Following a flurry of law firm office rental news in Novemberand December, sibling publication GlobeSt.com reported earlier thismonth that a thaw in credit markets was responsible for an increase in year-endlease signings.

|

And in another potentially good sign for the ailing commercialmarket, GlobeSt.com cited a recent survey, co-authored by BinghamMcCutchen, which noted that distressed investors were likely to target realestate assets this year as corporate restructuringopportunities diminished.

|

Law firms seeking space in this environment need to keep a fewimportant factors in mind.

|

"If you've got the capital to advance tenant improvements [it'sa great market], because many buildings are turning into zombiebuildings," says Baker & McKenzie real estate partner MichaelSmith. "That means the buildings are running well but the landlordsdon't have the capital to improve them."

|

Landlords have traditionally advanced tenants funds to improvespace being leased with the understanding that the money will berepaid via the rental stream, Smith says. But a landlord that iseither in default or has maxed out on their lines of credit cannotmake such advances. So while there may be plenty of cheap,available space out there, it's difficult for many strappedlandlords to fill their buildings.

|

"Those buildings might be pretty, but they don't work well. Sounless you want to pay for things yourself, you're in a muchstronger negotiating position," Smith says. "But do I want to put$10 million into somebody else's building? Not necessarily, becausethere could be complications."

|

So why don't firms own their own buildings?

|

For two simple reasons, Smith says.

|

"Owning your own building is a great idea for tax and incomepurposes, but how do you deal with partners coming in and out ofthe firm?" Smith says. "It makes a lot of sense in the beginning,but five years down the road you've got a whole group of propertyowners arguing about whether or not to stay in a space. That'lljust create internal conflict."

|

A second issue for a firm owning its own real estate: making asimple determination about how it should best allocate capital. "Ifyour business is only generating real estate revenue, you ought togo into the real estate business," Smith adds.

|

For its part, Smith's firm just signed a lease to relocate itsChicago headquarters from 255,700 square feet of space at OnePrudential Plaza to 237,000 square feet of space in the Blue Cross& Blue Shield Building, 111 E. Wacker Dr. The firm will occupyseven floors at the 55-story office tower in the city's East Loop.The move is scheduled to take place in December 2012. (Smithdeclined to comment on Baker's Chicago lease.)

|

Indianapolis firm Barnes & Thornburg and Los Angeles'sSedgwick Detert Moran & Arnold have also signed leases for newoffice space in Chicago this month. The Illinois Real EstateJournal reports that the leases for both firms are at the UBSTower at 1 N. Wacker Dr. in the city's West Loop. The leases areslated to begin in 2012, with Sedgwick signing a medium-term leasefor 19,346 square feet of space and B&T inking a long-termlease for 83,000 square feet.

|

Mark Rust, managing partner of B&T's Chicago office, toldCrain's Chicago Business that having office space in thesignature property was an asset in recruiting lawyers from rivalfirms.

|

Firms aren't just looking for new space in the Windy City. TheNew York Post reported this week that Proskauer Rose was innegotiations to take 400,000 square feet of space at 11 TimesSquare in New York. While the Post reported that talks arestill tentative, it would be a major move for the firm, which hasleased space at 1585 Broadway, the Morgan Stanley Building inMidtown Manhattan, for the past 20 years. (Proskauer real estatecochairs David Weinberger and Ronald Sernau did not immediatelyrespond to requests for comment.)

|

Also on the lookout for new leases in New York are Winston &Strawn and Dorsey & Whitney. According to reports this month bythe New York Observer--owned by real estate scion JaredKushner--Winston has hired real estate brokerage Studley to searchfor 250,000 square feet of space in Manhattan.

|

The firm currently leases 200,000 square feet of space in theiconic MetLife Building at 200 Park Ave., which the Observernotes is more than double the 90,000 square feet of space Winstontook when it first signed a lease there in 1995. (Winston realestate chair Corey Tessler in New York wasn't immediately availablefor comment.)

|

Dorsey on the other hand is looking to downsize in Manhattan,reports the Observer, noting the firm let go of 55 stafferslast June. The Observer reports Dorsey is looking for 70,000square feet of space, which would be a significant reduction fromthe 101,000 square feet it's currently leasing at 250 Park Ave.According to the Observer, Dorsey subleases about 19,000feet of that space to another firm.

|

Not to be left out is Washington, DC, where the office market ispoised to pass New York as the nation's most expensive, reports theWall Street Journal.

|

Troutman Sanders, which completed its merger with DC firm Ross,Dixon & Bell last year, added 36,000 square feet of space toits 16-year lease at 401 9th St. NW to accommodate its newemployees. Also taking new space in the nation's capital wasSutherland Asbill & Brennan, which signed a 15-year lease for156,676 square feet of space at 700 9th St. earlier this month.

Want to continue reading?
Become a Free ALM Digital Reader.

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.