The CompStak Blog

CompStak at the New York Tech Meetup

2012-06-06T12:15:00.003-04:00

In case you missed it, CompStak had the privilege of demoing last night at the New York Tech Meetup.

You can watch a video of the event here - our demo is at the 20:30 mark.

If you're not familiar, the NYTM is New York City's largest tech organization with over 25,000 members. Every month they invite a few of NYC's hottest tech companies to demo their tech to the crowd of about 1,000 people. We're thrilled that we were selected as one of this month's demoers.

You can learn more about the NYTM at www.nytm.org.

Facebook's IPO Was a Success - LinkedIn's Was a Disaster

2012-06-02T11:22:00.001-04:00

As a disclaimer, I'm not a stock broker, an investment banker, or even a financial analyst. I'm just an entrepreneur thinking about Facebook's IPO through the eyes an entrepreneur.

With that said, I'm failing to understand all of the reporting around Facebook's IPO being a disaster. Yes, a lot of people have lost a lot of money on Facebook stock. These people are called speculators. According to Investopedia, a speculator is:

"A person who trades derivatives, commodities, bonds, equities or currencies with a higher-than-average risk in return for a higher-than-average profit potential. Speculators take large risks, especially with respect to anticipating future price movements, in the hope of making quick, large gains."

I feel very sorry that these people lost money (on paper - assuming they haven't sold), but I'm pretty sure that they knew what they were getting themselves into.

As for Joe Investor who jumped on the Facebook hype train? Relax! If you truly believe that the company is solid then all you have to do is hold onto the stock for a long time, and you should do fine. If your intention was to make a quick buck, then please see the definition of a speculator above.

So why do I believe the Facebook IPO was a success? It's really very simple. Facebook didn't get screwed by their investment bankers! It would seem that Facebook's stock was priced just high enough to get the IPO investors excited to invest, without leaving money on the table. This means that Mark Zuckerberg and the other owners of Facebook maximized the price of the shares they sold. As an entrepreneur, you can't ask for much more. And did Mark Zuckerberg lose $5 billion on his honeymoon as widely reported? The answer is no, because he's not going to sell his stock! Most of his wealth is on paper, and from what most people say about him, it will likely stay that way for a long time.

LinkedIn on the other hand got screwed. Its stock went up over 100% within two hours of trading. That means that Reid Hoffman and the other investors that sold stock that day received less than half of what the market would pay! The people who did really well on the LinkedIn IPO were the deep pocketed investors that received preferred IPO allocations from the investment bankers, and the investment bankers themselves who made commissions on the IPO and then again selling off the shares of their preferred clients. At the time of the LinkedIn IPO, BusinessInsider offered up a great analogy:

"Imagine if the trusted real-estate agent you hired to sell your house persuaded you to sell it to her best client for $1,000,000 by telling you this was the best price she could get. And then, the next morning, the person who bought your house immediately turned around and sold it for $2,000,000 (using the agent to sell it, naturally).

How would you feel if your agent did that?

Shafted."

In case you're wondering, I feel pretty good about the fundamentals of Facebook's business model and I still think the company has a ton of growth potential. Assuming that Facebook didn't intentionally mislead investors (of which some are accusing the company), there's no need to be mad at Mark Zuckerburg or Facebook. Perhaps you should focus your anger on the media that hyped the IPO, but then again, they're also hyping Facebook's demise. The truth is, in the case of the Facebook IPO, everybody did their job as they were supposed to. The investment bankers priced the stock correctly, the entrepreneurs maximized the price of their stock, the media created a frenzy, and the speculators speculated. All must be right with the world.

Don't agree with me? Let me know!

The "Why We Started CompStak Series" - Part 3 - Real Estate Lead Gen & Marketing

2012-05-22T09:00:00.000-04:00

And now, the third commercial real estate technology problem that we chose NOT to fix.

The Problem

Try this now:

Step 1) Go into Google
Step 2) Search for "NYC Office Space"

Do you notice anything weird about the results? After years at one of the larger comercial real estate firms in the country, I do. The search results contain page after page of hits for office suite companies, as well as a few of New York City's smallest commercial brokerage shops. After 10 pages of results, I gave up looking for a link to a major CRE brokerage firm in NYC.

Perhaps I just searched for the wrong thing. After all, if I want to find the top CRE brokerage firms in Manhattan, I should really just try that search directly. So that's what I did.

Search #2 - "Manhattan Commercial Real Estate Brokers"

This time my luck was a little better. On PAGE 5 I found New York City's, and the world's largest commercial real estate services firm (listed in the Fortune 500) - CBRE.

And this problem is not limited to search results. Try searching for CB Richard Ellis, Jones Lang LaSalle, Cushman & Wakefield or Colliers International on Facebook. Not one of them has an official Facebook page! On Twitter, you'll find that all of these brands have accounts, but they seemingly have no control over their brand. Every regional office has an account, and since they all use the same logo in their account it's nearly impossible to figure out which account is which.

So here's the problem. Commercial real estate firms don't know how to market themselves online. As a result, they don't know how to generate business online, their customers can't find them easily, and powerful brands are losing out to secondary players.

The Solution

There could be many solutions to this problem. In my mind, the most interesting solution is an online marketing platform like RentJuice. This platform would help brokerage firms better market and manage their available listings online. By building a better presence around listings, these firms would in-turn improve their search rankings and brand recognition with the side effect of loosening CoStar's death-grip on the commercial listings space. Ideally, this platform would also help firms build their presence in social media and online professional networking channels.

Realistically, while I think there is a demand for a platform like this, my guess is that the large firms that need this platform as much or more than the small firms will not avail themselves of the service.

Why We Didn't Do It

We never really considered doing it. Perhaps because it means asking brokers and brokerage firms to substantially change the way they do business? Do you think this is a good opportunity?

Who's Doing This Now

I don't know of anyone specifically trying to help real estate better market themselves online. However, Rofo (mentioned previously) does help individual brokers market themselves and syndicate their listings. Rofo's integration with Twitter and LinkedIn also helps brokers get the word out via social media all from one place.

In my next post, I'll stop talking about the real estate technology companies we didn't start, and instead focus on the one we did!

The "Why We Started CompStak Series" - Part 2 - CRE Listings Suck!

2012-05-10T09:00:00.000-04:00

As I mentioned in the "Why We Started CompStak Series" - Part 1, there were several inefficiencies in commercial real estate that we identified before deciding to start CompStak. Today's focus . . . listings!

The Problem

New commercial real estate brokers are often astonished when they first start working in the industry. They spend a few weeks burning shoe leather walking buildings and learning the market. Then they listen to others make cold calls, and finally they're allowed to get on the phone. After hundreds of calls, and a few meetings, they finally land their first assignment. Now comes the easy part, finding the space . . . right? After all, they've been given a login to the holy grail - a service with all of the listings for their market . . . in most cases CoStar or LoopNet.

After getting a tutorial on how to use the complicated and far from intuitive systems, they finally do their first property search. Up comes thousands of listings. Now it's time to narrow down the search. For those of you who have searched for houses online, this should seem pretty simple. You put in your neighborhood, your price range, other specs like (bedrooms, bathrooms, etc.) and next thing you know you have a tidy little list of houses. From there, you check out the pictures and video walk throughs, and you narrow down a list of houses to visit.

So, when searching for office space you go through the same process. Enter the price range, number of offices, location, type of space your looking for, etc. Then you just go through the pictures and create a tour, right?

Not quite.

