Does Size Matter? In an Industry Filled with Goliaths, Davids Abound
Jotham Sederstrom Sept. 19, 2012, 7:30 a.m.
On a balmy July afternoon, a few members of SL Green’s management staff pushed their way through the revolving doors of 711 Third Avenue, the company’s 500,000-square-foot, 20-floor tower between 44th and 45th Streets.
They passed through the gallery-style lobby, framed by both Greek Thassos white and De Savoi grey-blue marble, carrying a few boxes. An original Hans Hoffman mosaic mural, designed in 1956, adorned the hallway farther down.
They sliced open the boxes and put on green aprons emblazoned with the firm’s stylized logo—and so the ice cream party for the building’s tenants began.
In a market full of haves and have-nots, there are benefits to being the biggest fish in the pond.
SL Green, with more than 24 million square feet of Manhattan office space, is the whale shark of the market, commandeering world-class buildings with more features than a CLS-class Mercedes, and offering clients a whole lot more than Italian ices and chipwiches on a hot day.
But in the sea of buildings across the city, there are plenty of fish awaiting their day to become the predator, and most possess game plans similar to the big guys’.
“We try to buy very well located buildings, and our management strategy is to be very hands-on,” said Kenneth Aschendorf, a principal at APF Properties who oversees the company’s New York portfolio.
APF Properties’ buildings include 28 West 44th Street, a 370,000-square-foot asset the company purchased from SL Green in a joint venture with Prudential Real Estate Investors for $161 million in 2011, and 24 West 57th Street, a 110,000-square-foot building in the Plaza district.
“It would be a lot less expensive to outsource the management, but we are very mindful of our tenants’ complaints and experiences,” said Mr. Aschendorf.
APF went a step further to make sure the company was aware of its customer concerns at that building: it became a tenant itself. It leased 5,000 square feet for 10 years on the seventh floor of what is now called the Club Row Building after nearby collegiate clubs Harvard, Cornell, Princeton and Penn.
“We’re going to be renovating all of the common areas, as well as the elevator cabs, bathrooms and windows,” Aschendorf told The Commercial Observer when the move was announced in June 2011.
While the issues the commercial real estate market currently faces affect all property holders, no matter their size, some smaller owners shared a sense of optimism about the varied types of businesses hoping to call the city home.
“New York City has shown some remarkable strengths, which we see reflected in leasing across our portfolio and tenant base, including growth in technology, new media, education, health care and professional services firms,” said Nicholas Bienstock, managing partner of Savanna, which operates 3.4 million square feet of space across Manhattan, including 100 Wall Street and the landmarked 104 West 40th Street.
The company has been bolstered in recent months by a flurry of leasing deals as well as by the purchase of 576 Fifth Avenue, a 72,000-square-foot office building, after it took the property’s defaulted first mortgage in February 2011, as reported in The Commercial Observer.
“The small tenant market that we cater to remains fairly active, and by providing good value to those tenants, we continue to sign leases at a decent pace,” Mr. Bienstock said.
Small tenants have been strong in a stagnant market and, as a result, so have the rental market and asking rents for owners.
“Rents in Lower Manhattan for the smaller deals, those under 16,000 square feet, have firmed up and, in some circumstances, have moved up slightly,” said Kent Swig, president of Swig Equities. “I would attribute this to the more diversified tenant base, growth in the creative industries and from more tenants looking to move Downtown.”
Swig, which operates 1.3 million square feet in Manhattan, mostly in the Financial District at buildings like the 900,000-square-foot 100 William Street, which the company signed a $161.5 million loan to refinance and is now 97 percent leased .
“Complementary to rents increasing, there has been a corresponding slight financial improvement for owners, resulting from reduced amounts of free rent and work allowances needed to complete lease transactions,” said Mr. Swig.
In addition, investment in property in Manhattan and the city as a whole hasn’t been as badly affected by the global recession, said Savanna’s Mr. Bienstock.
“If you are an international investor who wants to invest in the United States, you want to invest in two to three gateway cities, led by New York, so New York will benefit disproportionately from that capital flow and investment,” he said.
But at the end of the day, it doesn’t matter what type of tile your building is floored in, how much ice cream you give away or how many buildings you own; the success of a commercial property owner comes down to one important detail.
“It’s not rocket science: it’s 100 percent customer service,” said Fred Posniak, senior vice president at W&H Properties, which operates the one of the city’s most recognizable buildings, the Empire State Building. “Once the lease is signed, that should only be beginning.”
At 1359 Broadway, a 22-floor, 476,403-square-foot building located in Midtown that W&H Properties owns,
Mr. Posniak said, tenants demanded a quality white-table restaurant.
“We want to know what’s wrong, not what’s right, and that’s what a landlord should do.” Mr. Posniak said. “It’s all about what do I do that differentiates me from others.”
The company is now seeking a high-end restaurant to fill the retail spaces in the building, he said.
“It’s simple: happy tenants renew and they make referrals,” said Mr. Posniak.
Words for all owners to live by, no matter how big a fish they are.