling credit.
It is the practice of some leasing teams to be especially choosy with what deals they do for the final slivers of a large space that has mostly been leased. After filling much of the downtown office building 7 World Trade Center, for instance, developer Larry Silverstein waited years before signing deals for the building’s uppermost floors to hold out for very high rents.
Mr. D’Avanzo and his team knew they didn’t have that luxury at 77 Water Street. Because the space is being offered as a sublease, rather than directly from Kaufman, the landlord—which, depending on the floor, expires in either 2018 or 2021—the pressure was on from the start. Because large tenants typically sign leases for long periods of time, a big block of space with a dwindling term would become only less valuable and harder to fill as time went by.
For that very reason, the building’s roster of brand-name tenants shows a clear preference for creditworthiness, officials explained.
“We had to be very careful with who we selected,” Mr. D’Avanzo said. “If you have a seven-year lease term left on the sublease and your subtenant gives up the space after five years, the space you get back with a two-year term is just about worthless.”
Mr. D’Avanzo took the same approach with the mezzanine floor.
Numerous tenants had been circling the mezzanine space and making offers for the floor but when he and his team connected with Lactalis, they quickly zeroed in. The company, which will relocate from 950 Third Avenue in Midtown, is one of the world’s largest producers of dairy products and has solid financials.
“We looked at everything, even office condos that we could buy,” said Lactalis’s broker in the deal, Michael Burlant, a leasing executive who also works for C&W. “In the end 77 Water had the right combination of criteria. It was a very cool building, the mezzanine level has great ceiling heights, and the rents are competitive. When Lactalis saw this space, there wasn’t any hesitation; they were sold.”
Perhaps unsurprisingly, Mr. D’Avanzo, a boyish-looking broker who has worked at C&W for most of his career, appeared preoccupied with the second floor rather than celebratory. In his determination to fill the building’s remaining vacancy, he showed the same ethos that bred success throughout the leasing campaign.
“We want to lease that space,” Mr. D’Avanzo said.
Sure enough, Mr. D’Avanzo is close to a deal for about half of the floor, he claimed. Nonetheless, even with only about 12,000 square feet of space left to lease, the agent hardly seemed satisfied.
“I told my guys, bring me a list of every tenant in the market who could be a taker for that remaining piece,” he added. “Let’s make sure we’re reaching out to them.”