Commercial listings almost never include pictures, and only sometimes include asking prices, floor plans and descriptions. Video walk throughs and office counts? Forget about it!

The Solution

A new easy to use listing service for brokers. This service will be intuitive to search on, will require listing agents to include complete information, and will be stupidly easy for listing agents to add descriptions, pictures, videos, floor plans and more. To find space, brokers won't need to call every listing agent, preview every space, and rewrite listings for their customers. Finally, a system that just works!

Why We Didn't Do It

As we mentioned in Part 1 of this series, the commercial listings space is dominated by 1 major player - CoStar. If you want to start a new listings service directly for consumers (like 42Floors), the competition is still fragmented, but if you're looking for the dollars of commercial real estate brokers, you're going head to head with the 800 Pound Gorilla. Is there room to create a better service? Absolutely, but the odds are against a new entrant going to head to head with CoStar.

Here's the challenge. Commercial real estate brokers in major markets know that if they want access to virtually 100% of the commercial listings they can find them on CoStar. Sure, LoopNet and others have listings, but it's simply not worth your time to use more than one service. At a minimum, a new service needs to provide the same level of market coverage as CoStar in order to succeed, or must substantially differentiate itself in another way.

Who's Doing This Now

Now that the CoStar/LoopNet acquisition has gone through, the only direct competition to CoStar is Xceligent. I don't have a login for the site, and have never used it. Judging by the landing page, and the fact that the listings portion of the site only works on Internet Explorer, I'm going to guess that Xceligent is not the world changing modern listings service we hope for. Could someone please weigh in here?

As for real estate technology startups, there are few that are indirect competitors to CoStar, targeting real estate occupiers directly, namely 42Floors, TheSquareFoot, and Rofo.

Here are a couple others looking to out innovate CoStar.

Recently launched, View The Space is not a listing service per-se (at least not yet), but they do improve a critical aspect of listings, the lack of pictures and videos. For a few thousand dollars, VTS will do a video walk through of your space and post it online along with floors plans and description. Landlords and brokers can send out this link to prospective tenants and other brokers and track who's looking at the space. This saves brokers time with space previews and allows tenants to view spaces without an actual space tour.

Not yet launched, Retail MLS has zeroed in on a sector of commercial listings where CoStar does not dominate (at least as much as they do in other sectors). As opposed to other property types, CoStar controls about 80% of the market for retail listings. Other listings either don't make it online at all, or are not listed on CoStar. Further, CoStar does not do a good job of customizing its listings for for different space types. Retail listings are nuanced, and include important information on nearby retailers, building frontage, customer demographics, foot traffic, etc. Retail MLS hopes that retail brokers will visit their site instead of, or in addition to CoStar due to their customized retail listings, and the fact that CoStar does not control 100% of the market.

If you know of any other companies going head to head with the CoStar monopoly please share them in the comments!

In my next post, Problem 3 - Online Lead Generation

Expanding the Pie - Why Market Share is not Everything

2012-05-08T09:00:00.000-04:00

It's the classic entrepreneur's pitch . . .

"It's a $100 billion market, and if we can get just 1% of it . . ."

Any guide to pitching investors will tell you that one of the first slides in your pitch deck should identify the size of your market. It makes sense. If you're an investor contemplating investment in a high risk startup, you want to see that your high risk investment is matched by an even higher reward, so the market has to be big, right? Or does it?

Like every other startup pitching potential investors, our pitch deck includes a slide on the size of the market. But here's the catch . . . in the case of the commercial real estate technology market, and many other industries for that matter, there are are not established metrics for market size. We know that it's a huge market - real estate is the largest asset class in the world. We also know that commercial real estate is one of the most antiquated industries, and is ripe for technological disruption. So we were left wondering, why does it matter?

Let's assume that someone comes around with an accepted industry standard to justify the size of the commercial real estate technology market. Does that mean that we're fighting for a piece of that pie? Do the incumbent commercial real estate technology companies have to lose business in order for us to succeed? We don't think so.

In growing industries, the size of the pie is meaningless. The true innovators are the people who reframe the way that others look at an industry, the entrepreneurs who grow the pie.

If all we're doing is taking market share away from our competitors, we're not transforming an industry, we're just temporarily shifting the market players. A really compelling service offering causes your customers to EXPAND their budget just so that they can obtain your service.

What Happens when you feed the 800 lb Gorilla? - CoStar's Acquisition of LoopNet

2012-05-06T16:15:00.002-04:00

King Kong (CoStar) with Flat Stanley (LoopNet)

We interrupt our regularly scheduled blog posts to give some commentary on CoStar's acquisition of LoopNet, which finally closed on Monday.

If you're familiar with the market for commercial real estate technology, you've undoubtedly heard of CoStar. CoStar is our industry's 800 pound gorilla. When a company as dominant as CoStar announces that it will acquire its largest competitor (LoopNet), it certainly turns a lot of heads. When both of those companies are publicly traded, and the industry is as large as commercial real estate, the heads that turn are that of the regulators at the Federal Trade Commission. The anti-trust investigation took a full year, but after CoStar agreed to make some concessions, the FTC has finally approved the sale.

Now that the acquisition is final, many are asking . . .

"What will the impact of the acquisition be on the industry?"

This is a question I first attempted to answer back in June 2011 on Quora, when the sale was announced. I'm going to add some new thoughts to that answer, but let's start with my original thoughts as a basis:

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This will be both good and bad for end users and the industry:

The Good

Technology Improvement: LoopNet is more forward thinking when it comes to technology than CoStar. They invest twice as much of their revenues in technology and are trying to automate information gathering. They have also made some attempt at a Web 2.0 strategy with Facebook, LinkedIn, the iPad app, etc. This should hopefully result in a better user experience than CoStar users are accustomed to, and more efficient/lower cost research for the combined company.

Better Exposure to the General Public: CoStar has historically only been available to paying users. CoStar recently started CoStar Showcase to provide listings to the general public, but it doesn't have nearly the exposure that LoopNet has. LoopNet has much broader exposure to the general public and also has a stronghold on tertiary markets where CoStar is not as strong. A merger would likely make CoStar listings more visible to potential buyers/tenants directly and expand presence in tertiary markets. This would in-turn increase transparency in the market.

Monopoly Backlash/Pricing: LoopNet's subscription fees are relatively low, while CoStar's fees are high. If the combined company chooses to take on CoStar's fees, then entrepreneurs will be incentivized to build a lower cost competitor. If the combined company chooses to lower its fees (seems unlikely), that would be good for the industry, increase the user base and therefore increase transparency and help level the playing field between large real estate firms and small firms.

On a side note, if CoStar/LoopNet is smart, they will create several price points to (for all you economics majors) maximize revenue on the price elasticity curve. This would be good for both the company and users.

The Bad

A Monopoly: It has yet to be seen whether the government deems this merger to cause antitrust issues, but there's good reason to think it would. CoStar and LoopNet are the two largest players in the commercial real estate information world. While most commercial real estate firms are dependent on CoStar subscriptions, LoopNet did provide some competition. Additionally, LoopNet's presence required CoStar to continue to innovate. The combined company will have a chokehold over commercial real estate firms, and will have little incentive to innovate. The barriers to entry in commercial real estate listings/information is rather high. CoStar has an incredible amount of research gathered over many years, and makes a point of suing any company that threatens it. While it's UI/UX may be mediocre at best, it will be very hard for upstart companies to compete with its wealth of research, existing relationships, and most notably, the status quo in an antiquated industry.

