The Real Deal New York

Regus seeks $10M from Brookfield, AmEx for “oppressive” Lower Manhattan security

Office space company claims strict measures at building near World Trade Center drove clients out

August 06, 2014 03:09PM
By Adam Pincus

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Regus-v-Brookfield-AmEx

From left: Dennis Friedrich, Kenneth Chenault (Photo: Shutterstock), 200 Vesey Street (Photo: Google) and Mark Dixon

The global executive office behemoth Regus Group filed a lawsuit seeking $10 million from landlords Brookfield Office Properties and financial services giant American Express over what it calls “oppressive” security measures at 200 Vesey Street, across from the World Trade Center.

The complaint alleges that Brookfield, headed by CEO Dennis Friedrich, and American Express, led by CEO Kenneth Chenault, refused to provide Regus’ subtenants — known as “permitted licensees” — the same ease of access that other tenants in the building enjoy. Instead, Regus, whose CEO is Mark Dixon, claims the building’s co-owners Brookfield and AmEx only issued the subtenants temporary visitors passes, forcing the Regus’ clients to wait with general visitors for as long as an hour to enter the building.

In addition, subtenants’ ability to get into the building was severely restricted, with limited access to the property over the weekends, according to the complaint filed in Manhattan State Supreme Court July 31.

The Regus tenants began vacating their spaces in early June. On June 13, Regus itself moved out, claiming that it was “constructively evicted” from the property.

The suit underscores the unintended consequences of Lower Manhattan’s heightened security measures, which were further tightened as a result of the terrorist attacks of 9/11.

Indeed, the lawsuit says that Brookfield leases space to a Regus location at its 1.6 million square foot 245 Park Avenue. The subtenants there, Regus claims, are treated no differently than other tenants in the building.

“In no other location are its customers forced to undergo the type of scrutiny imposed by the current security regimen,” Regus noted in a letter sent to Brookfield and American Express, explaining why it was vacating.

Regus and American Express did not immediately respond to a request for comment. Brookfield declined to comment.

Security consultant Fred Miehl, who worked on security features for American Express’ 200 Vesey in the 1980s, said the company even then was careful to tightly control people entering the building.

“They have always been very security-minded,” he said of American Express.

Yet overall, landlords who were once reluctant to lease space to temporary office tenants no longer are, as the short-term leasing industry has expanded greatly in the past several years,  Juda Srour, managing partner with the firm Jay Suites, said. He could not think of another building that distinguished between tenants and temporary subtenants in its security measures.

“[Landlords] are all familiar with how [temporary office space] works, even though there is a little more traffic,” Srour said.

The suit comes one year after Regus inked a high-profile lease at the building, taking about 55,000 square feet of office space in a deal that was set to run for 16 years. Annual rent payments started at $2.9 million, or about $51 per square foot, information in the suit says.

The Luxembourg-based Regus is the largest temp office landlord in Manhattan, an analysis by The Real Deal found. In addition, it has eight business centers in Brookfield buildings in the US and Canada. Regus claims to be the largest executive suites firm in the world with more than 2,000 locations.

Regus alleges it was damaged by losing future profits, and by laying out about $3 million to prepare the space for its tenants. Brookfield provided a work allowance of $3.6 million, or about $65 per foot, but the entire build-out cost was about $7 million, plus additional marketing expenses, the suit says.

Then in March 2014, American Express allegedly requested a tour of the nearly-completed space, during which their representatives asked probing questions about the type of business Regus operates. The company claims Amex already had that information for about a year.

When the center opened on April 21, the Regus’ tenants were treated as visitors, and not as tenants, the suit claims. They had to go through the public security lines each time they wanted to re-enter the building, with waits at times up to an hour, the complaint says. The subtenants were not allowed to enter the building before 7:30 a.m. or — for several weeks — on weekends. The suit also claims Regus’ clients were only able to obtain five-day passes, which were not available in advance.

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