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| Posted on 4/14/09 The neighborhood that defined the hedge fund boom, and its ultimate collapse, is Manhattan’s Plaza District. Long recognized as the home of New York City’s most prestigious luxury office space, the Plaza District saw a meteoric rise in rental rates over the past five years, with some of the most expensive buildings realizing 80-100% increases over 2004 rates. |
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"We are seeing once in a generation opportunities to secure ideal strategic locations that support our clients’ long-term business goals." |
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| Driven by the needs of sophisticated high-end financial services firms seeking Central Park views or the cachet of a Park Avenue office, the Plaza District was perfectly suited to the high-margin hedge fund community and its alternative investment brethren.
Dr. Sam Chandan, President of Real Estate Economics, LLC, an independent economic research and advisory firm based in Manhattan, agrees. Dr. Chandan’s research indicates that approximately 8% of leveraged office properties in Manhattan now have debt service coverage below 1.0, and, in an effort to enhance cash flow stability and reach further for tenants, landlords have dramatically improved the value proposition for high quality space coming to market. Confident business owners, as well as those owners facing short-term turmoil, are clearly in the best position to profit from this moment, since rent relief can typically be among a firm’s largest costs. “Put simply, we are painting the canvas anew,” according to Mr. Emden, “advising our clients to investigate this opportunity and strike if the price is right.”
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The subsequent correction in the financial markets has resulted in the addition of hundreds of thousands of square feet of high-quality office space in this premier location, now available at the lowest rents of the past decade. Robert Emden, a principal of PBSRE, and a tenant representative specializing in the Plaza District for nearly 40 years, says this is the opportunity many business owners couldn’t have imagined during the landlord-favoring markets of the last five years. Mr. Emden believes that all tenants should be investigating how to leverage the current market conditions to their advantage. “Proactive tenants and brokers recognize that this is the perfect opportunity to negotiate long-term leases for superbly finished spaces that bring their real estate planning squarely in line with broader strategic business plans,” says Mr. Emden, “especially if you are in the middle or at the end of a long-term lease.”