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Nearly a year after I wrote that answer, we have a somewhat clearer picture into the outcome of the merger. First, we know that the FTC did find antitrust issues, and has made an attempt to overcome these issues. As a condition of the sale, CoStar is selling LoopNet's share of Xceligent, a competing commercial real estate listing and information provider. It will also put other provisions in place to help Xceligent continue to compete over the next five years. The order does the following:

Prohibits CoStar and LoopNet from restricting customers' ability to support Xceligent
Requires CoStar and LoopNet to allow customers to terminate their existing contracts, without penalty, with one year's prior notice.
Bars the merged CoStar and LoopNet from requiring customers to buy any of its products as a condition for receiving other products, and from requiring customers to subscribe to multiple geographic coverage areas to gain access to a single area in which they are interested.
Requires CoStar and LoopNet to continue to offer their customers certain core products on a stand-alone basis for three years after the acquisition.

It appears, that the biggest winner in the sale of Loopnet may not be CoStar, but will actually be Xceligent. Nonetheless, the provisions put in place by the FTC create a lower barrier to entry for other real estate technology startups. In particular, these provisions help startups with products that directly compete with CoStar's products, and whose services are are not used in addition to CoStar's offerings, but rather INSTEAD of CoStar's offerings.

It's worth noting, that while CoStar and LoopNet both compete with CompStak for the pocketbooks of real estate technology consumers, we do not view either as "direct competitors" at this time. You'll learn more about that when we return to the "Why We Started CompStak Series."

P.S. We think there is a ton of opportunity to expand the "pie" of the commercial real estate technology industry, but that's the subject for yet another blog post.

The "Why We Started CompStak Series" - Part 1 - The Small Tenant

2012-05-03T11:00:00.004-04:00

People often ask me why we started CompStak, or where the idea came from. I typically give the same answer, "it came out of my experience as a commercial leasing broker . . . I saw an opportunity to create transparency in commercial real estate information and decided to jump on it." I'll use this series of posts as an opportunity to give the full story around how CompStak came to fruition, as well as to discuss where I see real estate technology going.

To start, I'll offer up some of the challenges of the industry that we identified and believed could be overcome with great technology. Here's the format: The Problem, The Solution, Why We're Not Solving it, and Who Is Solving It

1) Small Tenants are Underserved

The Problem

When searching for space for their businesses small tenants typically need more help than anyone else. They may have never searched for or negotiated a lease before, they don't have a real estate department, and they are pulled in so many directions that it's hard for them to focus on finding new space. They may not have existing relationships with commercial real estate brokers, and if a broker reaches out to them, they don't know how to evaluate their qualifications. And yet . . . this isn't the big problem. The big problem, is that great and experienced brokers don't want to work for them! As a broker, time is your greatest asset. To make money in commercial real estate, you need to focus on the assignments that will provide the greatest long term return. Sometimes this means taking a small assignment because it will eventually lead to a large assignment, but more often than not, this means avoiding very small deals completely. Nonetheless, leasing commercial real estate is quite complex, and small tenants need representation at least as much as large tenants do. So what happens to these tenants?

a) A good broker takes their assignment, but can't focus on it because it's not a money maker.

b) A good broker takes the assignment and turns it over to the most junior person in the firm. He/she means well, but is not experienced, and can't provided the highest level of service.

c) A "space chucker" takes the assignment and tries to make it worthwhile. This is a broker that sets up as many space showings for a customer as possible, as quickly as possible and hopes that something sticks. He/she doesn't focus on showing the right space, or respecting their client's time. They're most concerned with turing the deal around as quickly as possible and making a quick buck.

d) An unqualified broker takes the deal. Perhaps they work for a small shop that allows them to keep virtually all of their commissions, but provides them with no resources. Since they have a great split with the "house" they can make some money on the deal, but they simply don't have the resources to provide a high level of service - no research, analytics, financial analysis, or sometimes even access to all of the listings.

e) The tenant finds some space online or by walking the streets, and negotiates their own deal with the landlord. They have no idea if the rent they're paying or the terms of the deal are fair, but the Landlord tells them that they're getting a great deal because there's one less brokerage commission.

The Solution

A comprehensive resource site for the small tenant. This site provides the tenant with listings for all of the available space in their market. These listings have pictures, floor plans and details similar to residential listings sites and allow tenants to evaluate potential spaces BEFORE touring them. The site also includes advice for tenants, market intelligence, research tools, and other resources so that a tenant can feel confident when hiring a broker, and finding and negotiating for space. To make sure they're well represented, the site includes access to a network of trusted brokers that can help these tenants. Since the tenants will be doing a lot of their initial research and space searches on the site, this means less work for the broker, allowing them to devote their time to helping their client negotiate the best deal possible.

Why We Didn't Do it

1) The online commercial listings space is dominated by a couple major players (and will soon be dominated by one). There are many companies trying to get into this space, and we believe the barriers to entry are somewhat high. The incumbant player(s) very tightly control their data and make life difficult for their competition.

2) Gathering a critical mass of listings and keeping listings up to date is challenging. Most real estate firms do not have APIs that allow you to easily obtain their listings, and while most firms would be happy to get their listings out wherever they can, there is a hurdle in gathering listings from many firms in a very fragmented industry.

3) Presenting listings in a way that is useful for tenants provides a challenge. Current listings typically include no more than a floor plan of the space (if that). Many do not have asking prices or details. Brokers are expected to know about the buildings, the types of space in the buildings, and call the brokers representing spaces to get details. Potential tenants expect and deserve much more, including pictures, space details, neighborhood information, video walkthroughs, etc.

4) No matter how much value a consumer facing site provides, given the lack of transparency in commercial real estate information, it is hard to provide enough value to a tenant to allow them to adequately represent themselves. Including brokers on the site is a good solution, but towing the line of making it worthwhile for brokers (even for VERY small deals) without making the brokers feel that you are trying to disintermediate them is challenging.

Who's Doing This Now

Just launched, 42Floors has developed a beautiful interface that allows consumers to find office space on their own. They've gone to great strides to encourage brokers and brokerage firms to provide listings, and they have made life easier for the listers by manually inputting listings for them, and building the software that will allow for 42Floors to automatically gather listing data as well. 42Floors even sends out their own photographers to take pictures of spaces for the site. As they continue to build the site, there will be more resources for tenants as well.

Not yet launched, TheSquareFoot will be provide educational tools for tenants so that they understand how much space they need and how the leasing process works. They will also have listings, and will connect users with Tenant Rep brokers. Until then, they are helping tenants find brokers to connect them with great space.

Launched in 2008, similar to 42Floors, Rofo lets users find space through listings, and has built systems to automatically gather listing data from real estate firms. Rofo users can request more info. on properties and a real estate broker will reach out to them.

In my next post, Problem 2 - Commercial Listings

CompStak In the News, and What We've Learned

2012-04-23T17:25:00.004-04:00

In case you haven't seen our tweets, Facebook posts, or talked to us, you may not know how excited we are about all of the exposure we've been getting lately.

It all started with The Wall Street Journal - Crowd-Sourcing the Details of the Deals

and from there, we got picked up in a bunch of other publications, like these:

The Real Deal - New Technology Bets on Brokers' Loose Lips

The Tenant Advisor - The Business of Lease Comps

First Page Network - A Secret Comp Sharing Society

In the past we were lucking enough to be covered by:

A Student of the Real Estate Game - CompStak - A Marketplace for CRE Lease Comps

AG Beat - CompStak Crowd Sources Office Lease Comparables

We Are NY Tech - Michael Mandel

So what have we learned from all this?

