Consolidating their Empire: Major tenant cuts at icon

Plans to overhaul the Empire State Building are creating a backlash from small tenants who are worried they will be pushed out of the building.

Renovations have just begun, and Wien & Malkin, managers of the iconic building, are upgrading internal systems as well as reconfiguring office space to make room for larger tenants. Plans include consolidating small office suites and reducing the tenant count by at least 50 percent.

The Empire State Building, known for its ancient infrastructure and poor layouts, has reportedly had trouble competing with modern Class A buildings in Midtown. The building has a high vacancy rate that has reportedly hit 18 percent at times.

Recently, asking rates for the building, which has 862 suites, were almost 25 percent below the average asking rent in Midtown.

The plans to remove tenants come on top of years of battle between tenants and owners. Increases in energy bills, unsuitable work spaces and additional fees are part of a move by management to force them out, tenants said. Tenants said they are being unfairly edged out of the building in an effort by management to reposition the Empire State Building as high-end Class A space.

“We have 80 floors of tenants. For lack of a better expression, we’re not running a hotel full of one- and three-year leases,” responded Anthony Malkin, president of Wien & Malkin, which manages the Empire State Building. “We want higher-credit-quality tenants brought in by higher-quality brokers. We’re committing meaningful dollars to the upgrade.

“Along the path there may be some people who are not able to meet those rents, and move on to other space,” he said.

While the average tenant at the Empire State Building has less than 2,000 square feet, Wien & Malkin plan to get rid of suites below 2,500 square feet and offer more space in the 10,000- to 15,000-square-foot range. Also, management is working to bring their tenant count down to about 375, with an average of four tenants per floor.

According to Malkin, management does not plan to renew leases for certain tenants.

“It’s a natural process,” Malkin said. “When you’re spending $600 million [on renovations], you look to get an economic return. Businesses that value the building are actually quite excited,” he added.

According to Malkin, the Empire State Building is always going to have a significant amount of small space (in the 2,500- to 7,500-square-foot range). “But it’s not going to have an incredibly high amount of small spaces,” he said.

Because of concerns with leases, electricity costs and building security, tenants began forming a tenant association in May 2006 in collaboration with the Service Employees International Union, an association that is organizing security workers in New York City. The Empire State Building currently employs both SEIU unionized security workers and outside contracted security workers.

Robert Feldman, an attorney working with the law offices of Laura M. Miranda, which represents some tenants in the Empire State Building, says substandard conditions in one of his client’s office suites rendered the premises “unsuitable” due to extensive construction. The case is currently in litigation.

The tenant association has been distributing leaflets throughout the building that encourage tenants to sue, tenants said.

Joe Sabrin, a tenant with about 1,000 square feet on the 45th floor, said his office space has water damage and cracks running through the walls. Sabrin, who is involved in the tenant association, said his biggest frustration has been a spike in electricity charges: He now pays more than double the bill he paid two years ago. According to Sabrin, management has come in to do assessments on electricity, but he has yet to see a report.

“I’ve been trying to get a response but I have a better chance of the wall answering,” Sabrin said. “They are not pro-tenant.”

After receiving what he says are inadequate responses from management, Feldman has advised some tenants to put their rent into escrow and litigate the matter. But the tenant association may lose that gambit when members who are significantly behind on rent are eliminated during the overhaul, says Malkin.

“Tenants have their rights under their leases,” Malkin said. “No effort has been made to not answer any tenants’ questions. There is no reason for us to do anything but deal with tenants as per their leases.”

Malkin says management for the Empire State Building will deal with any tenant current with his or her rent.

“Historically, the Empire State has had a high rate of turnover with lower-credit-quality tenants that don’t survive long,” Malkin said. Weeding out low credit tenants and those in arrears is, he noted, just part of the renovations.