Cushman’s Michelle Walker Knows Difference Between Agency and Tenant Reps. But Which Does She Prefer?
Carl Gaines July 26, 2012, 7 a.m.
Michelle Walker has stayed busy at Cushman & Wakefield, schooling herself on both landlord and tenant representation. It’s given her unique insight into the Manhattan markets that she covers, where dwindling supply can leave smaller tenants out in the cold and larger tech firms swallowing hard while reimagining their must-have lists. On the tenant side, she’s represented Sugar Publishing in its lease at Monday Properties’ 386 Park Avenue South. In fact, when The Commercial Observer caught up with her last week, she was rushing in from showing Sugar’s available sublease space at the building. Meanwhile, her landlord representation started with Harbor Group International’s 1412 Broadway, an assignment that taught her a lot about how landlords are leveraging their space in Times Square South. Hint: It takes guts.
You were rushing to get here from somewhere. Can you talk about what listing you were showing?
I have a sublease on Park South—it’s about 5,000 square feet—but it’s a pretty popular sublease because there are a lot of dot-coms that are sprouting up, and they’re all looking for those interesting, quirky, different spaces. Or they’re looking for good office space that’s in trendy, interesting, funky spaces that they live in. They’ll take one or the other. So Union Square—that Park South area between 34th and 14th Street—is probably the tightest market in all of the United States. The vacancy rate is falling below five percent right now, which is unheard of. And it just doesn’t exist anywhere else in the U.S. All of these dot-coms that are sprouting up all want to be there. So that one little 5,000-square-foot sublease has been the most active listing I’ve ever had. It’s unbelievable.
Where on Park Avenue South is the space you were showing?
386 Park Avenue South. We had a dot-com in Soho, and, again, the trend is to try to and get as close to Union Square as you possibly can, because a lot of people live in that area and they want to walk to work. I worked with a broker, Clark Finney, and we had a company in Soho—they were in about 5,000 square feet at 532 Broadway, Sugar Publishing, and their trajectory for growth is enormous. They were in about 5,000 square feet down in Soho and needed a lot more space. Soho didn’t have it. So Sugar found this great space in the Monday Properties’ building at 386 Park Avenue South. They went from 5,000 square feet, and they took almost 20,000 square feet just like that. They had just signed that deal in Soho about two years previous, so in just two years they went from 5,000 to 20,000. They actually took more space at 386 than they needed. They’re only going to occupy about 15,000 square feet of that space, but they’ve earmarked 5,000 for sublease. So they took the space knowing that they were going to sublease the space because they were uncertain about how much more they were going to grow.
With startups looking for niche space, do you find yourself having to manage expectations?
It doesn’t take long. Obviously, if you’re going to be a smart broker, you want to make sure that you’re dipping them in a very strong dose of reality. Like, “This is what you’re going to be facing.” Because it’s not going to take long. I don’t have to do a lot of convincing because the market convinces them. The product that I have to end up showing them convinces them.
You have clients whom you represent, but you represent landlords as well?
I do. In the last year it’s been kind of an up-and-down, tumbling time for me because I’ve taken on an agency for the first time, and I wanted to. I really pushed management and said that it was critical for me to learn both sides of the formula. To be a landlord’s agent has completely opened my eyes to how to negotiate, and it’s really sharpened my skills. It’s been amazing, actually. I teamed up with a broker named Mitch Arkin, and we pitched a building, 1412 Broadway. It’s a new landlord in the area, Harbor Group International, which is based in Virginia. They came into New York and they purchased 4 New York Plaza and 1412. We became the agents at 1412. We started in August of 2011.
The 1412 Broadway representation—what have you learned from that experience?
Where do I start? Even though the market ebbs and flows—from whether it’s a tenant market or a landlord market—in New York the pendulum doesn’t swing as far as it does in other markets. So on some level, in certain sections of the city, the pendulum barely swings and landlords are always in control. And I’ve learned that landlords, because they have the opportunity, they have a tremendous amount of money that they’ve invested in product. So it’s, again, looking at it from a different lens. They have to do everything that they possibly can to protect themselves from losing money. In order to do that, they’re a lot more sophisticated in the lease process than tenants. Tenants are willfully unprepared. I think it’s more critical that tenants have very, very informed brokers. The more I learned, the more I’m like, “Tenants are out there like sheep on some level.”
How much space is available at 1412 Broadway?
It’s a 415,000-square-foot building, so it’s a big building, but in comparison to the 800,000-square-foot buildings it’s kind of a dwarf building in the Times Square South area. But of that space, when I originally started, we had about 11.5 percent vacancy. I’m happy that since August we’ve dwindled that down to about 6 percent. It’s been a very busy year.
Any recent deals that you can talk about? Notable tenants that have moved in to the building?
Sure. We were happy to sign Oberon Securities. Times Square South, where that asset sits, has historically been called the Garment District. The apparel industry is changing dramatically, and a lot of the apparel companies are moving because the rents are going up and their business is suffering. So that Garment District is now being renamed, just by most landlords, Times Square South. What’s happening in Midtown South is having such an amazing effect on the rest of the market. Landlords recognize, because that market is so tight and the kinds of tenants are moving there, they’re realizing, “In order for us to be competitive, why don’t we try to rebrand our product to make it look similar to this product? So it’s across the city and up ten blocks, but we can still make ourselves competitive.”
So they can make their buildings this kind of stripped-out, loft-like space that tech companies want?
Exactly, because they’re old classic New York buildings and they’ve got the floor plates. They had just traditionally dropped the ceilings instead of keeping the heights open. What a lot of landlords in that little section of New York are doing, including mine, they’re trying to find out how to draw some of those new dot-coms over. What they’re doing is that a lot of the small tenants that are in the building, they’ll just cut up the floors, so they’ll take a 15,000-square-foot floor and cut it up into five 3,000-footers or smaller spaces. Unfortunately, as those leases roll, landlords are not renewing, and they’re gutting full floors and opening up the ceilings. And so we’re actually in the process of doing the identical thing at 1412. We’re looking at gutting as many floors as possible, because it’s just easier to deal with one large tenant than it is twenty smaller ones. But the landlords are reacting to what’s happening in the market, and they’re making those changes.
Where are those smaller tenants going?
Good question. Just this week I’ve gotten four calls from tenants from adjacent buildings going, “I’m in 900 square feet across the street. Can you take me?” And I’m like, “We don’t have the space for you, I’m sorry.” We do still have maybe three or four small spaces under 2,000 square feet, but they all have activity on them, and they’re going to go fast. It’s a smart business move on the landlord’s part. Not that it’s a big, bad landlord—no. The landlord has invested hundreds of millions of dollars into their assets and they have to be self protective just like a tenant would be. For small tenants, you’re right, where do they go? A new market will sprout up somewhere for them.
Any idea where that might be?
I think they’re getting pushed farther west. Instead of Broadway and Seventh Avenue, a lot of those tenants, because it’s so much farther away from the center of the city and all the subway lines, Eighth, Ninth, 10th Avenues—there’s a lot of small space over there that’s still inexpensive, so they’re just being pushed even further west.