1) Press is good for entrepreneurs. When reporters reached out to us in the past and offered to write about CompStak, we held them off until we were ready to launch. When the WSJ called, we knew better than to pass up a great opportunity. Was it worth it? Absolutely. We've gotten a ton of hits on our website, invite requests for new users, calls from potential investors, and good vibes from the industry. Was there a risk? definitely, but in the end the risk paid off. We may not be totally ready for prime time, but our beta testers, investors, and the real estate community have been forgiving.

2) Don't overlook the details. For months, we didn't have a "contact us" page on our website. It seems trivial, but we learned from a reporter that she had trouble finding us! We made sure to fix this before our article came out, and wouldn't you know . . . we started getting calls on 8 am of the day the article was published.

3) Don't BS. We told the WSJ how many comps we had our in system. They called around, and we found out that lots of people in the CRE brokerage community didn't believe us! The WSJ called and asked us to prove it, and we did! We came out looking like the good guys. Could you imagine if we made up that number!

I'm sure there are lot of other things we've learned from the experience, and there will definitely be a lot more to learn. We'll keep you posted :-)

Where Have All of the CRE Bloggers Gone?

2012-04-17T01:34:00.000-04:00

It's hard to believe, but it's been four years since I started this blog, and now that I'm starting to revamp it, I'm astounded by how much real estate technology has changed as have the people who write about real estate online.

I decided to go through the links I listed years ago of my "favorite real estate sites" and "favorite real estate blogs." I was astounded to see, that most of them no longer exist or have been dormant for some time, and it's not just the blogs, it's the publications!

In Memorium, here are the publications and blogs that are no longer with us:

Commercial Property News
Cityhammer
Real Estate New York
Deal Junkie
Midtown South Daily
StreetWise
The Commercial Investor
Dirt Lawyer's Blog

I'm sure there are many others, in their place there are terrific new ones, like:

The question is, why did so many of these publications and blogs fail? Perhaps I should really be asking myself the same question since BrokeredNYC laid dormant for so long. What do you think?

BrokeredNYC Is Now . . . The CompStak Blog

2012-04-16T01:04:00.005-04:00

Ok, so I haven't posted since 2011, and even then I didn't say all that much. Well, all that is going to change . . . starting now. I've been preoccupied in my transition from real estate broker to entrepreneur. Now that CompStak is about to launch it's time to start writing. With that in mind, I am proud to announce, that BrokeredNYC is now THE COMPSTAK BLOG. A better name will come soon, and perhaps a better blogging platform as well.

I will still use this platform to provide tips on leasing office space in NYC and topics related to the CRE brokerage world, but now there's more to talk about like the future of the commercial real estate industry, the impact of real estate technology on the way we do business, and the trials and tribulations of entrepreneurship.

If you like what you read, gives us a shout, and sign up for an invite to CompStak!

How to Find and Negotiate for Office Space in New York City as a Startup

2011-09-09T16:34:00.000-04:00

This is a re-post of my guest post on BetaBeat.com and the Commercial Observer. I hope you like it!

So your startup has gotten too large for General Assembly, Dogpatch Labs, WeWork Labs, Betaworks, TechStars, or wherever you choose to incubate the next Facebook. You love the high tin ceilings, the wood floors, the exposed columns, and the proximity to the Ace Hotel, but it’s time to take off the training wheels and ride out on your own. This article is your definitive 900-words-or-less guide to making it in the big city.

Step 1: Determine what you need.

Most importantly, how much space do you need? Major considerations that impact square footage are employee count, number of private offices and conference rooms, and room for expansion. An architect can help you develop a “space program” that outlines the square footage you will need.

Other things to think about are:
What type of space? Traditional or creative/loft?
What neighborhood? Choices often focus on industry/image, employee commute and subway access.

A note on location: We brokers divide Manhattan into three major markets: Midtown, Midtown South and Downtown. Each market has many submarkets (neighborhoods), but on the whole, Midtown is the most expensive, followed by Midtown South and Downtown. Most startups end up in Midtown South, as it is a location of choice for peers, has lots of loft buildings, and exudes a hip vibe. The largest concentration of startups is in Gramercy/Flatiron, followed by SoHo/NoHo.

Step 2: Identify and explore your options.

A broker can create a survey of different spaces that meet your criteria. From this survey, you can pinpoint the spaces you’d like to tour. Touring each of these options gives you the opportunity to test your assumptions on neighborhood, type of space, square footage and other needs.

Step 3: Prepare a short list/financial analysis.

Each space will be sized differently and have varying rent and deal terms. A comparative analysis allows you to put all properties on a level playing field.

Step 4: Submit offers and negotiate deal terms.

Your offer outlines the terms at which you are willing to make a deal. If possible, you should submit offers for multiple spaces at the same time. This creates competition among owners and helps achieve the best deal possible. Some deal terms to think about:

Rental rate (per square foot per year)
Rent abatement
Lease term
Electricity
Heating and air conditioning
Operating expenses
Taxes
Landlord’s work or funds for space build-out
Sublease and assignment rights
Signage
Renewal/termination options
Security deposit/guarantee

While all of these items are negotiable, there are market standards for each of them. Your broker will help you establish what terms are fair.

Step 5: Negotiate your lease.

Hire a lawyer! New York City landlords are sophisticated. Their lawyers draw up leases that benefit them. Your lawyer will work with your broker to advocate on your behalf and ensure the landlord doesn’t take advantage of you. When negotiating a lease, watch for:

Correct business terms
Sublease provisions
Compensation for failure to deliver the space on time
Relocation clauses
Subordination, non-disturbance and attornment
Insurance (check with your insurance agent)
Accurate description of landlord’s work or drawdown of tenant improvement allowance.

There are a million other items like these, so make sure you have a broker and a lawyer!

Step 6: Build out the space and move-in.

If your lease stipulates that the landlord construct your space, be sure you know the completion date and the finishes/quality of installation. Plan to integrate your IT/telephone wiring at the same time. If you’re overseeing space construction, monitor layout, costs and deadlines! When move-in time arrives, make sure the internet and phone services are functional and you understand the building protocol for move-ins.

A few words on ways to accommodate growth:

Find a sublease. Sublease space typically rents for 20 to 30 percent less than space available directly from landlords. Most also require a shorter time commitment in years than an owner will offer, because you are assuming another company’s remaining term. However, with a sublease you won’t have a direct relationship with the landlord, the landlord can possibly throw you out if the sublandlord defaults, and you’ll likely have to pay for a new build-out out of pocket.

Right of first offer. Depending on the size of your requirement, the landlord may give you the right of first offer on any space that becomes available next to yours, on your floor, or in the building.

Right to terminate. Landlords will often allow you to terminate your lease early provided that you give advance notice and pay a penalty equal to the landlord’s unamortized transaction costs.

Renewal/expansion clause. You may insert an option into your lease to renew or expand at either a pre-determined price or fair market value.

Expansion within portfolio. If you’ve outgrown your space, most landlords will accommodate relocation to a larger space within your building or another in their portfolio and rip up your existing lease. Still, it’s helpful to get this in writing.

These are just a few of the many considerations you’ll need to keep in mind when looking for space and negotiating a lease, so find someone you trust to help understand them. Your broker’s job is to educate you on the market, landlord character, and market-appropriate deal terms, and to walk you through the process.

Is the New Jersey Wholesale Data Center Market Back on Track?

