April 9, 2024 12:53 pm



          I was recently reading an article written by a colleague of mine, a broker in Manhattan.  New York City office space has been particularly hard hit by the effects of the Pandemic, and those effects are just now starting to have a real impact.

          My colleague was describing a recent transaction he completed where he represented a law firm in lease negotiations for a new office space in a Manhattan tower.  The deal was for a five-year lease with a new turnkey buildout.  According to my colleague, the net effect of the deal was that it made no economic sense for the Landlord to sign it.  He offered that the rent was about one-third cheaper than deals done in the same building just several years ago.  To make matters worse, the cost of the new turnkey buildout was prohibitive, more than $100 per square foot in new construction; work that would end up taking more than a year to complete.

          The broker went on to point out that only well-capitalized Landlords can afford to make such a deal. He continued that when seeking a location for his new tenants the financial condition of the Landlord was paramount. 

          So why did the Landlord do it?  Why would the Landlord make the deal if he was going to lose money on it for the next five years? The explanation espoused was that the Landlord was looking at the long-term occupancy rate in his building and felt that he could not afford to pass up the deal, even if it meant that he would make no money on this deal for the next five years. 

         We all know that one of the ways used to determine the value of an office property is the occupancy rate.  Landlords who have been hemorrhaging space in the wake of work from home and hybrid work schedules cannot afford to lose tenants, even if it means subsidizing the deal. The Landlord, it seems, was banking on the premise that in five years this tenant or another tenant would be able to use the space as built, so he was counting on the long-term bailing him out.

          The elephant in the room here is the mortgage lender.  At some point banking regulators, who are charged with protecting the bank’s shareholders, will have to step in to tell the Lenders and Landlords that they cannot approve any lease at a financial loss.    

          When this happens, all hell will break loose.  What we are describing here is an existential real estate nightmare.  Imagine a landlord signing a lease with a tenant, only to find out that the lender will refuse to approve that lease. 

          The moral of the story is that when real estate is underwater (nonperforming), it is only a matter of time before regulators will be forced to step in.  When this happens, we will see tremendous disruptions. 

          Here in the Garden State in 2024 we have noted that we see winners and losers in the year ahead.  Knowing the financial condition of your landlord could make all the difference. 

         So. how can a business owner feel confident in the financial stability of the Landlord? One way is by working with a tenant advisor who is active in the market with his ear to the ground.  If you are concerned whether your Landlord will be able to perform and maintain his real estate assets, why not give us a call to find out why, at Dickstein Real Estate Services, “OUR DIFFERENCE IS YOUR ADVANTAGE®”.


Lawrence Dickstein

Dickstein Real Estate Services

908-704-3500 ext. 11

[email protected]


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