COMMERCIAL REAL ESTATE MARKET DYNAMICS LEAD THE ADVANCE GROUP TO SEEK CREATIVE SOLUTIONS IN PARTNERSHIP WITH CLIENTS

We've known that 2010 was going to be a pivotal year for the industry," says T. James Molloy. "In fact, our business plan anticipates opportunities in the midst of a challenging market. And when Mary Ann Tighe, chief executive of the New York Tri-State Region for CB Richard Ellis, was interviewed for a New York Times article recently and indicated that 22 million square feet leased in 2000 will expire in 2010 and will create a "decision point" for companies, we wanted to see how different sectors would address the dynamic between falling prices and rising inventories. We interviewed key executives, spoke to our clients, and searched the Web for the most interesting and helpful information. This is what we learned.

FIRST, HOW BAD IS IT?
CNBC recently interviewed Steve Ross, chairman of Vornado Realty Trust, and Bill Rudin, president of Rudin Management, about their outlook on the New York real estate market. Ross spoke of a "slow motion recovery," with the market still seeking a bottom, maybe in 3-5 years. Rudin seemed a little more optimistic, noting that there has been a dramatic decrease in price of 30-40%, but he is optimistic that things aremoving in the right direction. Rudin points out that tenants aremoving to quality, the "flight to quality," citing as an example moves from 3rd Ave. to Park Ave.

Christina Lewis, writing for The Wall Street Journal, noted "Rent for office space is falling at the fastest pace in more than a decade as vacancies create a glut and landlords slash prices to attract tenants." Her article noted that the biggest office rent declines over the past 12 months were 18.5% in New York, the largest decline among major cities as reported by Reis Inc. The nation's most trusted provider of impartial commercial restate performance information and analysis at the metro, sub market and property level.

While there is nothing new here, she goes on to say, "For tenants, however, falling rents represent opportunities to save. Landlords are offering concessions, in the form of free rent and build-out costs."
The Real Share NEW YORK Conference, held on October 28th, 2009, provided additional insights. A consensus opinion, among the most influential and knowledgeable real estate leaders, was that the commercial market, if not at the bottom, was close to the bottom. Deals were in the works, people were looking, and companies were coming back. One tactic being used by buyer and seller is "blend and extend," extending, for example, a 2-3 year lease at $80/ sq. ft. with a new lease at $40/sq. ft.
A key message was to keep a building occupied and running. It was noted that the cost to get a new tenant, including acquisition, clean up, improvements, downtime, and leasing commissions, could be as much as $100/sq. ft.

This was our hint to explore the notion of creative use, and we turned to an article by Damian Joseph posted October 8 in businessweek.com. Joseph decided to contact some of the premier architectural and design firms to answer the question, "What could be done with vacant commercial real estate that would kick start a local or national economy?" The responses were illuminating, once again reinforcing the adage that necessity is the mother of invention.
SEVERAL IDEASWERE:

• Office as community think-tank. Target local non-profits and community groups to use general multi-purpose space and unused office furniture.
• Office as hospitality suite. Repurpose space to connect company partners, affiliates, vendors, and interested parties. These "offices away from home" help create business value and goodwill.
• Employee Health & Engagement. Turn empty space into child play areas, quiet rooms for nursing mothers, or socialization areas. (Source: Gensler, a global architecture, design, planning and consulting firm.)

MINI CASE HISTORY This is not an economy when a landlord can afford to lose any tenants. Strategies to retain tenants include upgrading space and condensing the footprint of existing space. However the space is reconfigured, one absolute imperative is that the tenant must keep working; no downtime can be tolerated. The Advance Group addresses this challenge with an experienced team that knows how to work with other trades and allocate the project into specific phases. On some projects, this means starting to work Friday evening and finishing before the doors open Monday morning. Other projects require the use of swing space, where furniture and electronics are dissembled then reassembled in a temporary location without the least interruption to productivity.

THE ADVANCE GROUP CREATIVE OPPORTUNITIES TEAM We at The Advance Group don't have a crystal ball on the economy, and there are obvious concerns about it. But we've learned that a creative attitude can open new opportunities. That is why we've set up our own Creative Opportunities Team to help our clients explore new options. We're set up to brainstorm ideas, and provide value-engineered solutions from our side of the business.

For example, our furniture installation unit can help with the latest ideas in space utilization and furniture re-deployment. Our storage solutions unit can help identify ways to reduce space needs while also improving compliance. And, our integrated services can produce moving solutions that ensure the best final cost. Contact Anthony Parziale at 1-800-448-4807, ext. 249. It's another way we can help move you into the future.