2011-07-22T12:53:00.000-04:00

Reposted from my July 21st Post on on www.datacenterpractice.com.

Two weeks ago,without much fanfare,Sentinel Data Centers announced that it had signed three major leases with “the largest”Fortune 500 firms for an initial aggregate footprint of 50,000 SF of turnkey data center space. Since Sentinel’s first phase in Somerset,N.J. represents 50,000 sf of data center space,this means that Sentinel has effectively sold out its first phase. This press release came three weeks after The Wall Street Journal proclaimed that there was a “glut”of New Jersey data center space.

Meanwhile,we’ve heard from Digital Realty Trust ,that the company is now at 100% capacity in its 3 Corporate Place facility in Piscataway (there were only a few thousand SF left),and as we announced in our last newsletter,DLR leased a large chunk of Powered Base Building space to Savvis at 365 S. Randolphville Road. That said,Digital has had a new turnkey 11,000 SF POD available in Piscataway for a very long time,and has not yet had success leasing its PBB offering at 650 Randolph Road in Somerset. DLR insiders tell us that the company is planning on building out at least one very large (20,000+ SF) pod in 650 Randolph Road which would be shared by multiple tenants with shared infrastructure. This would be a first for DLR,and according to our sources,the move is being made so that DLR can better compete on price and model with Sentinel and DuPont Fabros .

So what does all this tell us about the New Jersey Wholesale Data Center market? And,why is it that Sentinel has sold out its not yet complete Phase 1,while DuPont Fabros (which built-out over 80,000 SF of turnkey space) has had reported no activity for several months?

The answer to the first question is not simple. It seems that the New Jersey Wholesale Data Center market is improving. The good news from Sentinel and encouraging news from DLR is the most we’ve heard in quite some time,but until we hear more positive news from DuPont Fabros (fingers crossed for the company’s Aug. 3rd earnings call),it will be hard to make a proclamation that the market is heating up again.

To get the answer to the second question,I reached out directly to Sentinel’s co-CEOs Todd Aaron and Josh Rabina. They offered three factors that are attributable to their success in the New Jersey market;“quality,energy efficiency and flexibility.”

I believe the most notable differentiator for Sentinel is flexibility. According to Rabina,Sentinel’s “on demand business model enables tenants to avoid oversizing initial up-front financial commitments,yet retain fixed-price contractual options to seamlessly add space and/or power capacity in the future as needed.”. In the New Jersey market,where corporate users must accommodate the migration from low density legacy systems to modern high density environments,flexibility is key.

We’ve heard from DuPont Fabros,that they have also “gotten the memo”regarding the needs of New Jersey data center users (vs. the Facebooks,Googles,and Yahoo!s of the world),and they are willing to be flexible in accommodating the ramp up of tenants. There is no question that DFT’s purpose built facility is a high quality product,and if the company can provide the type of flexibility offered by Sentinel,they should have the same kind of success in the New Jersey market.

While it’s unclear if the momentum in New Jersey will continue,we are cautiously optimistic,and look forward to more good news moving forward.

The Future of Manhattan Data Centers –Part 3 –More on 111 Eighth Avenue

2011-06-15T12:52:00.000-04:00

Reposted from my June 14th post on www.datacenterpractice.com.

In The Future of Manhattan Data Centers –Part 1, I mentioned that “the jury is out for the future of data center tenants”in the building, but that it was unlikely that Google would try to remove these tenants entirely. We have now uncovered some new information that supports this theory,and sheds some light onto Google’s plans for the building.

On Google’s Jobs page they have listed a position in New York of “Strategic Negotiator,Network.” The role of this position is to “spearhead the acquisition and allocation of Google’s global networking infrastructure,”and ”interact closely with outside vendors to design,develop,and deliver [. . .] contracts for dark fiber,colocation,peering,voice,and data services.” More specifically the job description notes that the candidate will “Develop and execute on a vision for continuously improving the distinction of 111 8th Avenue as a premier location for telecommunications carriers,data center and colocation facility operators,and their customers.”

So,perhaps the jury is still out on the extent to which data center tenants will have a place in 111 Eighth Avenue,but it certainly appears that these tenants are part of the vision for the building’s future.

Have you heard any news regarding tenants in the building? Please leave a comment and let us know!

The Future of Manhattan Data Centers Part 2 – The Next 111 Eighth Avenue?

2011-06-07T12:49:00.000-04:00

I admit it, I've been neglecting this blog. In part it's because I've been doing most of my writing for www.datacenterpractice.com, in part because of another side project that you'll hear more about soon, in part because I'm busy, and in part because it's the summer and when/if I have extra time I want to be outside.

For now, I'm going to re-post my recent posts from datacenterpractice.com, and then I promise . . . new content! Much of it will be from my class on Negotiating a Lease for Startup Office Space. So without further ado . .

In my last blog post I mentioned that new data center users and expanding tenants will likely not have any options in 111 Eighth Avenue. Google has indicated that it plans to expand in the building and has taken all available space off the market. Meanwhile,quality data center space in Manhattan is in high demand. The most recent sizable data center spaces that have come to the market in Manhattan leased at very high rents after bidding wars –the former Lehman Brothers space at 85 Tenth Avenue and Digital Realty Trust’s space at 111 Eighth Avenue. Most recently,XO has leased a raw floor at 32 Avenue of the Americas,where it will have to make a significant investment to convert the space for data center use.

With the uncertainty around 111 Eighth Avenue,recent strong activity in the market,and an overall stock of data center space in Manhattan that is outdated and inadequate for modern users,many developers,owners and operators are bringing new data center opportunities to the Manhattan market. These speculators are planning something never before tried in NYC,they are building turn-key wholesale data center space and powered shell space on spec.

375 Pearl Street –Sabey

The most well known of these new opportunities is 375 Pearl Street,a 1 million square foot former Verizon switching building. The property is currently under contract by a partnership of Sabey and NY developer Young Woo and is expected close within the next week. Sabey is still formulating its strategy for the building,but the first phase is expect to include four floors (36,000 sf each) of turn-key data center space and 9 floors of shell data center space. Verizon will also continue to maintain a 3 floor condo interest in the building. 375 Pearl shares a lot in common with 111 Eighth Avenue,with its huge elevators,very high ceiling heights,abundance of shaft space,and heavy floor loads.

121 Varick Street –SoHo CoLo

The second new opportunity on the Manhattan data center scene is SoHo CoLo at 121 Varick Street (full disclosure,we exclusively represent the landlord to lease their space). SoHo Colo is initially offering six floors of 13,250 sf each in a building that is being completely repositioned for data center use. 121 Varick Street sits atop the Hudson Street/Ninth Avenue “fiber highway,”and as a former printing building,has the floor loads,freight capacity and ceiling heights to handle virtually any use. The building already houses a small data center aptly named Data Center NYC. The owners plan to take the building to the next level by bringing in 15 MW of power from Con Edison,installing an entire-building double-interlocked pre-action sprinkler system,and delivering power and ample chilled water to each floor. Construction has begun for the building repositioning and the new power vaults should be fully operational in six months. Space in the building will be offered as either powered shell or turn-key depending on tenant needs and demand.

60 Hudson Street –Name TBD

Finally,an as of yet unnamed entity is believed to be in talks to acquire a four-floor 240,000 sf block of available space at 60 Hudson Street. 60 Hudson Street is well established as one of the most prominent carrier hotels in the world,but has historically been occupied by low density telecommunications users taking advantage of the building’s interconnection opportunities. This new project could bring new life to the building with high-density modern data center users.

