JLL Sets Up New Group for Trading Floor Deals

"As with all of our new business initiatives, this one came at the request of a client," says Bruce Rutherford, JLL's managing director in Houston. "A New York bank came to us wanting to establish a larger trading presence in Houston and we assisted them in doing it." That project and the office's history in working on similar projects suggested that the company "be able to apply what we've learned not only to select sites to lease, but to engineer how the sites are to be built out," he says.

JLL vice president Dan Egger is leading the trading floor practice, which launched in the past month. The team already is working with a client for a development in the Energy Corridor and has additional leases and developments that should be finalized in the coming months.

Although it's considered office space, Egger and JLL vice president Barry Weiner point out that trading space has different requirements. Because trading is a 24/7, year-round activity, the building needs to support day-and-night productivity, meaning high security and nearby amenities. Floor plates need to be larger and open so traders can see one another. Also as with any lease or development, telecommunications is a prime consideration because traders are dealing with multiple providers. "Power requirements are significant beyond standard office space," Weiner says.

Then, there is the equipment. "A typical office is eight-by-eight or six-by-eight and has one CPU," Weiner explains. "A trader could have up to four CPUs and up to nine monitors." Such a set up requires a higher infrastructure level and system, he adds.

Egger tells GlobeSt.com that the equipment collectively puts out a lot more heat than an average office, requiring a special HVAC system. Trading floor space requires a chilled water system, one capable of cooling densely occupied space without going on the fritz. "A lot of buildings don't have that kind of infrastructure and capacity," Egger says.

Leases tend to be longer because of the significant capital investment needed to develop a trading floor, Egger continues. "TI dollars contributed by the landlord aren't much more significant than in an office build-out, but there is a larger investment from the tenant," he says. "That's why the tenant needs a longer-term lease."

GlobeSt.com reported earlier this week that demand for energy trading floors wasn't as high as it was during Enron's heyday in the late 1990s. Egger says that these days energy trading is being handled by banks and some energy-related companies. While it isn't quite the scale it was 10 years ago, it's still very active. "It's one-third the scale that energy companies had in the past, but a larger number of traders," he points out.

Houston's rich history in the energy industry was one reason why it was selected as the homeport for JLL's trading practice. Additionally, Rutherford says "the low cost of living, low tax environment, low cost of real estate and central time zone works well for the industry."

Rutherford says the future points to continued growth in the trading area because there is an increase in the number of commodities being traded and volume. Furthermore, financial institutions are getting into trading as a hedge for lending. "We're seeing this as a growth industry for not just energy companies, but for financial institutions," he says.