March 12, 2011 12:52 PM
Q&A: Law Firm Lease Expert on Finding That New Location
Posted by Brian Baxter
It's been a busy few weeks for Am Law 200 firms looking for new office space.
In New York City, Wilmer Cutler Pickering Hale and Dorr is close to taking 210,000 square feet of space at 7 World Trade Center, the New York Post reported on Tuesday. Morrison & Foerster also has inked a letter of intent for 200,000 square feet in a building owned by Mortimer Zuckerman's Boston Properties, reports the Post, noting that other firms, including Gibson, Dunn & Crutcher and Chadbourne & Parke are lining up new space. Wilson Elser Moskowitz Edelman & Dicker is planning a second city location in downtown Manhattan, The New York Observer reports. And Steptoe & Johnson has signed on for new space in the Grace Building.
What's beind the lease-signing frenzy? We reached out to Chris Murray, who recently joined the law firm practice group at commercial real estate services firm Jones Lang LaSalle, to talk law firms, leases, and office space. Murray joined Jones Lang in Washington, D.C., in late February after moving from Gensler, a global architecture, planning, and consulting firm. It was an early career assignment for Covington & Burling that immersed Murray in the world of law firm leases. He has represented more than 200 firms leasing 24 million square feet of space in 27 states and 16 countries.
Hi, Chris. So, what's behind all the law firm lease signings lately?
It's a multitude of things. It seems, from the real estate side, that developers are anxious to keep their tenants. I recently had a deal where the lease wasn't up until 2015, but [a firm] renegotiated and restructured it so they gave up one floor and took two more in a restack of the building. It was the tenant being proactive and taking advantage of a soft economy to help a landlord shore up their building.
Law firms seem to be a sought-after client for real estate firms like yours. Why?
Because [law firms] are usually interested in more high-profile buildings. Leasing agents like [firms] because they take more interesting spaces and spend a little bit more money. Law firms are the high-profile tenant in most marketplaces now. Banks used to be headquartered in every city, but after the mergers, there are less and less of those. So the big players in most markets are the law firms.
Is this a good market for law firms to be looking for new space?
Yes, it's still a soft market and construction costs are way down. There are still subsidies out there for building new space, so it's a good time to be in the marketplace.
Law firms have been trying to control costs over the recession. How are some of your clients trying to maximize efficiencies when looking for new space?
The biggest single thing that an architect looks for is flexibility. I once did a presentation to a group of lawyers and administrators about flexibility in design and leases, which lets you grow or sublease the space if you don't grow. Real estate is a cyclical thing, so when you have the downturn you want to have flexibility to change your space.
We recently saw a major firm dissolve and the firm's lease obligations contributed to its financial problems.
Right. If [a lease] is done well it can be a great asset. If it's done poorly, there have been several big firms over the years that have gone under because of excess real estate. You can lay off attorneys, but it's not always easy to let go of your space.
What advice do you offer law firms clients in order to avoid that fate?
I've been working with our broker teams to make sure there's flexibility both ways to protect [our clients]. I was in a meeting two years ago with a firm that was struggling to evaluate what its growth needs were on a ten-year lease. The managing partner was being challenged about how the firm could project its growth during the recession. And he said something that was very insightful that I've since told a lot of clients: 'Whatever we do, we cannot afford to do nothing.'
If you renew for five years and wait, you don't know what the market will be like then. Right now, the rents are favorable and the construction costs are the lowest they've been in a decade. I think more and more people are realizing that they have to seize the moment.
How big a cost is rent for a law firm?
Real estate is the second-largest line item after personnel, so it's a very important component. Real estate has certainly taken down several firms before.
Are landlords wary of law firms given some of the dissolutions over the past few years?
A lot of these firms are fairly stable. They've all taken hits for different reasons for different clients bases, but...they're still an attractive tenant in the marketplace for landlords
More law firm lease news:
•Several firms are taking space in suburban New Jersey, according to GlobeSt.com, a sibling publication.
•Ballard Spahr and Ogletree Deakins have new digs in Washington, D.C.
•Buchanan Ingersoll & Rooney might become the biggest tenant in a new building to be constructed in downtown Harrisburg.
Click here for Jones Lang's latest market report for law firms.
All interviews are condensed and edited for style, grammar, and clarity.Make a comment