It is unclear whether demand for new data center users is sufficient to meet all of this potential new supply. However,it is our opinion that at greatest risk are NYC landlords with outdated data center space. If these new entrants to the market can price their space fairly it would stand to reason that tenants of outdated data center space will jump at the chance to move in to the 21st century.

Class Tomorrow - Negotiating a Lease for Startup Office Space

2011-06-06T19:08:00.004-04:00

I'm teaching a class tomorrow on Negotiating a Lease for Startup Office Space.

The class is geared to helping growing companies find creative office space and negotiate leases that accommodate growth and flexibility.

Here is a link to the class: Skillshare - Negotiate a Lease for Startup Office Space.

The class will be held at Grubb & Ellis - 1301 Avenue of the Americas, 42nd Floor from 6:30 - 8:00 pm.

Here is the full overview:

Negotiating an office lease in New York City is a complex and challenging prospect for even the most experienced tenants. Finding office space and negotiating a lease that will meet the needs of a quickly growing company is even more challenging.

Students will learn the ins and outs of finding and securing office space, the nuances of New York City office leases, and tips for successful negotiation with savvy landlords that will assure flexibility for growth.

Note: All proceeds will be donated to Soles 4 Souls, a charity that donates shoes to adults and children in need.

You can sign up for the class here. If you're interested, please sign up as soon as possible so I can get you on the list with building security.

The Future of Manhattan Data Centers Part 1 - 111 Eighth Avenue

2011-05-31T18:16:00.003-04:00

Reposted from my post on the Grubb & Ellis National Data Center Practice Blog.

Back in September, when 111 Eighth Avenue – one of the world’s premier carrier hotels was up for sale, I mentioned in a blog post that “an astute purchaser [of the building] will see the inherent value in great tenants with excellent credit (like Google), and data center tenants.” I did not predict at the time that Google itself would purchase the building. Now that Google has purchased the building, and has shown its intent to expand its presence in the building as quickly as possible, many of our clients have asked us what Google intends to do with the building’s data center tenants.

Google has not had much to say on this topic other than a statement from CEO, Larry Page:

“I think our primary reason for purchasing the building there was not the Internet infrastructure there but rather the office space that we really enjoy using. The Internet tenants are great, well-paying tenants. We appreciate having them there, but that’s not the primary reason why we purchased the building.”

What we do know, as we reported in our last New York Metro report, and was further reported by Datacenter Dynamics and Seeking Alpha, is that Google has taken all available space in 111 Eighth Avenue (aside from retail space) off the market. We have heard rumors that current tenants without renewal options have received letters from Google indicating that they should not expect to renew in place, and real estate industry sources claim that Google tried unsuccessfully to buy Nike out of its sixth floor lease. We have also heard from a data center tenant in the building, that the company received an ultimatum to the effect of – we will let you renew your POP space if you agree to terminate your office space early.

The jury is out for the future of data center tenants, but it certainly appears that new data center users and expanding tenants will not have any options in the building. So, this leaves me wondering, if I were Larry Page (oh if only!), what would I do?

The short answer is, that I would let the data center tenants stay, albeit at very high rents. In explaining this to a colleague, I started by attempting to explain “latency,” “hops,” and 111 Eighth’s place in the Internet’s infrastructure as an “ecosystem” of carriers and networks. He replied, “so it’s sort of like the Grand Central of the internet?” I love this analogy.

If you compare 111 Eighth Avenue to New York City’s public transportation system, the building is like Grand Central, Penn Station and the Port Authority combined. If Amtrak purchased Penn Station, it wouldn’t kick out New Jersey Transit and the Long Island Railroad, because so much of the value in the building is the ability to easily connect from one form of transportation to the other. If Amtrak didn’t want to lose the commuter business that goes through the building, it would have to provide the same services that New Jersey Transit and the Long Island Railroad provide.

In the same vein, if Google wanted to kick out XO, Abovenet, Telx and others, it would need to get into the interconnection business (to a much larger extent than it already is). This is certainly possible, but not highly likely. What I believe is more likely, is in the event that Google wants/needs the space occupied by data center tenants, it will allow these tenants to keep their Points of Presence to maintain the building’s ecosystem. What these tenants may lose, is their office space and perhaps some colocation space. It’s like leaving the railroad tracks, but getting rid of the “waiting rooms, concessions and ticket desks.”

In my next post, I’ll touch on how other data center operators and landlords are looking to create “The Next 111 Eighth Avenue,” and where the opportunity lies in New York City.

Grubb & Ellis First Quarter 2011 Market Trends

2011-05-26T10:09:00.000-04:00

Office Market Highlights:

Net Effective Rents are up 24% year over year
Class A asking rents are up 11% year over year
Class B Net Effective Rents are up 12% year over year
The spread between Net Effective Rent and Asking rent has reduced from 28% to 21%

Click here for the latest report!

Data Center Activity Heats Up In Manhattan

2011-05-25T17:02:00.004-04:00

Here is my latest blog post first posted on the Grubb & Ellis National Data Center Group Blog:

Spotlight New York:

Since Google’s acquisition of 111 Eighth Ave., all available space in the building has been taken off the market. The most recent data center transaction in the building was Digital Realty Trust’s sublease of 53,000 square-feet to Telx shortly before the building’s sale.
Sabey and local developer Young Woo are under contract to purchase 375 Pearl St., a 1-million-square-foot former Verizon switching building, for an estimated $100 per square-foot from M&T Bank. The building is well-suited for data center use, with very heavy floor loads, high ceiling heights, limited windows, and abundant shaft space. Verizon will maintain a three-floor condo interest in the building.
60 Hudson St., a major carrier hotel, has a 240,000-square-foot block of space available for lease that has attracted attention from both data center and office users.
XO Communications has leased the entire eighth floor at 32 Avenue of the Americas. The 49,000-square-foot deal marks the first major data center deal in the building since Coresite leased the seventh floor. Meanwhile, Verizon is marketing the entire 10th floor of the building for sublease, bringing approximately 45,000 square feet with 2 MW of power to market.
Telehouse leased Lehman Brothers’ 60,000-square-foot former data center at 85 Tenth Ave., for 15 years. The lease includes all of the equipment and infrastructure left in place by Lehman Brothers and former tenant Level 3 Communications.
SoHo CoLo has begun marketing a new data center project at 121 Varick St., a 155,000-square-foot facility with six floors of 13,250 square feet each, available for data center use. SoHo CoLo will be installing the first 10 MW of a 15 MW power commitment this spring. The building’s location along the Hudson Street/Ninth Avenue corridor allows for low latency connection to NYC’s major carrier hotels and networks.

Spotlight New Jersey:

i/o Data Centers has leased the 830,000-square-foot former New York Times printing facility in Edison, with plans to rollout the first wholesale data center property dedicated to its own modular data center container solution. The property is next to a major PSE&G switching station and a wealth of fiber located along the NJ Turnpike.
Digital Realty Trust leased half of its available powered shell space at 365 South Randolphville Road in Piscataway to Savvis, leaving 56,000 square feet of powered shell space and 11,000 square feet of turnkey data center space available for lease.
Sentinel Data Centers has delivered and commissioned its first 10,000-square-foot data center pod to Pfizer. The company has also announced the closing of a $90 million loan led by M&T bank to complete its New Jersey facility and a commitment from Kelso & Company to fund up to $300 million of equity capital for further expansion.
DuPont Fabros has delivered Phase 1 of its NJ facility. The first of two phases is 18.2 MW of which approximately 4 MW has been leased to three different tenants.
Colocation providers in New Jersey continue to pursue opportunities. Recent announcements include Telx adding an additional 15,000 square feet of raised floor space in Clifton, QTS expanding its Jersey City facility to 50,000 square feet total and Net Access Corporation opening a new 50,000-square-foot facility in Parsippany. Equinix is expected to open its newest location in Secaucus in early 2012.
Development projects in New Jersey also continue to move forward. Russo Development has announced a data center development on 71 acres in Somerset. Mountain Development Corporation has filed plans to construct a 213,000-square-foot building next to its existing facility in Clifton (Telx is expected to be the single tenant of the building), Blue Vista Properties is moving forward with plans to redevelop a 270,000-square-foot former industrial building in Edison, and DCI Technology has begun a $4 million renovation of its existing 55,000-square-foot data center facility in Teaneck, which it is marketing for lease.
To view New York /New Jersey newsletter in pdf format, click here.

Availability Holds Tight—Grubb & Ellis New York March Market Trends

2011-03-18T16:59:00.001-04:00

Office Market Highlights:

• Midtown’s large block supply is down by 35 percent since 2009

• Midtown asking rents rose $0.11 per square foot in February, up $2.37 per square foot since fourth quarter 2010

• Midtown South’s recovery continued for the fifth consecutive month

• Downtown’s available supply is at a 12-month low

Click here for the latest report!

The Real Deal - Not Just Google

2011-03-07T17:24:00.004-05:00

Last week, while on vacation, I was lucky enough to be quoted in an article in The Real Deal regarding the NYC tech startup scene. As I mentioned in the article, the NYC tech startup scene is really booming. I'm personally working with several tech startups and I'm tracking about 150 more that are growing in the city.

It's clearly an exciting time to be part of the NYC entrepreneurship community. Without further ado, here's the article (text below as well):

Quirkily named Internet startups were dominant in last month's Super Bowl advertising. Initial public offerings for these companies have recently been splashed throughout the business pages, and Wall Street analysts are valuing some of them in the range of tens of billions of dollars.

Then, of course, there's the gorilla in the room, Google's recent $1.9 billion purchase of 111 Eighth Avenue.

These days it seems you can't escape that eerily familiar sense that we are back in the throes of another tech bubble. And a recent spate of commercial leasing deals in Manhattan involving technology firms -- ranging from titans like Facebook and LinkedIn to upstarts like BuddyMedia, Foursquare and Tumblr -- suggests that they are on something of a real estate tear.

"It seems like in the last year it has really exploded," said Grubb & Ellis associate Michael Mandel, who at the age of 28 was not around -- professionally speaking -- for the tech boom that took place 10 years ago. "People used to think of Silicon Alley as an afterthought, but now it is really coming into its own."

A quick rundown of recent leasing activity that has taken place over the past six months proves that Mandel may be right.

In June, the social media firm Foursquare increased its footprint at 36 Cooper Square, taking over the entire 7,675-square-foot sixth floor. In October, the online publishing platform Tumblr signed a 5,000-square-foot-deal at 35 East 21st Street. Also in October, Tremor Media, a video advertising company, signed a 16,600-square-foot lease at 53 West 23rd Street.

Meanwhile, Buddy Media, a social media marketing company, signed for 25,000 square feet at 21 Penn Plaza. Mashable, a social media news website, signed for 5,186 square feet at 121 East 24th Street in August and is already looking for more space, according to one source.

And the list goes on: Bluewolf, a "cloud computing" and new-media consulting firm, signed a lease for 12,083 square feet at 11 East 26th Street in November; Al Gore's Current Media signed for 11,500 square feet at 435 Hudson Street; and 9Threads, a technology-focused firm that does strategic marketing for fashion, beauty and retail marketers, just signed for 6,492 square feet, also at 36 Cooper Square.

That's not to mention some of the more high-profile deals, like Facebook's 40,500-square-foot lease at 335 Madison Avenue and Apple's recent 10,000-square-foot deal for more office space at 100 Fifth Ave.

Déjà vu? Possibly. But a closer look at the current tech company expansion in New York shows it to be more restrained than what was seen in the early aughts.

"I wouldn't say it is blowing up," said Newmark Knight Frank's executive vice president and principal Paul Ippolito, who was on the front lines of the tech-leasing bonanza that lasted from 1998 to 2002.

"I would say there is a strong stream of activity, but it is a lot different than 10 years ago," he added. "People are more conscious and more conservative about taking on real estate prior to the business being there. It is more of a solid foundation."

Ah, yes; think back 10 years ago, when start-ups like Kozmo.com, the online delivery service, took on hundreds of thousands of square feet of office space in its quixotic anticipation of explosive growth and profits. Yet after blowing through $250 million in funding, that three-year-old company shuttered in 2001.

New tech firms are taking less space than their predecessors -- mainly in the four- and five-figure range, which is markedly less than the six-figure square footage that was the norm in the previous boom.

Mike Kaufman -- partner at Kaufman Organization, which recently brokered deals on behalf of the video advertising firm Brightroll, as well as Apple -- said this time around, both landlords and the tech companies themselves seem to have learned a few lessons. Nowadays, according to Kaufman, a 14-year industry veteran, landlords aren't willing to lease to any start-up technology firm that just puts up the largest security deposit, as was the norm in the past. In addition, the tech companies are actually growing their office footprint commensurate with their own growth.

"The difference between then and now is that then, everyone was funded and no one knew what they did," he said. "Now there is a genuine business model, with a clear path to profitability with an actual service or a product."

Other than Facebook (at 335 Madison) and LinkedIn (at the Empire State Building), which are in Midtown proper, most of the activity is taking place in the less expensive Midtown South. Tech firms are still predominantly interested in creative space, with its signature wood floors, high ceilings, and exposed brick -- the types of spaces that first came on the market in the early 2000s.

According to Newmark's Ippolito, Brooklyn and Manhattan's Far West Side are also generating a fair amount of interest and activity. WebMD recently moved to the Google building at 111 Eighth Avenue, while the online art clearinghouse site Etsy has set up shop in Dumbo.

Source: TRD-0311

Author: Peter Kiefer

FASB Update - Lease Accounting Changes Are Coming

2011-02-19T17:12:00.001-05:00

I thought it would be interesting to share this note from the Grubb & Ellis Corporate Finance team on the FASB accounting rule changes.

Here it is:

A joint meeting of the International Accounting Standards Board (IASB) and the Financial

Accounting Standards board (FASB) was held Wednesday, February 16th, that produced a major

reversal from the Lease Accounting Exposure Draft (ED) issued last August. One of the most

controversial - and most commented upon - aspects of the ED was the provision that would

capitalize net rent associated with renewals. The intent of language in the ED was to capture the

“most likely term of occupancy” that would include assessment of both the base contract term

and renewals.

While the Boards are still grappling with the exact terminology, it appears now that lease

renewals will only be capitalized if there is a clear economic incentive to do so on the part of the

lessee. For example, renewals at a bargain rate would still be capitalized. This may force a lessee

to choose between a heavier balance sheet presentation and better lease economics.

Another onerous component of the ED was also scrapped on Tuesday – the regular reassessment

of the likely outcome at each reporting date. Only significant changes in the lessee and/or its

business will require reassessment of the lease.

On one hand, these changes to the ED should simplify both the initial implementation of the new

standard as well as the ongoing compliance. However, it means that a rules-based methodology

will remain, and could have a material impact on how some companies approach leasing.

Companies that make decisions that are heavily influenced by GAAP will have a bias toward

shorter lease terms in order to minimize the impact of the new standard as now defined. This is

striking in that it works against FASB’s objectives of moving to a principles-based approach to

reduce the opportunity to manipulate the impact of leases on the balance sheet.

CAUTION – FASB and IASB still have to agree on final wording and guidance, making this a work inprogress. Stay tuned!

For more information contact:

Jeffrey W. Shell

Executive Vice President, Corporate Finance

Institutional Capital Markets

Grubb & Ellis Company

313.417.2100 | jeffrey.shell@grubb-ellis.com

Amie D. Sweeney, CPA

Senior Financial Analyst, Corporate Finance

Institutional Capital Markets

Grubb & Ellis Company

313.417.2100 | amie.sweeney@grubb-ellis.com

Steady Recovery in Dynamic Market—Grubb & Ellis New York February Market Trends

2011-02-17T17:36:00.000-05:00

Office Market Highlights:

• Availability dipped 10 basis points to 13.1 percent to start the year

• Sublease space shed 5.5 million square feet since January 2010

• 11 Times Square construction completion fueled a spike in Midtown's available supply

• Downtown experienced its largest drop in availability in over 10 years

Click here for the latest report!

Space Invaders: The Take Up of Colocation in NYC & NJ - I'm Quoted

2011-02-10T18:17:00.003-05:00

I'm excited to say that I've been quoted again. This time in a somewhat less mainstream publication, but exciting nonetheless. The article is in Datacenter Dynamics' magazine "Focus." You can find it here. Here are the quotes:

Take, for example, the 60,000-sq-ft data center at 85 10th Ave., recently leased by the retail provider Telehouse. Michael Mandel, member of the Grub & Ellis National Data Center practice group, says the former Lehman Brothers data center was so highly sought after that the price Telehouse agreed to pay on its 15-year lease was significantly higher than the landlord was expecting.

People may agree there is strong demand for data center space in NYC but their views differ on New Jersey's wholesale market. Grubb & Ellis's Mandel says he believes demand has been soft given the amount of space several developers have either recently brought to the market or are planning to bring to the market this year.

While characterizing current demand in the market as soft, Mandel does not believe it will remain that way. "Eventually, it'll get gobbled up," he says. "It’s a natural thing."

Forecasters change tune - for better AKA I'm Quoted in The Real Deal!

2011-02-03T13:56:00.003-05:00

You can read the whole article here. Here are my quotes:

Michael Mandel -- an associate with commercial firm Grubb & Ellis who is representing several tech firms that are hunting for space -- said the "tech start-up scene is booming like never before."

"I track well over 100 tech start-ups that are actively growing and hiring new employees," he said.

Grubb & Ellis's Mandel, who is representing a 6,000-square-foot space, comprising the entire third floor of 390 Broadway, said the submarket south of Canal is attractive to creative users and non-office users such as yoga studios or gyms. He said those types of tenants are more interested in leasing spaces like the one he's representing in the five-story, 30,000-square-foot building, located between Walker and White streets.

He would not speculate on exactly how long it would take to lease the space, which has an asking rent of $28 per square foot.

"The space is pretty much 'white box.' I don't think it will take more than a few months," he said, and added, "We can be aggressive on the pricing."

G&E Data Center Group Year End Report

2011-01-18T11:49:00.000-05:00

Year End Report

The Reid-McConnell Tax Relief Act of 2010 should have a significant impact on demand for data center space during 2011. The bill calls for 100-percent bonus depreciation on deduction allowances for investments in new business equipment placed in service between Sept. 8, 2010, and Dec. 31, 2011.

Atlanta

There is approximately 5 MW of wholesale data center demand and approximately 19 MW of existing supply currently, with an additional 8 MW proposed for delivery by the end of 2011. There is no new capacity of any significance currently under construction. The major wholesale leases signed this year include two undisclosed deals of 2 MW and 1 MW.

Chicago

There is 15 MW of wholesale data center demand in both suburban and downtown Chicago chasing just 7 MW of existing supply, though 18 MW proposed for delivery by the end of 2011 will help to offset that imbalance. The major wholesale leases signed this year have been Rackspace (4.3 MW), Comcast (1.8 MW), and Server Central (1.3 MW).

Dallas

There is approximately 40 MW of wholesale data center demand and approx. 24 MW of existing supply currently. There is a total of 16 MW under construction and an additional 15 MW that is proposed for delivery by the end of 2011. The major wholesale leases signed this year include FiServ (4 MW), SoftLayer (6 MW), Morgan Stanley (2 MW), NCsoft (2 MW). Cisco completed a build-to-suit for 8.5 MW.

Los Angeles

There is approximately 11 MW of wholesale data center demand with approximately 3 MW under construction. The major wholesale leases signed this year have been Telx (600 KW) and China Cache (300 KW).

Santa Clara

There is approximately 50 MW of wholesale data center demand. Unlike previous years, much of this demand will find a home in 2011, as 45 MW (critical load) are slated for delivery during 2011. Of these 45 MW, 10 MW are already pre-leased, which bodes well for an active and potentially record-setting 2011. Although it is unlikely all of the power under construction will be absorbed in 2011, developers are still very bullish on the Silicon Valley and have 75 MW of additional power in the pipeline to keep the area competitive through 2012 and beyond. Two major wholesale leases signed this year were Facebook (5.3 MW) and Zynga (4.5 MW).

Sacramento

There is approximately 5 MW of wholesale data center demand and approx. 5.7 MW of supply. The major wholesale leases signed this year have been SunGard (4 MW) and Twitter (2 MW).

San Diego

There is approximately 5 MW of wholesale data center demand with approximately 2 to 4 MW under construction.

Manhattan/New Jersey

There is approximately 26 MW of data center space either currently available or coming available by the end of 2011 in Northern New Jersey. This reflects over 140,000 square feet of raised floor space. In Manhattan, available quality data center space remains in short supply. Telehouse leased 59,383 square feet at 85 Tenth Ave. and Telx leased 53,291 square feet at 111 Eighth Ave. Leases that took place in New Jersey include: Pfizer (2 MW), Net2EZ (2.275 MW), and Factset (1.14 MW).

Phoenix

There is approximately 38 MW of wholesale data center demand with approximately 35 MW under construction for delivery by the end of 2011. The major wholesale leases signed this year have been Boeing (6 MW), and Directv (3 MW).

Virginia

There is 50 MW of wholesale data center demand chasing approximately 5 MW of existing supply, though a total of 38 MW currently under construction should serve to offset some of the excess demand. The major wholesale leases signed this year have been Facebook (20 MW), Verizon (5 MW), CSC (1.5 MW).

This year-end report is intended to provide an overall understanding of the supply/demand factors in each in market. Supply is measured in power by the available space that is built and ready for immediate occupancy for wholesale data center space. Proposed supply is Grubb & Ellis’ best conservative estimate of what developers are most likely to secure their funding and will likely be able to deliver fully commissioned wholesale space beyond what has been outlined in under construction. It also does not take into account developers that may use containerized solutions in a particular market. Demand is the hardest number to quantify, as much of the demand in Phase II comes from tenants in Phase I of a particular project and do not necessarily enter the market. In addition, many of the tenants are looking at multiple markets and we have done our best to eliminate this by compiling our lists internally. This does not measure enterprise users seeking build-to-suits or colocation users. Under construction does not take into account pre-leasing.

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